Member Article

Autumn Statement: What businesses in the North East want to see

With George Osborne set to deliver The Autumn Statement, updating the nation on the government’s plans for the economy, we bring you views from across the region. In a Bdaily Long Read we take a comprehensive look at what North East businesses want to see ahead of Budget Day.

So sit back, relax and see what the North East has to say!

Northern Powerhouse

Rob Charlton, CEO of Space Architecture

In the Autumn Statement the Chancellor has to address the effectiveness of the Northern Powerhouse which could potentially be a political PR disaster.

Since the 2015 Budget back in March we have seen the decimation of the UK Steel industry. SSI on Teesside has since closed and now plants in Scunthorpe are facing a similar fate. This certainly doesn’t feel like a Powerhouse.

In his naivety the Chancellor has misunderstood the North. His perceptions were likely derived from the success of Manchester, which has seen a number of unique factors allow it to thrive during the past decade, not least down to strong leadership at a political and business level. Culture, sport and music have also played a part.

The East side of the country has relied on heavy industry such as shipbuilding, engineering and steel making. Many of these industries are globalised and in a developed economy it is difficult to compete.

So what can we do? We need to try something different. This week the government hosted ‘Innovate 2015’ – an annual expo which puts the spotlight on global innovation. Here we saw hundreds of innovative ideas, from technology to engineering through to pharmaceuticals. Much of this development has been supported by government through advice and funding; the event was a huge success and it was fantastic to see so much positivity and entrepreneurship showcased.

The UK and in particular the East coast needs more of this. We have had our period of mourning for our heavy industries. We now need to think positively, look to innovate and bring new ideas to attract investment to the regions. We also need to create centres of excellence filled with positivity and the excitement of moving forward.

We need to be aware of our past but we must look forward, not back. We can’t wait for handouts or support from the South. We need to be focussed on our inherent talents and capitalise on them. We must lobby government to maximise funding and support in the North.

Mike Matthews, MD of Nifco UK

These are times of seismic change for the North East, with the Government’s much-talked-about Northern Powerhouse starting to gather momentum and confirmation that we will indeed have stronger powers locally through the signed off devolution deal for Tees Valley and the North East. The region has much to be excited about. However, the devastating loss of SSI, and threat of job cuts at Boulby potash mine, Caparo steel, TATA and many others, the future of the region’s heavy industry suddenly looks fragile.

The Chancellor’s statement must re-energise a Teesside economy that has taken a body blow over the last few months. Now 2,500 jobs down, more must be done to ensure that the businesses that are here are supported to thrive and create more jobs that can go some way towards rebalancing the local economy. One measure to support could be policy to help North East’s energy intensive industries. The Government’s current energy stance does not favour us, and while we battle other major issues, like the strong pound weakening exports, we’re all tightening our belts as much as we can, but rising energy bills continue to cut deep into our bottom line.

The North East has an incredibly skilled workforce at the disposal of new investors, but energy policy as it stands now does little to support everything else we showcase to entice businesses to our region. This should be addressed.

Gareth Thomas, Managing Director of Icon Plastics

The Chancellor needs to focus on plans that will help sustain the emerging economic recovery, and in particular, measures that can help the North East, which has been hit by devastating job losses in recent months.

The devolution deal for Tees Valley is welcome, but the momentum must be maintained with the announcement of plans that will have a tangible effect on the future prosperity of the area.

New economic strategies must not force up the value of sterling which would have detrimental impact on exporters, which are vital to the UK’s balance of payments. Rises in exchange rates could lead to overseas businesses sourcing products closer to home.

Antony Hall, Partner and Head of Commercial at Mincoffs Solicitors

We want to see the Chancellor delivering on his promise to rebalance the economy in the Autumn Statement; investment and commitment is required to ensure that the ‘northern powerhouse’ is elevated beyond rhetoric. For us in the North East, investment in infrastructure (both traditional (roads and rail) and digital) is paramount.

The Government’s plan in respect of the Universal Service Obligation (which will see internet companies obliged to provide high-speed broadband everywhere in the UK) is a step in the right direction; we need to see more tangible demonstrations of real government commitment to ensure that areas in the UK are not left behind.

Finally, a recent statistic revealed that twice as many SMEs in the North of England have had their overdraft facilities scrapped as their counterpart SMEs in London. To successfully rebalance the economy and stimulate growth, the Chancellor needs to address the funding challenges of SMEs (which are felt most acutely by regional SMEs) both by incentivising traditional lending and by ensuring that alternative finance is accessible to SMEs.

Taxation

Jonathan Willett, a Director at Henderson Insurance Brokers Teesside

It has to be hoped that the Government does not see putting up the Insurance Premium Tax again as an easy revenue raising measure - any rise would have a negative impact on businesses as unlike VAT, IPT is a non-reclaimable tax.

Previously IPT increased at a steady rate from five to six percent, but the 3.5 percent rise, announced in the Budget and which came into force on November 1, was a disproportionate jump of in excess of 50 percent and was very harsh at a time when many businesses are emerging from a tough economic period.

The fear is that the Government could be planning to gradually bring IPT in line with the 20 percent VAT rate, a move already made by other EU member states such as Germany and Holland.

Chris Hodgson, Tax Associate from accountancy practice Tait Walker

It looks like it could be a busy one for advisors in the area of private client taxation. We have a Chancellor who has a £4.4 billion hole in his plans because of the rebuff of the proposed tax credit changes by the House of Lords. His response may be to increase savings in other spending departments, but some of those missing funds may have to come from tax increases.

However he also limited his options by introducing a tax lock which prevents him from increasing the rate of Income Tax or VAT. This leaves George Osborne with other possible areas of taxation to consider, if he chooses to increase taxes, including capital gains tax, inheritance tax and stamp duty land tax.

For capital gains tax, there is speculation that the rate of tax on capital gains could rise from the current level of 28% to 40%. When the 28% rate was introduced it was said to be at a level that would produce the maximum revenue, as a higher rate would discourage the sale of assets, and capital gains tax is only payable if an asset is sold. However the potential taxes that might be generated by a rate increase could be attractive.

The Chancellor may also choose to limit capital gains tax reliefs and possible options in that area could include entrepreneur’s relief as well as incorporation relief, particularly where a landlord is transferring properties into a limited company.

For Inheritance Tax, an increase in the rate of tax would be difficult for a Conservative Chancellor, but again a restriction in reliefs might be in view. For example, the value of farm land has doubled in recent years, and created a market in farm land as an investment asset, but farm land can qualify for 100% relief for Inheritance Tax. A further limitation on the relief available to landlords of agricultural land may be included in the Statement.

Finally for Stamp Duty Land Tax, we now have different regimes for residential property and commercial property and there is also now a separate regime in Scotland. It is not unreasonable to imagine a change to SDLT that is dressed up as a simplification, which happens to increase the revenue generated by SDLT. This could be alongside possible limitations of some reliefs, such as multiple dwellings relief.

Ian Cass, MD of Forum of Private Businesses

The region is in dire need of support, even before the recent crisis in the steel industry, the proportion of business owners in the population was on the wane. To reverse this we want to see an autumn statement based around simplicity, consistency and productivity. Simplicity, through a simpler tax system supported by a flexible, customer-focussed HMRC; Consistency, through a reduction in the cost of employment to counterbalance pension auto-enrolment and the national living wage; Productivity, by making red tape more proportional and giving the North East’s small business community access to universities and academic excellence to drive innovation and performance.

Stuart McKinnon, tax partner at RSM in the North East

Following the Government’s defeat in the House of Lords, we can certainly expect changes to the Chancellor’s original tax credit proposals but this could result in cuts to other benefits such as housing benefit.

Alternatively, reductions in the tax credit changes could be offset by a restriction in the capital gains tax relief on the sale of the most expensive homes. That would be politically well received, redistributive in its effect and of considerable benefit to the Exchequer.

We could also see changes in the tax regime affecting business owners. The £10m of Entrepreneurs Relief currently available is arguably more than generous and a reduction to £5m may be under consideration.

We may also see changes to Business Property Relief. This currently gives an unlimited exemption from Inheritance Tax for the value of a trading business or shares in a trading company on the death of the owner/shareholder. This can exempt large values from 40% inheritance tax and a tinkering of the rules could result in a reduced exemption (say 50%) or the value of the relief being limited to a fixed amount.

In the last Budget, we also heard a lot of noise about the ‘death of the tax return’ in favour of digital filing. While some aspects of HMRC’s digital strategy are known, we are expecting some much needed clarity on what will replace the tax return and what deadlines will apply in future.

George Hardey, Associate and Head of Tax at Waltons Clark Whitehill

The reality is, there is probably very little available in the way of tax boosts in the Autumn Statement. The “Five Year Tax Lock” and the delay to plan to cut the level of Tax Credits may leave a shortage of funds, where expected savings are not going to be made.

We are still in the early stages of the new Government, so some expect George Osborne to ‘get the bad news out the way now’ and make tax increases, in the hope it is somewhat forgotten when the next election comes around.

The focus could, therefore, be on increasing the tax take, particularly through HMRC’s compliance and investigation activity as well as the HMRC’s many voluntary disclosure campaigns, which have been seen as successful.

There will no doubt be continued focus on HMRC’s new digital platform, which needs considerable development before it will be able to handle the level of usage and interaction that will be demanded by the Online Tax Accounts, which are set to replace the current system of self-assessment tax returns.

David Carr, CEO of Gale and Phillipson

“We would like to see the Chancellor help savers in the Autumn Statement. With the Bank of England Base Rate unmoved at 0.5% for more than six years finding somewhere to invest hard-earned cash is a huge challenge for those people in the North saving for a house, retirement or later-life care needs.

“However, the Chancellor’s plans to introduce so called ‘tax free’ dividends worry us and will do little to help savers. The details look unduly complicated and will cause many tax-payers headaches as their tax returns grow ever longer. The new rules also look like they will cause many tax-payers to lose out financially.

“Whatever the Chancellor does, in this low interest environment, it is essential to make sure that the running costs of your portfolio are competitive.”

Entrepreneurship, SMEs & Startups

Carl Swansbury, partner at Ryecroft Glenton Corporate Finance

If the Chancellor is forced to look elsewhere to balance the books, after the House of Lords voted against his plans to cut the welfare budget, he may turn to the business sector and this could have a negative impact on the country’s growth prospects.

The private sector has powered the country’s economic engine and led the UK out of recession. Any new restrictions or increased taxes will hamper further growth. For example, there could be restrictions on when Entrepreneurs’ Relief applies. This may include denying Entrepreneurs’ Relief on the transfer of share to a family member, which could have an impact on M&A activity.

The continuing low oil price may also tempt the Chancellor into increasing fuel duty. However, the suppressed oil price hasn’t been completely transferred to the pumps and businesses operating fleets of vehicles will be hardest hit.

Gillian Marshall, Chief Executive of the Entrepreneurs’ Forum

Start-up and scale-up businesses must receive support from the Chancellor when he delivers his Autumn Statement on Wednesday. We saw from the most recent Government Business Population Estimates that, whilst there was an increase in the number of businesses that employ people, many one-man start-ups have failed to convert into employers. It is vital that there is more visible support available to stop this trend and make it easier for people who start-up on their own to become the employers and wealth creators of the future.

Yvonne Gale, chief executive at NEL Fund Managers

Small businesses are facing additional costs of employing people and creating new jobs over the next few years with the roll out of Workplace Pensions, and the introduction and subsequent ramping up of the new National Living Wage.

Employers are worried about these additional costs and so are concerned over taking on extra staff. Measures that reward employers who create employment would therefore be well received to create a more balanced position for growing smaller businesses.

Keith Newman, Owner of Highlights PR

My concern is the change in rules to dividend payments for small businesses like mine. I take a small salary and if the business makes a profit I pay myself a dividend. Basically I work long hours for little salary but when the business makes a profit that is paid to me as a dividend and that is taxed at a lower rate. The new increased rate would make a lot of businesses think “why bother working so hard?” It’s hard enough being a small business without the prospect of paying more tax.

Amanda Vigar, Managing Partner of V&A Vigar & Co (Darlington) LLP

Red tape is time consuming, costly and overwhelming for many small business owners and, therefore, policies that would reduce this burden would be of real benefit to SMEs.

I also would urge the Chancellor to introduce a HMRC Service Covenant that would put experienced staff back on the front line who can actually answer queries and which has real teeth when HMRC fail to deliver. The HMRC must be made accountable for the extra administrative costs it inflicts on taxpayers. The organisation needs to be dragged into the modern world in terms of communicating with the people it is supposed to serve.

Skills shortages

Richard Deas and Mark Harbottle, SearchBI

A Newcastle IT recruitment firm is urging the Chancellor in next week’s Comprehensive Spending Review to ensure that funding for what are seen as ’high cost’ university subjects such as technology and scientific courses does not drop below current levels in real terms.

It’s vital that investment in these subjects remains sustainable to ensure that there’s a steady stream of qualified, highly educated and talented young people leaving our higher education facilities with the specialist technology skills and acumen that industry and commerce craves and the wider economy urgently needs to sustain growth and expansion.

Paul Stonebanks, Managing director of AIS

It’s been well documented how the UK’s chronic skills-shortages are hampering the productivity and potential growth of UK businesses. Individuals investing heavily in their own career development, which ultimately helps UK businesses and the wider economy, shouldn’t have to pay an additional 20% to the government for the privilege of improving their skill-set. I would like to see the Government taking positive action in the Autumn statement to address this by eliminating VAT on training provision.

Equally I would encourage the Government to cease the significant cuts to the adult skills budget that penalise high quality progression routes and learner development into employment. The Government needs to support high quality training and education – particularly in emerging sectors like renewable offshore energy - to help UK PLC to remain globally competitive.

Environment, Infrastructure and Science

Ben Tansey, director and co-founder of re:heat

In one area of government spending, the Chancellor can stimulate investment, create and protect jobs and reduce greenhouse gas emissions simply by leaving an existing policy untouched. The Renewable Heat Incentive (RHI) was introduced in 2011 to provide financial incentives for non-domestic users to switch from carbon-based heating systems to renewable alternatives such as biomass.

That has enabled businesses large and small, schools, hospitals and housing associations to invest in renewable heating systems with the guarantee of a return on their investment over a 20 year period. The current legislation that underpins the RHI is due to end in March 2016 so our industry is calling on the Chancellor to extend a policy that has social, economic and environmental benefit.

Richard Hogg of Jackson Hogg Recruitment

Spending on infrastructure, especially here in the North East is vital. If our businesses are to grow enough for our economy to catch up with the South of England we need road, rail and air connections with sufficient capacity not only for today, but the capacity cope with the increases in both population and productivity that would come with such growth.

Any news of extra infrastructure spending in the North East would be very welcome. Other potential announcements that employers should look out for are a review of business rates and the creation of more enterprise zones.

Phil Lyons, Business Support Director at InBond

Imperative to our sector is further investment in the road and rail infrastructure as pinch points and congestion restricts economic growth. In addition, greater financial support to incentivise business growth with specialist funds applicable to a wider scope of business sectors would enable the local economy to invest in both infrastructure and resource.

Richard Kirk, CEO PolyPhotonix

I’d like to see the Chancellor make a commitment to increase scientific research funding. Without proper funding, major healthcare breakthroughs and economic growth in this sector will not be possible. Britain’s science budget has been frozen in cash terms for the past five years, well below the level of many of our overseas competitors. A commitment to reversing this trend is vital.

Got an opinion? Why not comment below? As ever, we thank all contributors in supporting business discussion and engagement across the region. Look out for reactions to the Chancellor’s Budget later this week. Submissions to Jamie at jamie.hardesty@bdaily.co.uk.

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