It is no overstatement to say that the UK is facing a productivity crisis and is now in a sustained period of decline. It requires action, which I discussed in a recent meeting with the Exchequer Secretary, Kemi Badenoch MP. If you listened to the Chancellor’s Spring Budget, he has put productivity and skills at the heart of building the UK’s future – a move which we welcome and believe will be key to our country’s recovery.
Why productivity matters
Growth and innovation are critical. In the absence of productivity, higher wage growth will cease, innovation will fade and disposable income will fall leading to fewer jobs and reduced tax revenue to support our public sector.
In April 2019, the Deputy Chief Economist for the ONS stated that it has taken the UK 10 years to reach 2% productivity growth, which historically would have been achieved in a single year. The Office for Budget Responsibility Analysis of the UK economy in the Spring Budget 2021 confirmed that productivity per hour worked in the UK will fall by 0.6% this year.
Productivity is one of the most important determinants of living standards, business health and performance. Since the 2008 financial crisis our productivity has plummeted compared to our nearest neighbours in Europe and, if we continue on this path, it risks us becoming a regressive economy.
New measures to increase productivity
The most important productivity and skills policies include:
- Super Deduction Scheme
From 1 April 2021 until 31 March 2023, companies investing in qualifying new plant and machinery assets will benefit from a 130% first-year capital allowance. Companies will be able to cut their tax bill by up to 25p for every £1 they invest.
The government will extend and increase the payments made to employers in England who hire new apprentices. Employers who hire a new apprentice between 1 April 2021 and 30 September 2021 will receive £3,000 per new hire, compared with £1,500 per new apprentice hire (or £2,000 for those aged 24 and under) under the previous scheme. The government will introduce a £7m fund from July 2021 to help employers in England set up and expand portable apprenticeships.
An additional £126m in England for high quality work placements and training for 16-24-year olds in the 2021/22 academic year. Employers who provide trainees with work experience will continue to be funded at a rate of £1,000 per trainee.
- New National Infrastructure Bank
Located in Leeds, the new bank will invest in public and private projects to finance the Green Industrial Revolution. The bank will be able to deploy £12bn of equity and debt capital and be able to issue up to £10bn of guarantees.
- Help to Grow Scheme – Management
Subsidised 90% by the government and delivered over 12 weeks, this new UK-wide management programme will help upskill 30,000 SMEs in the UK over three years.
- Help to Grow Scheme – Digital
Alongside the management programme of Help to Grow, this new UK-wide digital SMEs scheme will launch in the autumn to help 100,000 SMEs save time and money by adopting productivity-enhancing software, transforming the way they do business. This will combine a voucher covering up to half of the costs of approved software up to a maximum of £5,000, and free impartial advice, delivered through an online platform.
The government will carry out a review of R&D tax reliefs, with a consultation published alongside the Budget. The review will consider all elements of the two R&D tax relief schemes, with the objective of ensuring the UK remains a competitive location for cutting edge research, that they continue to be fit for purpose and that taxpayer money is effectively targeted. The government will consider the possibility of bringing data and cloud computing costs into the scope of relief for R&D.
Putting CIMA proposals into practice
Many of the measures announced in the Budget align with our working agenda on skills and business support with HM Treasury, the Department for Business, Energy and Industrial Strategy, and the Department for Education, including:
- The Help to Grow scheme
- The Digital Voucher Scheme,
- The extension of the job support schemes
- The consultation and review of R&D incentives
- The focus on improving skills through apprenticeships
Although we plan to continue to work with the government to pursue its growth and productivity agenda, we believe that there were missed opportunities in the Budget which could have supported the UK as it recovers from the pandemic.
For example, we believe the government should have put measures in place to help those who have been receiving furlough payments to reskill and upskill. This would give employees the necessary skills to return to work and benefit businesses.
We also believe that the Chancellor should have reduced employer’s National Insurance Contributions as implemented by previous Chancellors to help preserve and create jobs.
Overall, this Budget provides an opportunity to accelerate growth and productivity for all businesses. As we transition to a post-pandemic world, we will continue to work closely with our members, businesses, and the government to ensure that we can successfully tackle the challenges of today and build a lasting recovery for tomorrow.
Find out more about our advocacy wins for the Spring budget here.