Journal column July 14 2015

14/07/2015

by Graham Robb, North East Chair of the Institute of Directors

Senior Partner, Recognition PR

@GrahamRobb

 

Last week’s Budget was a landmark that reset the way in which the Government funds its obligations and set about reducing the size of the state, reflecting the policies it was elected upon.

 

The Institute of Directors has accepted the Chancellor’s deal on higher wages for lower taxes. Introducing a national living wage at a significantly higher level than the minimum wage was a dramatic announcement, but in return, companies have been provided with a cut to Corporation Tax and an increase in the employment allowance. We should not understate the boldness of this move, and many businesses will have been taken by surprise, but the IoD accepts that after several years of slow wage rises, now is the time for companies to increase pay.

 

Nine in 10 IoD members already pay even their most junior staff the living wage, and will accept this deal from the Chancellor.

 

On the economy and the public finances, reducing the deficit is a high priority for businesses. 85% of IoD members support the Chancellor’s aim to run a budget surplus by the end of the parliament, and they back the plans to do this by cutting government spending and clamping down on tax avoidance, rather than raising taxes.

 

The Chancellor announced a higher rate tax threshold, with the point at which people start paying income tax at the 40p rate rising to £43,000 next year. The personal allowance will also rise to £11,000 next year. For too long, wage growth and inflation have meant those on modest incomes have been sucked into tax bands which were not originally designed for them. Plenty of benefits, including the new single-tier state pension, have mechanisms in place to ensure that the payments increase every year, not just at the whim of the Chancellor. It should be no different for tax bands. That is why the IoD is calling for the introduction of a ‘triple lock’ for income tax, where thresholds rise each year by the highest of inflation, earnings or 2.5 per cent.

 

The Chancellor’s decision to cut corporation tax to 19 per cent in 2017 and 18 per cent in 2020,

will cement the UK’s position as an attractive place for entrepreneurs to start up and businesses to invest in. But a fixed Annual Investment Allowance of £200,000 is far too low, and will not encourage medium-sized business to invest. The current temporary allowance is £500,000, and many businesses were hoping it would have been raised even further. A £200,000 fixed limit is not enough to boost productivity by encouraging firms to invest in plant and machinery.

 

Training and skills are critically important in the North East and the announcement of a new apprenticeship levy for larger employers, will act as a spur to all companies to invest in apprenticeships and training or pay the levy. Though the details of the size and scope of the apprenticeship levy have yet to be made clear, the Chancellor has rightly said that those who train apprentices will get back more than they pay in.

 

The Government is right to push for a Northern Powerhouse. Increasing transport links within the North of England is the priority, which is why the debacle at Network Rail is so worrying. Its crippling level of debt must have played a part in the delay to the vital electrification of the Trans Pennine rail line.

 

Of course in all of this there was a stark omission from the Budget and that was any mention of working with North East leaders towards devolution. I have written many times about the opportunity that we have to devolve powers and resources to this region. Other regions know this and are actively engaged with the Chancellor on devolution deals. We have an open goal but our local authority leaders really have to get onto the pitch; they are still arguing among themselves about who will kick the ball! As I, and scores of other people in business, have already warned since the election, we are being put in the slow lane by local authorities that can’t agree.

 

The Budget was mostly good, but the big opportunity it could present to the North East is being be missed because we have not yet taken up the chance to go for proper devolution with the elected mayor. ‘I told you so’ does not sound very constructive but nevertheless it is true and more urgency now needs to be applied to catching up with the more pragmatic parts of the North that are getting the best for their populations.



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