Intelligence Briefing 18th March 2015

Subscribe to Campaigning news feeds

Published

In this issue: Weekly Focus – Budget 2015 | Liberal Democrats first party to commit to an Office of Resource Management | EEF meet with Tony Perkins MP, Shadow Minister for SMEs | In the Media | Week in Review | The week ahead

Weekly Focus: Budget 2015

Overview

  • OBR forecasts for UK growth were revised up for 2015 and 2016, although investment growth is likely to be weaker than previously expected given the challenges facing the oil and gas sector. Troubles in the eurozone remain a key risk.
  • The fiscal outlook has improved a little since the Autumn Statement meaning the budget deficit is expected to fall by £1.3bn more per year than was previously expected. Borrowing is expected to fall in each year and reach a small surplus in 2018-19.
  • The budget measures represent a modest fiscal tightening this year and next, but there was some reprioritisation in favour of taxpayers, savers and industry.

Key measures

Energy Intensive Industries Compensation Package

The Chancellor committed to bring forward the start of compensation payments to Energy Intensive Industries (EIIs) to cover the cost of the small scale feed-in-tariffs. Whilst this additional help is welcomed, it still leaves these sectors at a disadvantage as they will still be exposed to the full costs of the Renewables Obligation.

North Sea taxation

A package of measures were announced to support the UK oil and gas sector. These include a new Investment Allowance; a reduction in the Supplementary Charge from 30% to 20%; a reduction in Petroleum Revenue Tax from 50% to 35%; and £20 million of funding for a programme of seismic surveys to boost offshore exploration.

Annual investment allowance

The Chancellor announced that the Annual Investment Allowance would not return to £25,000 when the current uplift expires at the end of this year, but said that further detail would be announced at the Autumn Statement 2015.

Business rates

The terms of reference for a review of business rates were announced and the review will report by Budget 2016. The Government has announced that the review will be fiscally neutral.

Apprentice funding

The government will introduce an Apprenticeship Voucher, to put employers in control of funding for apprenticeships so they can buy the training provision they need. The new mechanism will be developed and tested with employers and providers immediately and fully implemented from 2017.

Export support

The government announced additional funding for UK Trade and Investment (UKTI) activities in China to ensure that opportunities for British businesses to trade with China are maximised. Funding was also announced for a series of trade missions focused on regional strengths.

Simplification of access to the R&D tax credit

The government announced a series of measures to increase SME uptake of the R&D tax credit, including voluntary advanced assurances for first-time claimants from autumn 2015; new guidance aimed specifically at smaller companies; and a publicity strategy to raise awareness. HMRC will publish a document in the summer setting out a roadmap for further improvements to the scheme over the next two years.

Support for innovation

A number of measures to support innovation were announced including £60 million for the new Energy Research Accelerator and £100 million for driverless car technology.

Northern Powerhouse

The Budget had a number of announcements to build on regional strengths, with investments announced to spur research Forecast review and innovation. A comprehensive transport strategy for the north will also shortly be published.

Despite revising down their forecasts for 2014 – after a weaker than expected Q4 – the OBR has revised up its forecasts for 2015 and into the future, largely as a result of the slump in the oil price seen since December’s Autumn Statement.

businessinvestmentforecast2015 

Deflationary pressures from the oil price are expected to boost real incomes and consumer spending, leading to an upward revision for GDP growth in 2015 and 2016 by 0.1pp and 0.2pp respectively. That said, the upward revision is tempered by the effect of lower oil prices on production and investment in the North Sea.

North Sea investment carries a significant weight in GDP, leading to a 3.3pp downward revision to business investment for 2015. Some of the lost ground is expected to be recovered in 2016, however, with the OBR revising its forecast up by 1.2pp.

Productivity growth also continues to disappoint and whilst the lower oil price should offset this, there is considerable uncertainty surrounding this prediction; and GDP forecasts after 2016 are largely contingent on productivity growing.

The fiscal outlook has improved a little since the Autumn Statement. Net public borrowing is now slightly lower every year than the last OBR forecast and the debt-to-GDP ratio falls a year earlier in 2015-16. The Government has achieved this by a sharper squeeze in public spending through to 2018-19 but dropping the cut pencilled in for 2019-20.

Outlookforpublicfinances 

Liberal Democrats first party to commit to an Office of Resource Management

At its Spring Conference last week, the Liberal Democrats voted through an amendment to its manifesto committing it to set up an Office of Resource Management (ORM), making it the first political party to formally commit to its formation.

EEF has been campaigning for the establishment of an ORM since 2012, and it is a policy ask in our manifesto. It follows EEF research, outlined in last year’s Materials for Manufacturing report, which showed that countries such as the USA, Germany, South Korea and Japan were already implementing strategies to help shield manufacturing industries from resource risks. An ORM could provide greater policy coherence and strategic direction in this space.

The move by the Liberal Democrats follows an event that EEF co-sponsored in Parliament last week to launch a policy paper outlining detailed thinking on how an ORM might function. Speakers responding to the paper included Barry Gardiner, Shadow Minister for Natural Environment and Fisheries; Duncan Brack, Vice-Chair of the Liberal Democrats Federal Policy Committee and Manifesto Committee; and Conservative MP Laura Sandys.

For more information, please contact Susanne Baker, senior climate & environment policy adviser

EEF meet with Tony Perkins MP, Shadow Minister for SMEs

Skills, access to finance and the current state of trade were on the agenda at our meeting with Toby Perkins MP, Shadow Minister for SMEs. Ahead of the Budget and the General Election, EEF took the opportunity to highlight the actions we wanted to see from Chancellor this week and to reinforce our manifesto priorities of increased investment in innovation; pressing ahead with demand-led skills funding and ensuring capital allowance and the R&D tax credit remain predictable and internationally competitive.

For more information, please contact Lee Hopley, Chief Economist

In the Media

There was much discussion in the media in the run-up to the Chancellor’s Budget statement, with EEF’s Budget submission receiving mentions in The Financial Times (£) and BBC News .

EEF’s response to the Government’s announcement of a major review into business rates was reported in The Daily Mail (link unavailable).

The Observer quoted EEF in an article about reshoring the production of washing machines back to the UK.

Week in review

Labour market statistics

Compared with August to October 2014, in the three months to January 2015 the number of people in employment increased by 143,000 while the number of unemployed people fell by 102,000. The ILO unemployment rate stood at 5.7%.

Claimant count unemployment fell for the 28th consecutive month, and the claimant count rate fell to 2.4%.

The week ahead

18th March: Labour market statistics

Online payments are not supported by your browser. Please choose an alternative browser or make payments through the 'Other payment options' on step 3.