Firms urged to invest in face of tough few months
Rishi Sunak has told business leaders he will cut taxes to encourage them to “invest more, train more, and innovate more” in the fight against global cost pressures.
The Chancellor, addressing the CBI annual dinner, said the next few months “will be tough” and promised that “where we can act, we will.”
Amid mounting pressure to cut taxes and tackle soaring energy and food bills, Mr Sunak said busineses shold “never, ever doubt we are on your side” but he warned that he “cannot pretend” it will be easy to cut the cost of living.
Repeating his message to MPs yesterday, he said: “There is no measure any government could take, no law we could pass, that can make these global forces disappear overnight.”
On the day that inflation was confirmed at 9% and expectations are that will go higher, he added: “The next few months will be tough. But where we can act, we will.”
He is expected to cut taxes for businesses in the autumn and increase allowances for business investment.
Mr Sunak said: “We need you to invest more, train more, and innovate more. In the Autumn Budget we will cut your taxes to encourage you to do all those things.
“That is the path to higher productivity, higher living standards, and a more prosperous and secure future.”
But CBI president Lord Bilimoria urged Mr Sunak to act ahead of the autumn Budget to shore up ebbing confidence and investment.
“Ahead of the autumn Budget, we’ve identified three further bets the Government can make to bolster investment and confidence right now.
“First, let’s get public investment already committed out the door, to accelerate business action. One of the Chancellor’s strokes of genius during the pandemic was the Super Deduction. But it is currently due to be withdrawn in April 2023.
‘The introduction of a permanent successor scheme is of the utmost importance. So, Chancellor, we’re looking forward to working with you and your team on this over the summer
“Second, let’s reassure firms the UK remains one of the best places in the world to do business by regulating for innovation and growth. For instance, by publishing the long-awaited digital strategy
“Third, let’s help strengthen the UK’s lead in the growth markets of the future. For example, in decarbonisation, where we can accelerate our transition to a net zero UK and drive green growth by detailing the investment models for emerging green tech such as Carbon Capture Usage and Storage (CCUS) and hydrogen and by investing in green finance and the green industrial revolution.
“And we must also leverage North Sea production as the UK transitions. Because getting to net zero is not an on-off switch. It is a transition.”
Urgent action on rising prices
An adviser to SMEs is urging businesses to have upfront conversations with clients around the need to increase costs and offset rising costs stemming from surging inflation.
Donald Boyd, head of growth at Azets, says that anecdotally, in the short to medium term margins are holding up, particularly in the B2B sector.
“My message to businesses is that customers are more accepting of price increases in the main as they in turn are passing the increases on.
“However, any price rise is far less forgiving in the B2C sector, where retail and hospitality will be first impacted with reduced discretionary spending by squeezed families.
“We may also see a dash for value as households understandably eschew higher value goods for strong value propositions. Whilst it is of little comfort to SMEs and the public, inflationary pressures are resulting from higher household energy prices and fuel costs rather than anything fundamentally unsound in the economy.
“Businesses should try and hold their nerve until inflation peaks at around 10% or above before starting to fall next year. We also know that many companies pared back to the bone during the pandemic, which subsequently translated into record efficiencies, meaning there may be leeway to retain current pricing without compromising profits as there is a cushion which wasn’t there before.
“Whilst inflation is clearly a pressing issue, the main issue for businesses is the labour market and the lack of skilled workers is clipping wings of the expansion plans of many companies because they cannot scale up without comprising quality. In some ways, this is more of a danger to growth than inflation.”