Allie Renison: Sunak wants to link funding to viability. He’s right – but he must help to keep firms viable in the first place.

9 Oct

Allie Renison is Head of Trade and EU Policy at the Institute of Directors.

Emergency government intervention in the market should in principle seek to target endeavours that have fundamental viability – of that, most are agreed.

At the start of the crisis, this principle was rightly balanced against the need to get money out the door quick – every day of delay would have meant jobs lost. As the pandemic has worn on, it was inevitable that the idea of tying support to viability would come into sharper focus. But while the Chancellor is right to tack towards this principle, we need to make sure we are on same page as to what viability means in the current context.

We should not forget the central role the state is playing in curtailing the normal functioning of industries across the piece. From changing advice on working from home to the omnipresent one to two metre social distancing rules, a significant share of the UK economy is currently rendered far less sustainable than it would be in the absence of these changes. This is not about apportioning blame, but raising the longer-term future of the measures underpinning them.

If the rules and guidance are to shift to relax social distancing restrictions, then it is perfectly reasonable to question the viability of business thereafter. If the message is that these constraints are the permanent or long-term parameters through which we should gauge sustainability, then that message needs to be loud and clear. Either way, the basis on which fiscal and non-fiscal support is given to viable businesses should reflect the extent and horizons of government restrictions. As they change, so too should the flexibility and scope of assistance.

In Rishi Sunak’s endeavour to ensure the Government still carries out its “sacred responsibility to balance the books”, he shouldn’t overlook the part that supporting business will have for the economic recovery. Longer-term viability should not be sweepingly sacrificed at the altar of picking losers in the shorter term.

Alongside grappling with this issue of viability, the Chancellor should set out broad-based measures to give UK plc the shot in the arm it needs – particularly as many SMEs have fallen through the cracks of the initial support schemes. Options for these broadly fall into three categories of focus – protecting and creating jobs, supporting adjustment, and spurring investment. While the Treasury may be mulling tax rises in future, the immediate focus should be on minimising the burden on business for the here and now.

Encouraging firms to retain, (re)train and hire workers in the current climate as the furlough scheme winds down and restrictions continue is undoubtedly a challenge. Of the third of IoD members who still had staff on furlough in September, 60 per cent expected to be able to retain three quarters or more of their workers.

For some businesses, Sunak’s new top-up plans will be enough; but plenty of SMEs at the smaller end will find the price of keeping staff too much. Lowering the adapted Job Support Scheme’s employer contribution for non-worked hours could help in this regard, potentially being funded by removing the job retention bonus (less than one in five directors who had furloughed staff said the bonus would help them retain their employees).

Bold action to help as many firms possible not only hold onto but also create jobs is needed – and cutting the cost of employment is the right place to start. Reducing the burden of Employer NICs, either by boosting the Employment Allowance for smaller firms or lifting the threshold for payments, is one of the top three potential confidence-boosting measures among IoD members.

It is a two-for-one that would both support hiring and provide a one-off cash flow boost to business. Meanwhile, providing new tax incentives to help company investment in training – particularly lifelong learning – would also drive the adult re-skilling needed as firms move towards automation and new digital processes to drive productivity.

Facilitating adjustment will be critical to business confidence as the pandemic evolves – whether that’s returning to normal in a safe way, or exploring a new way of doing things.

Many of our members have said that the reason for their reduced office use was that working from home was proving more effective; expanding the scope of R&D tax credits could be an important tool to help more small firms maximise on the potential productivity gains. Tellingly, investment in digital infrastructure ranked as the top director priority for government to prioritise for spurring an economic recovery.

Lifelines such as government-backed loan schemes and tax deferrals are also crucial measures to extend in helping viable companies continue to weather the storm. Expanding local authorities’ discretionary grant finding will also help for a more appropriately targeted response to help temporarily impacted firms and sectors adjust to localised lockdowns.

And finally, it’s important that measures target the regulatory side too. While the Government has extended some emergency insolvency relief provisions, it needs to do the same for suspension of ‘wrongful trading’ liability to allow firms to seek and access finance during the pandemic.

With new figures out from the IoD showing that the business investment outlook stalled in September after a significant rebound over the summer, it’s vital for the Government to bring forward plans to give industry a boost. In addition to broad-based tax reliefs to harness digital and adaptation technologies, the annual investment allowance cap should be extended beyond 2020.

Additionally, to support growth, a business rates holiday could be introduced on the additional charges firms face when improving or expanding or moving into commercial property. Meanwhile, to turbocharge entrepreneurial growth at a time it is desperately needed, the Treasury should ease restrictions for investing in start-ups and scale-ups by making schemes such as EIS and SEIS more accessible.

Business leaders know that tax incentives at a time of already increased public expenditure to support jobs and enterprise will eventually need to be paid for, but taking action now to stimulate the economic recovery will help lessen and spread the overall burden.

Enabling firms to adjust to a changing landscape of restrictions will help protect jobs, while facilitating business investment will help create new ones. It is this interconnection of priorities the Chancellor must now address and ensure business taxation goes in a productive, efficient direction to support viability, before he can start to focus on balancing the books.

Allie Renison: Sunak wants to link business support to viability. He’s right – but he must help to keep firms viable in the first place.

9 Oct

Allie Renison is Head of Trade and EU Policy at the Institute of Directors.

Emergency government intervention in the market should in principle seek to target endeavours that have fundamental viability – of that, most are agreed.

At the start of the crisis, this principle was rightly balanced against the need to get money out the door quick – every day of delay would have meant jobs lost. As the pandemic has worn on, it was inevitable that the idea of tying support to viability would come into sharper focus. But while the Chancellor is right to tack towards this principle, we need to make sure we are on same page as to what viability means in the current context.

We should not forget the central role the state is playing in curtailing the normal functioning of industries across the piece. From changing advice on working from home to the omnipresent one to two metre social distancing rules, a significant share of the UK economy is currently rendered far less sustainable than it would be in the absence of these changes. This is not about apportioning blame, but raising the longer-term future of the measures underpinning them.

If the rules and guidance are to shift to relax social distancing restrictions, then it is perfectly reasonable to question the viability of business thereafter. If the message is that these constraints are the permanent or long-term parameters through which we should gauge sustainability, then that message needs to be loud and clear. Either way, the basis on which fiscal and non-fiscal support is given to viable businesses should reflect the extent and horizons of government restrictions. As they change, so too should the flexibility and scope of assistance.

In Rishi Sunak’s endeavour to ensure the Government still carries out its “sacred responsibility to balance the books”, he shouldn’t overlook the part that supporting business will have for the economic recovery. Longer-term viability should not be sweepingly sacrificed at the altar of picking losers in the shorter term.

Alongside grappling with this issue of viability, the Chancellor should set out broad-based measures to give UK plc the shot in the arm it needs – particularly as many SMEs have fallen through the cracks of the initial support schemes. Options for these broadly fall into three categories of focus – protecting and creating jobs, supporting adjustment, and spurring investment. While the Treasury may be mulling tax rises in future, the immediate focus should be on minimising the burden on business for the here and now.

Encouraging firms to retain, (re)train and hire workers in the current climate as the furlough scheme winds down and restrictions continue is undoubtedly a challenge. Of the third of IoD members who still had staff on furlough in September, 60 per cent expected to be able to retain three quarters or more of their workers.

For some businesses, Sunak’s new top-up plans will be enough; but plenty of SMEs at the smaller end will find the price of keeping staff too much. Lowering the adapted Job Support Scheme’s employer contribution for non-worked hours could help in this regard, potentially being funded by removing the job retention bonus (less than one in five directors who had furloughed staff said the bonus would help them retain their employees).

Bold action to help as many firms possible not only hold onto but also create jobs is needed – and cutting the cost of employment is the right place to start. Reducing the burden of Employer NICs, either by boosting the Employment Allowance for smaller firms or lifting the threshold for payments, is one of the top three potential confidence-boosting measures among IoD members.

It is a two-for-one that would both support hiring and provide a one-off cash flow boost to business. Meanwhile, providing new tax incentives to help company investment in training – particularly lifelong learning – would also drive the adult re-skilling needed as firms move towards automation and new digital processes to drive productivity.

Facilitating adjustment will be critical to business confidence as the pandemic evolves – whether that’s returning to normal in a safe way, or exploring a new way of doing things.

Many of our members have said that the reason for their reduced office use was that working from home was proving more effective; expanding the scope of R&D tax credits could be an important tool to help more small firms maximise on the potential productivity gains. Tellingly, investment in digital infrastructure ranked as the top director priority for government to prioritise for spurring an economic recovery.

Lifelines such as government-backed loan schemes and tax deferrals are also crucial measures to extend in helping viable companies continue to weather the storm. Expanding local authorities’ discretionary grant finding will also help for a more appropriately targeted response to help temporarily impacted firms and sectors adjust to localised lockdowns.

And finally, it’s important that measures target the regulatory side too. While the Government has extended some emergency insolvency relief provisions, it needs to do the same for suspension of ‘wrongful trading’ liability to allow firms to seek and access finance during the pandemic.

With new figures out from the IoD showing that the business investment outlook stalled in September after a significant rebound over the summer, it’s vital for the Government to bring forward plans to give industry a boost. In addition to broad-based tax reliefs to harness digital and adaptation technologies, the annual investment allowance cap should be extended beyond 2020.

Additionally, to support growth, a business rates holiday could be introduced on the additional charges firms face when improving or expanding or moving into commercial property. Meanwhile, to turbocharge entrepreneurial growth at a time it is desperately needed, the Treasury should ease restrictions for investing in start-ups and scale-ups by making schemes such as EIS and SEIS more accessible.

Business leaders know that tax incentives at a time of already increased public expenditure to support jobs and enterprise will eventually need to be paid for, but taking action now to stimulate the economic recovery will help lessen and spread the overall burden.

Enabling firms to adjust to a changing landscape of restrictions will help protect jobs, while facilitating business investment will help create new ones. It is this interconnection of priorities the Chancellor must now address and ensure business taxation goes in a productive, efficient direction to support viability, before he can start to focus on balancing the books.