A business environment for rebalancing must be a theme for the Autumn Statement

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In a couple of weeks the Chancellor will deliver his penultimate fiscal announcement of this parliament. The backdrop for the Autumn statement is, at the same, better and worse, than he might have hoped for, with the growth outlook having picked up since the Budget, but the public finances so far failing to follow suit.

The build-up to the general election over the next six months will likely see events such as the Autumn Statement used to covey the Chancellor has a steady hand on the tiller while international waters remain choppy. However, they should also serve as a reminder of the progress still required to meet some key economic ambitions for the UK – particularly the emphasis still needed on rebalancing growth to ensure the UK is more resilient in the face of future downturns and the remaining challenge of deficit reduction.

With these objectives in mind, the business environment for manufacturers planning to invest, recruit and grow should be a target for some actions from the Chancellor in December’s statement. Here’s our top five:

1. More government investment in innovation.

WHAT: The HVM Catapult should see an additional increase in funding now, to keep public and private funding in balance and enable it to expand capacity. The Science and innovation white paper must set also out a long-term funding settlement for Innovate UK that enables it to maintain the breadth and scale of existing innovation programmes.

WHY: Many of the right policy mechanisms and institutions to support innovation are in place, but they must be properly funded to ensure they are sustainable and meeting business needs. Currently, funding for innovation is significantly underweight, particularly compared with some of our key competitors. While the increase in Innovate UK’s budget announced at the Spending Review was welcome, it is not enough. For more info see here.

2. Energy Intensive Industries compensation package implemented ASAP

WHAT: The Energy Intensive Industry (EII) compensation scheme announced at Budget 2014 should be brought forward to the earliest possible date.

WHY: The cost and security of supply of Energy remains an issue for Industry, especially high energy users. The EII package is intended to reduce the cost of UK policy measures for intensive users and for competitiveness reasons they should not be exposed to these costs longer than absolutely necessary.

3. A clear plan for infrastructure

WHAT: We need implementation plans for infrastructure projects currently at the scoping stage, including upgrades to the A303, A14, A590 and A1. Government should also set out a timetable for tackling the rapidly escalating £12bn local road maintenance backlog and reform of the Highways Agency to guarantee the promised three-fold increase in road investment.

WHY: An EEF survey recent showed that a third of companies believe the road network to be ‘poor’ or ‘very poor’ while two thirds believe investment in the strategic road network should be governments main priority. For more info see here.

4. Modernising Business Rates for manufacturers

WHAT: Commit to maintaining the fundamental structure of the business rates system, but introduce more frequent updates to plant and machinery orders, link uprating to an annual average CPI rate and extend empty property relief for industry buildings to 12 months.

WHY: The current structure of Business Rates provides stability and certainty for a sector which is largely owner-occupied and which also sees plant and machinery playing a significant part in the calculation of rateable values. Beneath this fundamental structure there are some changes that should be introduced to provide a more stable environment, particularly for larger manufacturers. For more info see here.

5. A long-term plan for Capital Allowances

WHAT: A thorough analysis of the UK capital allowance regime and how it should develop in future is now needed. This should begin now with a view to the development of a more stable regime by 2016.

WHY: The government temporarily improved the Capital Allowances regime by increasing the Annual Investment Allowance to £500,000 for firms investing before the end of 2015. Thereafter the UK will revert to a capital allowances regime that is again out of kilter with the reality of investment cycles and low down the competitiveness league of OECD countries. For more info see here and here.

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Chief Economist

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