With the FTSE 100 ascending to the highest level witnessed for five years last month, you could be forgiven for assuming that Britain’s economic problems are a thing of the past.
However, despite the Footsie seeing its best start to the year since 1989, speculation remains that a triple-dip recession could still hit the country hard in 2013. With that in mind, companies and government are seeking protection of the country’s most valued asset – business growth.
One of the most popular initiatives the government has spearheaded is the long-term plan to reduce corporation tax to 20 per cent in line with VAT payments to increase competitiveness and stimulate spending across the economy.
Although no date for this rate has been set, the government has given the UK one of the lowest company tax rates in the world at 24 per cent, due to drop to 23 per cent in the next fiscal year and 21 per cent in April 2014. This is highly competitive when you compare it with the US (40 per cent), and emerging economies India (40 per cent) and China (25 per cent).
The government has given the UK one of the lowest company tax rates in the world at 24 per cent
Michael Fallon, Minister for Business and Enterprise, has been trumpeting what the government has done to bolster British industry, noting that last year 450,000 new businesses were started – higher than any year on record. However, critics say many of these start-up entrepreneurs have done so out of necessity because of redundancy and/or lack of work elsewhere.
In reaction to complaints from the business community that banks have reduced lending to near non-existence, the government unveiled the funding for lending scheme. Since August 2012, banks could borrow from the Bank of England to lend to businesses at a lower rate, with £4.4 billion borrowed in the scheme’s first two months.
Other initiatives brought in since the credit crunch include the seed enterprise investment scheme designed to offer taxable benefits to investors. Introduced in April 2011, investors pay less tax on any capital gains they make from the company in that fiscal year, with total relief at 78 per cent which includes 50 per cent income tax relief and 28 per cent avoided on the capital gain, although there is a £100,000 cap on returns.
A subsidised mentoring scheme set up by government and delivered by the private sector, the Growth Accelerator, has also been given £200 million. Advice and mentoring is available to companies with turnover of less than £40 million, across the country, with accountancy group Grant Thornton the lead partner taking care of London.
The Growth Accelerator, which started in March 2012, is forecast to create £2.2 billion of economic growth and 55,000 new jobs in five years. The number of companies utilising it jumped to 3,200 by mid-February, up from 2,000 in mid-December.
Sector-specific schemes have also been introduced. Infrastructure, for example, has been given a boost with the introduction of the UK Guarantee Scheme where the government underwrites the risk of the private sector with up to £40 billion available. So far Crossrail and extension to the Northern Line have used this scheme.
“Although large projects are needed, we also need to see smaller projects get off the ground,” says Katja Hall, CBI chief policy director. “Something the CBI would like to see more is housing construction jobs, jobs in the local economy. Good investment would lead to growth in long-term investment in areas, such as road projects; short-term filling in the pot-holes is one example, but it will also create jobs.”
One of the biggest problems with government encouraging growth has been short-termism, however. The British Chambers of Commerce (BCC) believes short-termism is leaving many businesses feeling the government is not doing enough to support growth.
Director of policy at the BCC, Adam Marshall, explains: “Tax breaks have a lifecycle of just a handful of years, National Insurance and stamp duty holidays have all come and gone. Also, companies may not understand all that is available to them which can leave them disgruntled.
“The government needs to get on board at protecting growth and inspire a relentless implementation of strategies across all departments, and become better at raising awareness of the initiatives which are already available.”
There is a raft of tax reliefs and mentoring opportunities available to businesses, but what is needed for a stable economy is for those incentives to be better publicised warns PwC partner and head of tax Kevin Nicholson. “The government needs to raise awareness and make sure initiatives announced are fully initiated,” he says.
The UK’s largest accountancy firm conducted its two-year review of small business and found many firms are not aware of the reliefs available. Although government sentiment is to introduce reliefs to change corporate behaviour, the PwC report found that few took advantage of them because they were not aware they existed.
“The fundamental problem with government is that they are not communicating the plethora of initiatives, which is why we need simplification to see what’s out there and take advantage,” said the Federation of Small Businesses national policy chairman Mike Cherry. Although there are many schemes available more needs to be done, he warns. A freeze on fuel duty rises is top of his list of ways to protect growth.
Another huge issue for the country is the struggling retail sector, which has recently seen major collapses, such as Jessops and HMV, at the start of the year. Pivotal to keeping that sector afloat is tackling the tax on commercial property, business rates. It was announced at the end of last year that business rates would increase 2.6 per cent in April.
“There is no correlation between high-street sales and government-imposed cost rises in five years,” says British Retail consortium taxation policy adviser Dan Morgan. “We need business rates to be more market-sensitive and that cost to be reduced. More needs to be done to help businesses struggling with business rates.”
