Charlotte Pickles: Ten million people are at risk of becoming unemployed. They must be Sunak’s priority this week.

5 Jul

Charlotte Pickles is Deputy Director and Head of Research at the Reform think tank.

The Chancellor’s economic statement next week may be his biggest test yet. During the last few days, UK firms have announced 12,000 job losses. John Lewis, Upper Crust, Topshop, Airbus, WH Smith, TM Lewin, Easy Jet, Accenture are just some of the household names cutting jobs. Small businesses will be doing the same; you just won’t hear about them.

This is the start of the wave of redundancies Reform predicted back in April when we called on the Government to extend the furlough scheme and make it more flexible. The Government stepped up then; they need to do so again. The alternative is the worst unemployment crisis since the Great Depression.

Some readers will be sceptical. Great swathes of the economy reopened this weekend. Across the pond, the American economy added almost five million jobs in June, and the rise in the Eurozone’s unemployment rate in May was lower than expected.

At home, Andy Haldane, Chief Economist at the Bank of England, announced that consumer spending had “risen both sooner and materially faster” than predicted, meaning the GDP hit could be half that predicted in May. Very good news indeed.

However, underneath these headline green shoots is a much starker picture. Haldane also says that the labour market outlook is not as encouraging – that unemployment could be worse than the Bank’s May forecast. As in much of Europe, where more than 40 million people remain supported on furlough schemes, we have no idea if furloughed workers will return to work or join the unemployment rolls.

So while it is promising news that the UK economy appears to be bouncing back, it would be dangerously foolish to assume a jobs recovery at the same pace. Indeed, vacancies last week were down 24 per cent on the previous week.

Next month, businesses are required to start contributing to the cost of their furloughed workers. That’s reasonable, over nine million people have had their wages subsidised and the Government cannot continue this £10 billion-a-month support indefinitely – not least as it risks keeping people in ‘zombie jobs’, delaying their move into new roles and damaging the economy further.

But the phasing out of the furlough scheme will trigger more redundancies. Hundreds of thousands of businesses have gone for three months with little to no revenue. The Government’s loans and grants provided a lifeline for many, but social distancing measures and people’s fear of the virus will mean suppressed revenues for some time.

Expenditure will have to be cut if businesses are to stay afloat – half of companies expect to make redundancies in the next few months.

Which is precisely why the Chancellor must use his statement on Wednesday to announce a comprehensive and ambitious plan for averting mass unemployment.

Because while it might be reasonable to see how consumers respond to the further lifting of lockdown before taking a decision on something like a VAT cut – which would be pointlessly costly if the issue isn’t demand – delaying decisions about investment in employment and skills could be catastrophic.

In a new report this week, produced jointly by Reform and the Learning and Work Institute, we estimate that around ten million people are potentially at risk of unemployment. Those at greatest risk are in areas that already had high unemployment, have low qualification levels and are currently in low paid work. In other words, they will be least resilient to losing their jobs. The result of inaction, even delayed action, will be a levelling down.

The Conservative manifesto pledged to undo the decade-long underinvestment in skills; to help workers “train and retrain for the jobs and industries of the future”.

This recession is unique for its sectoral nature, meaning a large number of workers will not only need to find new jobs, but to switch careers. But it is also unique in that the Government has a direct line to those most vulnerable to unemployment – the furlough scheme.

The Prime Minster should deliver on his manifesto promise with a bold offer to anyone on furlough, or in an at-risk sector like retail or hospitality. This should include universal entitlement to funding for a qualification, or modules of a qualification, up to and including level three, as well as online advice and support.

For those needing to change careers, which we estimate will be up to 200,000 people, the Government should provide a £5,000 learning account for accredited training. They should also receive a time-limited, means-tested maintenance grant to help mitigate wage drops as they start over in a new sector. Eligibility could be linked to an individual’s history of National Insurance contributions.

And to incentivise employers both to hire apprentices and career changers, and to pay living wages, the Government should allow firms to use a proportion of their apprenticeship levy to support wages, with an equivalent grant for SMEs.

On Wednesday, the Chancellor must show the same bold thinking that delivered the furlough scheme. Failure to act now could mean mass unemployment with its sky-high social and economic costs. That’s a legacy the Government should do everything to avoid.

Alan Mak: A new tech scrappage scheme will boost productivity

2 Jul

Alan Mak is MP for Havant and Founder of the APPG on the Fourth Industrial Revolution.

In the aftermath of the 2008 financial crash, governments around the world including those of Japan, Germany and the US responded to calls to help struggling car manufacturers by introducing popular scrappage schemes. After new car registrations declined by 30 per cent in the UK in the first quarter of 2009, the schemes saw demand bounce back, while dirty, polluting old cars were consigned to the scrapheap.

Now there is media speculation about a new car scrappage scheme – drivers will be given up to £6,000 to swap their petrol or diesel cars for electric ones – designed to provide a shot in the arm for the UK electric car manufacturing sector in the wake of Coronavirus.

Yet focus should also be given to how the Government could launch a similar scheme to help factories and businesses investing in the latest technology. We must use this period of recovery to press the fast-forward button on helping our businesses to improve their performance by adopting new technologies quickly, accelerating processes that would have otherwise taken many years into a much shorter period.

Just as the Government ushered a brand-new fleet of cars onto our roads a decade ago, a new scrappage scheme should be introduced for old and obsolete IT, tech and machinery. By particularly focusing on the adoption of robotics, it would achieve the dual ambitions of boosting productivity, and giving our businesses the cutting edge in international markets post-Brexit.

More British firms need to follow in the footsteps of innovators such as Ocado, who have created one of the most advanced automated warehouses in the world. Ocado’s newest fulfilment centre uses automation to pick 200 items per hour of labour time using its hive system – far outstripping traditional supermarket competitors.

As the Fourth Industrial Revolution accelerates, for British manufacturers and suppliers to keep up with international competitors, they must upgrade the machinery and software that is powering the workplace.

Yet automation and the adoption of new technology is an area where the UK needs to improve if we are to boost the nation’s productivity and economic growth after Coronavirus. Research published by the International Federation of Robotics shows that the UK has a robot density of 71 units per 10,000 employees – below the world average of 74 units – ranking us 22nd globally. Europe’s most automated country, Germany, has more than 300 units per 10,000 employees.

Whilst the critics will always fear job losses from automation, as we recover from Coronavirus, we can create high-wage employment through robotics. I’ve visited factories, such as Harwin’s manufacturing site near my own constituency of Havant, that have successful re-trained factory workers as high-skilled robot operators. We must rebut trade union leaders and others holding back change and hindering the adoption of new technology.

Just as a car scrappage scheme was brought in to safeguard the car manufacturing industry and protect demand in its vast supply chain, a tech scrappage scheme also has the potential to boost the fast-growing UK tech and robotics sector. Businesses that could benefit include Tharsus, the Blyth-based robotics company that supplies Ocado’s automated warehouse, which is now one of Europe’s fastest growing technology firms.

While individual businesses know the products that are right for them, a tech scrappage scheme can and should promote world class British engineering and high-end manufacturing by creating more demand.

Every UK business could benefit from upgrading technology and IT, but key to the success of the car scrappage scheme was incentivising people into the new car market by making them more affordable. To be eligible, the car had to be at least ten years old and many of those taking part in the scheme would never before have bought a new car. The same must be implemented for a tech scrappage scheme. The Government needs to target the least productive SMEs that have never before invested substantially into the latest robotics, software, automation or information technology.

Research published last year based on a survey of 2000 business owners showed that 46 per cent of small business owners believe technology is more important to their business than people. Just as we incentivised car owners into the market, a new scrappage scheme will give SMEs the confidence to make the tech upgrades their businesses need.

There would be environmental gains too. Just as polluting cars were taken off the road through scrappage, businesses would have the opportunity to replace diesel-fuelled machinery with cleaner and more energy efficient alternatives.

As our country bounces back from Coronavirus, and the focus shifts from health emergency to economic recovery, the Government must continue to focus on not only supporting businesses in the short term but arming our businesses to be ready for the long term impact of the Fourth Industrial Revolution.

Our economic recovery must be both green and digital – a scrappage scheme for IT, tech and machinery achieves both goals.

This is the third in a three-part series on how to boost our economy after Coronavirus.

Alan Mak: Reform capital allowances and R&D tax credits to fire up investment and create jobs

1 Jul

Alan Mak is MP for Havant and Founder of the APPG on the Fourth Industrial Revolution.

Improving Britain’s productivity is key to both our economic recovery after Coronavirus and enhancing our global competitiveness post-Brexit. The best lever for firing up Britain’s productivity is incentivising more investment in the latest IT and software, new plant and advanced machinery – all proven catalysts of growth and efficiency. Failure to direct billions of pounds into these fundamental building blocks of our economy will hold back our recovery.

The State cannot be expected to do all the heavy lifting, especially given the Government’s substantial spending commitments to help the country through the lockdown and beyond. Instead, it must be businesses that take the lead, especially SMEs who have traditionally made up the “long tail” of unproductive companies.

Rather than a safety-first approach of hoarding cash, postponing investment and hunkering down, businesses must be incentivised to invest more in the coming months. This must be an economic recovery powered by bold investment decisions that create jobs, upgrade technology and boost productivity.

The dampening effect on capital expenditure (capex) and investment caused by Coronavirus is already large and destructive. One investment bank estimates that £23 billion has been slashed from this year’s capex budgets already, whilst the Bank of England predicts a 26 per cent drop in business investment for 2020. In 2009, as the financial crisis erupted, the fall was 16 per cent by comparison. Some of the country’s biggest employers such as BP and HSBC have already started cutting investment.

In practice this means IT systems and software – now at the heart of every business – being used for longer. Machines normally replaced every decade will have their life extended. Trucks and vans will be allowed to age. Outdated buildings that offer no room for new employees will be kept on. Research and development (R&D) could stall.

Reductions in investment not only have negative consequences for our country’s GDP, jobs and productivity, it also damages our capacity for R&D and our reputation as a nation that innovates for the future – key to our leadership of the Fourth Industrial Revolution.

Reforming and adapting two existing incentive schemes – the Annual Investment Allowance and the R&D Tax Credit – would have a major impact in reversing this decline in business investment and productivity.

Introduce a new Annual Investment Allowance ceiling for green or digital investments

Capital allowances enable a business to deduct the cost of qualifying items from their profits, lowering their corporation tax bill. This incentivises investment in key productive goods from machines to laptops.

The Annual Investment Allowance (AIA) is the annual cap on such deductions and its level has varied dramatically in recent years from £25,000 in 2012 to £500,000 in 2015. Until December 2018, the AIA was £200,000 but it was raised to its current £1M level from January 2019. The £1 million level is due to expire this December.

To encourage a green recovery and investments that focus on digitisation, the AIA could be allowed to fall back to the previous £200,000 ceiling, except for certain types of capital expenditure that achieve environmental or digital goals which would still benefit from the £1 million special ceiling. Replacing a diesel-powered machine on the factory floor with one powered by electricity, or digitising a production line by adding new software powered by artificial intelligence (AI), could be examples of investment that would be rewarded by the new special AIA ceiling.

Alongside the introduction of a special £1 million ceiling, the scope of what can be claimed through capital allowances should also be expanded to take account of the growing digital dimensions of every business. For example, digital tools purchased on a subscription basis (such as monthly website hosting costs) should benefit from relief not just one-off investments in physical goods (such as buying a new machine).

Increase R&D tax relief rates for SMEs and widen the scope of the reliefs

R&D tax reliefs support companies that work on innovative projects in science and technology, and enables the cost of qualifying projects to be reclaimed from HMRC. They’re especially effective for digital start-ups, who get a tax break and much needed cashflow back for critical work.

From April this year the relief rate is 13 per cent, but the lion’s share of R&D tax relief is claimed by large, research-intensive businesses. SMEs can currently claim up to 14.5 per cent in certain circumstances, but incremental increases such as this do not have a dramatic effect on investment appetite.

Often the most cutting-edge innovation, especially in the digital sphere, is carried out by small teams and growing start-ups – not just multinationals. To encourage more micro businesses and SMEs to pursue more R&D, new and much higher rates of relief should be introduced. For example, a rate of 25 per cent for SMEs with fewer than 150 employees, and 35 per cent for SMEs with fewer than 50 employees.

What qualifies for relief must also be broadened to include more of the digital tools that software developers use, including software testing tools and data analytics software. In addition, cloud storage fees, user experience development work and the cost of buying data sets needed to train algorithms for AI-driven start-ups should also be tax deductible.

Britain is currently 19th out of the 37 industrialised nations in the OECD when it comes to R&D investment, spending 1.7 per cent of GDP against the OECD average of 2.4 per cent. To match world leaders including Germany and Japan, who invest over three per cent, we must urgently update and expand our R&D tax relief regime.

This is the second in a three-part series on how to boost our economy after Coronavirus.

Victory for Conservative Home! Al fresco dining restrictions lifted.

25 Jun

The Daily Mail reports:

“England is set to go al fresco to combat coronavirus as ministers unveil plans to turn streets into outdoor markets and allow pubs to use car parks as beer gardens today.

New laws being published today will loosen restrictions on drinking, dining and shopping outdoors – where the risk of transmission is regarded as much lower.

The Business and Planning Bill, which should be fast-tracked through Parliament in time for lockdown easing on July 4, will make it easier for local authorities to pedestrianise streets to help struggling businesses.”

It adds:

“The focus of the legislation, which will allow outdoor trading without the need for planning permission, is on creating a much more permissive business environment outdoors, where scientists believe the virus spreads much less easily.

Temporary changes to licensing laws will allow many more licensed premises, such as pubs and restaurants, to sell alcohol for consumption off the premises.

Pubs and restaurants will be able to convert outside space such as car parks and terraces into seated areas as well.”

What is not mentioned is the inspiration behind these reforms. Step forward, Nicholas Boys Smith, the Director of Create Streets. Last month he wrote for this site proposing to “allow eating out to mean eating out.”

“Let’s make it far, far easier for shops, restaurants and cafés to trade on the pavements outside their premises. This is possible now – but it’s a bit of schlep. At present, shops or restaurants wishing to make use of the pavement need to apply to their local authority under Section 115E of the 1980 Highways Act. Each applicant must ensure that pedestrians’ rights are not affected, and councils need to consider the width of the pavement, if it is a street where street trading is specifically prohibited, sight lines and whether the pavement is on a public highway or not.”

He concluded:

“The twentieth century killed that richness of street life, and sacrificed our daily freedom of movement. If, climbing collectively out of this crisis, if helping tempt those too nervous to squeeze into cramped restaurants we helped town centres rediscover their true purpose as a place for people profitably to congregate for business and pleasure then that would be a modest silver lining to these strange times.”

So while Boys Smith is to be commended for his proposal being adopted, with all due modesty we also note our own role in ensuring that this came to the attention of the relevant decision makers. It would not have been much use as an idea if it had not been noticed. If a tree falls in a forest and no one is around to hear it, does it make a sound? But as it is, the words passed from Boys Smith’s laptop, to this site, and thence on to the statute book all within a few weeks. It means we have every chance that the streets and squares of our villages, towns, and cities will not feel dead this summer but more alive than ever before.

As you embrace cafe society, remember that it is this website that won you your new found freedom. You will have a greater chance to sit at a table outside a favourite local restaurant and enjoy the sun and fresh air, basking in the low risk of transmission and nodding at passing aquaintances. So raise a glass of Chianti or San Miguel to Boys Smith – and to us.