Budget 2014

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Budget statements like this one don't happen very often. Usually four years into a parliament we are hurtling towards an election but in 2014 we'll still have another two set pieces from the Chancellor after the statement on March 19th.

That the UK economy is not where we thought it would be at this point in the parliament is not really up for dispute - for example the deficit is coming down, but not as fast as expected in 2010; and growth is picking up, but the better balanced kind is still beyond the horizon. In a speech last week the Chancellor acknowledged some of the challenges the UK economy continues to face:

Britain is not investing enough. Britain is not exporting enough. There are encouraging signs. Both business investment and exports are forecast to grow. But we can't be passive observers of the forecasts.

He noted that the Budget needs to lay the foundations for long-term (economic) security. So what still needs fixing and what should the Chancellor do about it on Budget day?

Energy

For manufacturers in all sectors and of all sizes the cost of energy has become the most uncompetitive aspect of the UK business environment. Taxes which push up the price of energy, such as the carbon price support, are unilateral measures which UK-based manufacturers cannot pass through. This must be addressed next month. EEF proposes a three-pronged attack on rising energy costs.

  1. Freeze and then reduce the cost of the unilateral Carbon Price Floor– which was introduced last year as a tax on greenhouse gas pollution to encourage investment in low carbon generation. EEF estimates that the tax on its own will account for almost 10 per cent of a large industrial user's electricity bill by the general election next year. Industrial consumers in Europe are already paying significantly less carbon tax compared to the UK.
  2. Shield vital energy intensive industries, like steel and chemicals, from excessive UK energy policy costs by addressing the costs of the Renewables Obligation and Small Scale Feed in Tariffs which add an additional hefty 15 per cent to the bill of a steel company operating in a globally competitive market.
  3. There should also be a commitment to extend all the measures in the current EII package for as long as is required, up to and possibly beyond 2020/21.

Banking, skills reform - you've started, so you'll finish?

For manufacturers considering new investments or expansion in the UK, there needs to be confidence that important reforms to, for example banking and education, don't simply fizzle out as we head into an election. Progress not only needs to be made on increasing competition in SME banking, but progress on improving relationships between banks and businesses must be more transparent.

And critically for a sector that is demand ever higher levels of skills - there must be some light at the end of the talent pipeline.

In this Budget and the Autumn Statement and the Budget after that there has to be a clear agenda on rolling these important reforms forward. Next month this must start with:

  1. Government should set out metrics on the outcomes it expects the banks to be delivering to their customers as a result of the appeals process. These metrics should include not only survey-based measures of awareness, but also indicators of the impact on the demand for finance among discouraged groups.
  2. Following the introduction of the switching service there should be regular reviews of progress on encouraging switching, particularly amongst business customers and whether further incentives, such as a rebate that matched the cost savings made by switching (up to a ceiling or for a limited time), are also needed.
  3. With the Business Bank becoming established as a formal institution it must clearly articulate its role in the market. We strongly support the recent recommendations from the National Audit Office and the subsequent review by the Public Accounts Committee into access to finance for small and medium-sized enterprises, including the outcomes the Bank's interventions are seeking to achieve, and the objectives of individual schemes and evaluation measures.
  4. Government should look to the Apprenticeship Trailblazers to build on their work to develop into Industrial Partnerships, to take end-to-end responsibility of the skills system. Trailblazers should also be used to give a better approximation of the cost of delivery.
  5. Having committed to routing funding through the employer, government must state the proportion of training costs that will be publicly funded in the future. Employers need certainty and stability if they are to make significant investment in Apprenticeships. Only then can there be informed consultation to devise and develop a funding mechanism that is accessible to companies of all sizes. To be sustainable it is essential that we get this model right.
  6. Funding specifically allocated to engineering companies, as recommended in the Perkins' Review of Engineering Skills, to help meet their skills needs must be accessible to all, particularly SMEs. Thresholds should be realistic, reflecting genuine training budgets and collaboration between SMEs should be encouraged.

Under review

Continued action on energy, access to finance and skills would provide an important signal to manufacturers that government will continue to pursue a policy agenda that ensures the UK business environment is supporting the competitive ambitions of companies looking to invest and grow.

Looking to the 19th March and beyond there remain some key policy areas that are a drag on the UK's competitiveness, particularly for capital intensive companies. The extension of tax relief for new investments in plant and machinery through the Annual Investment Allowance should also have been a positive spur to investment plans. However, this additional relief will only extend until the end of 2014 and as the Chancellor said we can't be passive observers of the forecasts. If business investment growth continues to fall short of expectations there will be a case for extending the additional relief further.

Author

This person has now left EEF. Please contact us on 0808 168 1874 or email us at enquiries@eef.org.uk if you have any questions.

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