Britain’s rich regional diversity makes our country an immeasurably more interesting and appealing place. But not all of our intra-national differences are a source of pride. One in particular is the widely varying economic fortunes between parts of the UK. Across a range of metrics, businesses in some regions clearly perform better than average, while those in others fall behind.
To get a better understanding of what obstacles hold back businesses in different parts of Britain, with the support of SME accountancy practice Sumer, we undertook an extensive survey of business owners from every region of the UK. We asked a range of questions to gauge their feelings about the current business climate, discern what hopes (or fears) they have about the coming twelve months, and test their views on policy proposals that could spur future growth.
Maybe it’s simply the natural optimism so many entrepreneurs seem to have, but most business owners are hopeful about the year ahead. Many more expect revenues to increase than decrease (60% versus 15%), and almost half (45%) expect staff counts to grow. With respect to business development, slightly more owners are actively planning to go for growth this year (49%), as opposed to simply keeping things steady (43%).
This sense of confidence doesn’t mean all is rosy, however. Business owners contend with a host of challenges in the course of their day-to-day – we found large majorities agreeing that tax rates are too high, premises are too costly, bureaucracy is too burdensome and exporting is too difficult.
With all this in mind, our report makes a series of proposals. I’ll detail just a couple here, but together they would help address the two biggest issues that business owners told us are stifling their growth – taxes and the costs of premises.
First, high tax rates were singled out by business owners in our survey as the greatest obstacle they face. While Rachel Reeves has sensibly pledged not to increase corporation tax (a stance supported by business owners by a ratio of six to one), fears have emerged that capital gains tax (CGT) is set to rise at the next Budget.
Though there is a logic to bringing rates of CGT and income tax closer together, nobody doubts that this would have harmful economic consequences – not least lowering the expected return to investment or company growth. If CGT is to rise, we urge the Chancellor to accompany such a move with paring measures such as base reform and targeted carve outs to ensure that genuine entrepreneurship does not get overly penalised in the process.
Second, our survey finds that premises costs weigh heavily on entrepreneurs’ shoulders – with two thirds agreeing they are too high. Bringing down these costs can only be done sustainably by increasing supply, and business owners seem to appreciate this fact acutely. No fewer than three fifths of those we surveyed agreed that regulations that prevent construction in towns and cities should be loosened.
Already, the new Government has launched a consultation into reforming Britain’s overarching rulebook for construction, the National Planning Policy Framework. Credit should be given for proposals that have been set out to make it easier to build key commercial assets like laboratories, gigafactories, data centres and freight infrastructure – though let’s hope they’re seen through into law.
Moreover, these policies should not be seen as the final word in delivering more commercial sites. Another factor that reduces the availability of premises which most business owners will be familiar with are business rates – the annual property tax paid by occupants of non-domestic properties.
For over a decade, local governments have had the power to keep up to half of the business rates paid in their jurisdiction. We argue the proportion they can retain should be increased, to better align the incentives councils face when deciding whether to approve more development. Relinquishing revenue streams is often resisted by the Treasury, but mandarins should see the bigger picture, and allow local governments to capture more of the upsides of allowing new construction. (If we were being really ambitious, however, Business Rates should be replaced altogether with a more efficient system – via the adoption of a land value tax.)
Due to Britain’s market-based economy, some degree of divergence between places should always be expected. Indeed, this is a feature, not a bug, of our economic system. Nevertheless, it’s perfectly understandable why recent governments have sought to ‘rebalance’ or ‘level up’ the economy. To avoid making the same mistakes of the past, the new Government should focus on no-regret options that would boost the chances for British firms to flourish.
Businesses across the country are united in their ambition to succeed – it’s high time we give them the opportunity to do so.
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