Member Article

Autumn Budget 2017: What do North East businesses want to see?

What a week we have ahead. Chancellor Philip Hammond will deliver his first Autumn Budget this wednesday amid the ever-looming spectre of Brexit.

Faced with prosperity pressures, tax travails and Northern expectations at large, the Chancellor has as much to deal with domestically as he does in securing Britain’s future on the international stage.

Moreover, with regular worries persisting at a local level regarding skills, agriculture and insolvency, few will envy Mr Hammond’s position this week regardless of political affiliation!

We’ve gathered a collection of North East business opinion, from an array of sectors, to determine how the region is feeling ahead of the Budget.

Join us in a Bdaily Long Read as we explore just exactly what it is that organisations and companies from the region want to see.

The North East’s future at large

North East England Chamber of Commerce

New Tyne and Wear Metro trains, stronger powers for Tees Valley and more support for regional exporters are three main demands set out by North East England Chamber of Commerce for this week’s Budget.

The Chamber, which represents around 3,000 businesses, urges the Government to deliver a Budget which will help to create North East infrastructure improvements and funding support for businesses.

Jonathan Walker, Chamber head of policy and campaigns said: “If the Government is serious about securing the much-heralded prize of closing the gap between London and other regions, there is major work needed to change the distribution of public and private investment, and economic activity in the UK.

“This is a trend that has built up over several decades. Listening to the calls of businesses in our region is essential to achieve this.

“We need substantially more support for our exporters as the country prepares to leave the European Union. There are too few companies trading internationally while potential new markets remain unexploited.”

The Chamber is also demanding more investment in infrastructure projects including upgrades to Darlington station. It also stressed the need for the reform of Air Passenger Duty which is essential to improve the competitiveness of the region’s airports and support air links domestically and around the world.

Many businesses need finance to grow and the letter to the Chancellor also sets out the urgent guarantees that are needed on the future business finance landscape including the successful JEREMIE programme.

The North East’s future workforce is also of vital importance to the region’s prosperity.

Jonathan added: “Our businesses need a strong pipeline of talent to guarantee future growth. Despite progress in some areas, the quality of careers advice in our region remains patchy at best.

“Government must ensure that schools and colleges have sufficient resources to deliver a comprehensive careers information, advice, and guidance programme; aligned with the Gatsby Good Career Guidance benchmarks that has been successfully piloted in our region, and linked with local employers.”

Tax

KPMG

David Elliott, office senior partner at KPMG in Newcastle, is hoping the Chancellor will keep things simple this week.

He said: “Business is very clear what it wants from tax policy; stability, predictability and competitiveness. In the Budget, the Chancellor must try to keep to these fundamental principles.

“We know from our latest Tax Competitiveness Survey that businesses prioritise long term stability and predictability over low tax rates when comparing the attractions of one jurisdiction with another. Business is facing an uncertain economic landscape, but if policymakers get these fundamentals right then investment and jobs will follow.

“Business values a tax system that operates to a plan. A business tax road map that provides clear direction in terms of policy would not only help business navigate economic uncertainty but also provide a way of measuring progress against specific policy goals.

“In addition, business will be hoping that the Chancellor uses tax policy as a lever for growth and investment in order to maintain the UK’s competitiveness as we approach Brexit. Sticking to the current plans to reduce the corporate tax rate to 17% by 2020 will help but won’t be the whole answer.

“Measures to simplify and improve innovation reliefs would be welcome. So would providing better help for infrastructure businesses which have seen a number of tax policies negatively impact them in recent years. The message for the Chancellor is keep it simple and focus on growth.”

Tait Walker Chartered Accountants

Paul Shields, Business Services Associate Partner at Tait Walker, shares his thoughts on tax ahead of a hopefully ‘incident free’ Budget.

Established in 1937, independent accountancy practice Tait Walker employs 150 staff across four offices in Newcastle, Durham, Tees Valley and Morpeth.

“This should be a relatively quiet and major incident-free Budget. With Brexit looming, businesses need stability, and significant additional legislation won’t aid this.

“I’d like to see continued increases in the personal allowance rates, which would help following the recent rise in the interest rate and mortgage rates.

“I’m hoping for a continued commitment to reduce corporation tax rates, in order to attract inward investment to the UK. I would like to see a cut in stamp duty or removal for first-time buyers, as this could be very beneficial to the UK housing market.

“I do not want to see a further reduction in lifetime pension allowance. To me, the Government encouraging individuals to pay into pensions then introduction a reduction in allowance just feels counter-productive.

“The Government should not reduce tax benefits associated with VCT/EIS investments. Restrictions have already been levied on types of investment that attract the tax allowance. The full removal of tax breaks will reduce the funds available required for start-up investment, which will most certainly be required during Brexit.

“Finally, I hope not to see an announcement of further tax rises on dividend payments. There were significant changes made to taxation of dividends last year, with further cuts due to come into effect in April 2018. This will significantly impact business owners. Any further cuts to tax allowances will affect the viability of UK businesses and place jobs at risk.”

Tech

Sunderland Software City

David Dunn, CEO of Sunderland Software City, believes the Budget could be good for UK PLC’s industries.

He explained: “Whilst there is talk of reduced stamp duty for first time buyers, pension changes and tax avoidance loophole closures I’m more interested in the benefit to SMEs.

“As a prediction, I think there will be multiple, and sizeable, new budgets for industrial innovation. Following on from the recent Made Smarter Review by Juergen Maier I believe the Chancellor will seize the opportunity to spend on what Maier calls Industrial Digital Technologies.

“In the Government’s current vein of thinking I believe this money will come out in a series of competitions to fund projects called out in the report, namely: Digital Research Centres, Digital Innovation Hubs and associated delivery projects.

“This is good, as long as there are continued and sustained budgets – something any UK Government has yet to do well – and a sense of coordination with existing activities and specialisms.

“Additionally, there has been increased recognition over the last year that all industries can benefit from digital innovation and I would be delighted in an Autumn Budget that reflects this.”

Investment to Innovate

Dr Yvonne Gale, chief executive, NEL Fund Managers

“A steady flow of accessible investment capital that can help businesses create new jobs, introduce new products and services, and bring in vital new equipment is the lifeblood of any economy, but there have been worrying signs of late that this flow is drying up in the North East.

“With recent reports highlighting both a rise in levels of financial distress within regional businesses and a fall in the activity levels within the North East corporate sector, we feel there is a real imperative for the Chancellor to take steps towards improving the supply of finance to our ambitious companies.

“Our region has never been short of great business ideas and innovations that have led their originators on to national and international commercial success, and if the North East economy is to maintain the type of sustainable future growth from which we will all benefit, it’s essential that the means of securing this success are fully accessible to our entrepreneurs.”

Robson Laidler Accountants

Robson Laidler Accountants Tax Director Martin Wardle said: “I’d like to see Philip Hammond address the imbalance in structural spending between the North and South.

“We have lagged behind for far too long. Initiatives to focus on innovation would be welcome also. R&D tax credits have been great for those at the cutting edge and if we are to forge a new place for the UK in the world economy post Brexit doubling down on technology and innovation should be a target.”

Martin added: “If we are the people designing and making the robots we won’t need to tax them!”

Insolvency

R3

Neil Harrold, chair of insolvency and restructuring body R3 in the North East and a partner with Hay & Kilner Law Firm, says: “With the latest official figures showing a 15% year-on-year rise in the number of corporate insolvency cases across England and Wales, the need to further improve and reinforce the corporate insolvency framework has never been more pressing, and we would hope to see the Chancellor announcing measures which will support this.

“We have one of the world’s best insolvency and restructuring frameworks, and it helps to attract both businesses and investment to the UK by ensuring companies’ financial difficulties can be resolved quickly and effectively, but reform is clearly required to stay ahead of the competition, especially with so much emphasis being placed on British businesses tackling new export markets after we leave the EU.

“Ideas that have been previously mooted by the government included giving business directors a ‘last chance’ protection from creditors in order to turn their firms around before a formal insolvency procedure becomes necessary, and introducing reforms to ensure struggling companies receive vital continuity of supply from utility providers while they try to resolve their financial difficulties.

“R3 would welcome such changes, with some alterations, as we believe they could make an incredibly valuable addition to the UK’s business landscape by making company rescues more feasible and thus making it more likely that the jobs these firms support can be saved.”

Skills and Apprenticeships

Middlesbrough College

Better funding for education of 16-18 year-olds and an urgent review of the Apprenticeship Levy should feature in the Chancellor’s upcoming Budget, the principal of Middlesbrough College has said.

Zoe Lewis, also chief executive of Middlesbrough College, is one of 140 college principals from across the UK to sign a recent letter to the Prime Minister, Theresa May.

It called on the Government to boost spending on 16-18 education to rebalance a system that Zoe and other principals argue is disadvantaging A Level and vocational students.

Zoe explained: “The national funding rate for 16 and 17-year-olds has been fixed since 2013 at £4,000 per full-time student, and this reduces even further once the student turns 18 to £3,300. This compares to around £6,000 per student in schools and more than £9,000 for students in university.

“Because the rate has been fixed, colleges have had to absorb many extra costs, meaning it’s getting tougher each year to provide a comprehensive curriculum of the kind that equips students with the skills and knowledge they need to take into the workplace.

“The Apprenticeship Levy requires all businesses with a wage bill in excess of £3m to pay 0.5 per cent of that bill towards funding apprenticeships.

“It also asks medium-sized companies to contribute to the cost of training and it is these companies that have reduced their take up of apprentices so far this year.

“There are some great opportunities for employers to benefit from the Levy, but we believe a review of the ten per cent employer contribution is necessary to make sure it is more accessible.”

Paul Goldfinch, Managing Director at Polar Krush

North East manufacturer Polar Krush supplies its sugar-free iced drinks to 3000 stockists nationwide and serves an average of 15 million cups a year. The business is also keen to see a reversal in the apprenticeship levy.

“I would like to see the apprentice levy reversed and companies not penalised for training employees, I could even argue for a tax credit if you take on a certain number of apprentices.

“Capital allowances should be increased and extended; we have invested over £2m in the last 12 months and having to pay tax on that investment, when we could be investing that cash, creating more jobs and creating more tax further down the line through employee salaries for the government would make sense.

“And finally, business rates are a terrible burden on our customers; it keeps getting kicked down the road but it need to be reformed now.”

Property and Development

Barton Willmore

The North East would benefit from the revival of funding to make housing-led regeneration possible.

Planning expert James Hall has called on the Chancellor to use the upcoming Budget to bring back “gap funding” – a form of finance to plug the gap between the cost of development and the sales value of housing in certain areas.

It was used by regional development agency One NorthEast to support mixed developments in deprived areas of the region – prompting jobs growth and commercial investment, alongside housing.

Gap funding is designed to make housing-led regeneration in less affluent areas viable for developers, and therefore encourage improvements to local services and the local environment.

The concept proved successful in helping to bring many housing-led regeneration projects to fruition during the time of the regional development agency.

James Hall, partner at planning and design consultancy Barton Willmore, said: “The North East has plenty of sites that could be regenerated but need the stimulus to make them happen.

“Developers cannot progress where sales values will not allow them to recoup costs so the Government needs to provide support.

“In introducing a similar fund in the Budget the Chancellor could instigate a transformative process in the region.”

Gap funding was originally made available to developers via a grant that either wholly, or in part, bridged the gap between the cost of development and the sales value of the houses on completion.

Currently the Homes and Communities Agency (HCA) offers funding through a rolling loan, a less attractive alternative to the grant format.

In addition, James called on the Chancellor to make further investment in infrastructure and transport across the North.

He added: “In the transport sphere we desperately need investment to modernise the cross Pennine train route – vital for connecting the North East to other economic centres of gravity in the North West.

“Capacity, not necessarily speed, is the important improvement here. East to west connectivity is more crucial to the region than HS2.”

Agriculture

Ryecroft Glenton

Ryecroft Glenton, the Newcastle-based advisory firm, has set out a series of recommendations for the upcoming Budget, which could improve prospects in the North East agricultural sector.

The North East provides 3.2% of the agricultural sector’s contribution to the UK economy, worth £486m, which is under threat from a variety of issues, most notably the UK’s exit from the European Union as well as the Government’s unclear position on Brexit.

To lessen the impact on the agricultural sector, Anthony Main, Director of Business and Personal Tax Planning at Ryecroft Glenton, believes that the Chancellor should introduce a series of measures in this month’s Budget.

This includes a commitment to support the agricultural sector post-2020 together with a clear plan regarding farming subsidies and a programme of broadband infrastructure improvements to help agricultural businesses maximize the use of technology.

Moreover, the firm calls for support for intra-UK trading by reducing fuel duties for transporting British goods around the country and a zero VAT rate for goods purchased by farmers for use in their businesses to improve cash flow.

Mr Main said: “The agricultural sector is a vital part of the diverse North East economy, but faces some unique challenges. Brexit will acutely impact the sector with the potential loss of subsidies and while a commitment has been made by the Government until 2020, beyond that point there is no clear route map for farmers.

“There is also a digital disparity impacting on agricultural business that needs to be addressed. Connectivity and entrepreneurship are directly linked and improvements to the country’s broadband infrastructure shouldn’t be focused solely on towns and cities for tech-based businesses.

“It has to include rural areas where agricultural businesses need to embrace new technology and the internet to maintain their productivity and competitiveness.”

Bdaily will be publishing an Autumn Budget reaction piece following the Chancellor’s announcement on wednesday. To submit your thoughts to be considered for publication, reach Editor Jamie Hardesty at jamie.hardesty@bdaily.co.uk. In the meantime, why not publish your thoughts ahead of the Budget in the comments section below?