Press Release
Five ways the new UK government could help businesses
05 Jul 2024
Following Labour winning the UK general election, Schellion Horn, Head of Economic Consulting at Grant Thornton UK LLP, outlines below five things the new government could do to help businesses.
1. Provide a period of stability, certainty and fiscal prudence
Our Business Outlook Tracker analysis, which monitors optimism in the UK mid-market, consistently shows that businesses want positive economic news but also value stability.
Labour has pledged to introduce a new industrial strategy which will be ‘mission-driven and focused on the future’. Focus on long term economic policy will provide reassurance to businesses and build confidence as certainty is vital to help businesses plan. Simplifying regulatory burden on key areas is also a welcome intention and is likely to be a driving factor for productivity. A clear and predictable regulatory environment is key and Labour’s pledge to hold one major fiscal event a year will be useful, as will the publishing of a roadmap setting out business taxation for the duration of parliament.
For the Labour government, sticking to its pledge of fiscal prudence is key in terms of maintaining stability. Showing fiscal restraint will help to reduce the scale of national debt increases. Considerable additional borrowing could impact the UK’s sovereign rating, which will increase the cost of borrowing for both the Government and businesses. A lack of fiscal prudence could also spook the financial markets, which have factored in Labour’s manifesto pledges. If we move away from the expected, we get uncertainty, which rocks stability.
2. Improve access to capital to free up funds for investment
While our research shows that mid-sized businesses have been outperforming larger and smaller businesses in terms of labour productivity for the past few years, they are still facing challenges in improving efficiency. A lack of funding is the biggest hindrance currently, preventing investment in areas that businesses know will help to improve efficiency and output, such as skills development and employee wellbeing. An expected decrease in interest rates later this year may help ease some of this pressure, eventually reducing debt repayments and freeing up some capital.
In addition, the Smarter Regulation whitepaper, released in May this year, outlined some recommendations that businesses will be keen for the new government to stick with. For example, changing the reporting threshold for mid-sized businesses could save them around £150 million per year if implemented, freeing up funds to invest in productivity enhancing areas.
Labour’s proposed National Wealth Fund, capitalised with £7.3 billion over the course of the next Parliament, if implemented, also aims to boost private sector investment levels. The priority investment areas suggested are: upgrading ports; building supply chains across the UK; automotive industry gigafactories; the steel industry; accelerating the deployment of carbon capture; and manufacturing of green hydrogen.
3. Incentivise investment in skills development
Labour’s plans are based on growth – growing the economy so that there is more to spend on public services. A key part of this rests on skills development (to improve productivity and growth). This focus is good, as the businesses we speak to have a strong appetite for further investment in skills development – with respondents to our Business Outlook Tracker reporting a need for better digital, data and technical skills.
Transformation in skills and training is an essential element of Labour’s Industrial Strategy. The commitment is to work with businesses and training providers to reform the apprenticeship levy to increase opportunities to gain skills, learn and retrain – with a specific focus on young people and older workers.
Government now needs to keep that commitment to work with businesses to understand the types of skills and training that will increase productivity and ensure that the education sector is enabled to deliver this – whether through apprenticeships or other means.
Thought also needs to be given to the role personal taxes play in boosting productivity. This includes how the income tax rates, thresholds and various cliff-edges in the current system encourage (or discourage) work and, as the current non-domiciled regime is replaced with a new residency-based regime, ensuring the UK remains an attractive place to work and live.
4. An internationally competitive tax system that promotes investment
After years of movement on the corporate tax rate, Labour has pledged to cap corporation tax at the current headline rate of 25% (though they do note they will act if that becomes internationally uncompetitive).
But the headline rate is only part of the equation - investment incentives such as full expensing and R&D tax reliefs are welcome. Labour has promised to maintain these, but there is not yet clarity on whether they will continue to consult on extending full expensing to assets held for leasing.
Clarity on business rate reform is also vital, particularly for small and medium-sized businesses. Mid-sized business labour productivity has been outshining other market segments for the past six years but is now being hindered by a lack of funding to invest. An overhaul of the business rate regime could be most beneficial for small and medium businesses if it offers a way to free up funding to invest and drive-up productivity in this market segment.
There is, however, little detail on what a reformed regime could look like, and care will need to be taken in its design to mitigate the risks of unintended consequences elsewhere in the economy.
5. Measures to promote net zero
Businesses can expect a supportive environment if they are seeking to progress their own Net Zero agenda and, more widely, Labour states it “will ensure a pro-business environment, with a competition and regulatory framework, that supports innovation, investment, and high-quality jobs”.
The manifesto indicates the new government will require transition plans to be written for larger businesses and those in financial services. Elsewhere, there is a commitment to introduce a carbon border adjustment mechanism (to limit emissions offshoring) and a widely drawn intention to support businesses from the new National Wealth Fund.
The manifesto also includes a statement that they will “lower bills for good” for families and businesses although there are no details on how this will be achieved – businesses should likely, at best, expect a reduction in the increase of the cost of bills.
