To boldly go: chancellor sets out productivity plans in summer budget

Britain spends and borrows too much with weak productivity indicating paucity in training, building and investment.

This is the opinion of the chancellor George Osborne, whose summer budget outlined intentions to position Britain as a higher wage, lower tax, and lower welfare country.

Speaking in Parliament ahead of Friday’s Plan for Productivity, Osborne said: “This is a big budget for a country with big ambitions…We will be bold in transforming education…Bold in delivering infrastructure. Bold in building the Northern Powerhouse.”

Specific measures outlined today include a change to the main rate of Corporation Tax – cut from 28% in 2010 to 20% – which will undergo a phased reduction to 18% by 2020.

Furthermore, from 2016 businesses will be able to deduct the full value of certain items, including equipment and machinery, up to a total value of £200,000 from their profits before tax, thereby providing full tax relief in the year items are purchased.

An apprenticeship levy on all large firms is expected to help fund the creation of three million new apprenticeships by 2020, with firms offering apprenticeships ‘getting back more than they put in’.

Osborne explained that the new levy has come about in order to confront the large companies “who leave the training to others and take a free ride on the system”.

Commenting on the pledge to create more apprentices Paul Raynes, director of policy at EEF said: “Manufacturers will be sceptical about a training levy, especially as their financial investment in high quality apprenticeships already far outweighs the public subsidy available to them. The chancellor has given welcome reassurance that the levy would only apply to large firms and will be directly controlled by employers.

“We look forward to discussing with the government the best way to ensure every penny raised would be spent on valuable training that employers actually need and want. There will be no tolerance among businesses for re-creating the failed and costly skills bureaucracy of the past.”

Plans to create a Northern Powerhouse also moved forward with cities and counties set to receive more control over local transport. To that end, Transport for the North (TfN) will be supported by £30m in funding over 3 years and will also have more responsibility for setting out policy and investments.

A further infrastructure boost came in the form of a new fund that will derive its income from a new vehicle excise duty levied England which will be used to improve roads.

“It is a major reform to improve the infrastructure and productivity of our economy – and deliver a fairer tax system for the motorist,” said Osborne.

Nick Baveystock, director general of the Institution of Civil Engineers said: “The renewed commitment to the northern powerhouse, and efforts made to identify new ways to fund local roads are encouraging.

“The chancellor is absolutely right; government must be bold in its commitment to infrastructure if the UK is to achieve a rebalanced economy, increase productivity and maintain our competitive edge.”

The chancellor also announced that the Ministry of Defence’s budget will rise by 0.5% above inflation each year to 2020-21 and up to an additional £1.5bn a year will be available by 2020-21 to fund increased spending on the military and intelligence agencies. Similarly, government will meet the NATO pledge to spend 2% of national income on defence every year of this decade.

“We will ensure that this commitment is properly measured, because we know that while those commitments don’t come cheap, the alternatives are far more costly,” said Osborne.

Reaction round-up

“I welcome further devolution in Manchester and the North West and support the £30m funding announcement for Transport for the North with its integration intent and Oyster payment system. Electrification of the Manchester Leeds line remains a local priority and should remain a local political priority too.” Brian Holliday, managing director, Siemens UK & Ireland

“The announcements made at the summer budget provide a positive outlook for UK manufacturing. The more investment and tax breaks within this space, the more stability there is for key industries, such as pharma, medical device, and automation, which, in turn, will also enhance the performances of UK engineering firms. The chancellor should be applauded for fixing the annual investment allowance (AIA) for capital allowances at £200,000.  By establishing a long term rate, this is sure to boost productivity and help leverage the UK at the forefront of the global manufacturing sector.” Earl Yardley, director at Industrial Vision Systems

“Businesses large and small will…also welcome the government giving forward visibility of the phasing of lower Corporation Tax rate as public finances allow. Importantly, a new corporate tax roadmap promised by April 2016 sees the chancellor maintaining good form on giving business visibility about future priorities for reform.” Lee Hopley, chief economist at EEF

“Plans to increase the number of apprenticeships by 3 million via a levy to large companies could also help boost skills. However there is a need for government to show clearly how it will ensure that these apprenticeships will meet the high standards needed in engineering. The government should also look at ways companies can use this apprenticeship levy to support their supply chain and SMEs.” Dr Helen Meese, head of engineering in society at the Institution of Mechanical Engineers