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Comprehensive Spending Review: business reaction

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The response of the business community to the spending review was largely positive, acknowledging the requirement to tackle the budget deficit.

But questions remained over the absence of a clear strategy for growth.

With some 490,000 public sector jobs to go over the next four years, the onus will be on the private sector to generate additional employment.

For this to happen, some business groups insist that the government must play its part.

“Business has been clear: the deficit must be tackled, no matter what,” said David Frost, the director general of the British Chambers of Commerce (BCC). “The spending review does the job of setting out how this will be done.

“Overall, the review could have been worse for business. While we were disappointed that the government succumbed to political ring-fencing of some spending areas, cuts to productive infrastructure investment were not as bad as many had feared.

“Now that the review is complete, our message to government is that it is now time for a clear strategy for growth – which in turn will give companies, and especially small and medium-sized enterprises, the confidence to invest. Perceptions matter.

“Businesses and government must work together to deliver a real year for growth in 2011. This is the only way that the private sector will be able to take up the slack.”? 

On training, the BCC said it understood that government skills subsidies had to be cut back but urged that the remaining funding be focused on providing people with the skills needed to get into work. Until that happens, UK firms will continue to highlight skills shortages as a barrier to growth.

The BCC also lamented the hit taken by the budget for export promotion. “This should be one of the Government’s top investment priorities, yet the 25 per cent cut in funding for UKTI programmes that deliver direct export support to businesses on the ground is not good news,” commented Mr Frost. “British companies will be left in a weaker position compared to their competitors from other major trading nations.”

On local regeneration funding, the BCC took comfort, amidst the substantial cuts, in the fact that the government is still committed to Tax Increment Financing and that more provisions would be made available to the Regional Growth Fund.

Encouraging small business growth was the main focus of the Federation of Small Businesses (FSB).

The FSB welcomed measures to increase the number of adult apprenticeships by 50 per cent to 75,000 new apprentices a year, as well as the £530 million directed from the government and the BBC to put in place superfast broadband pilots.

However, the business group said it believed that the missing link in the government’s deficit programme is the need to create growth, increasing the tax base, and incentivising small firms to innovate. 

For that reason, the FSB called for an extension to the national insurance contributions holiday to include existing firms with up to four members of staff and to offer incentives when firms take on three new employees.

In addition, the FSB wants to see a cut in VAT to 5 per cent in the construction sector, a cut to £500 million in the business support budget but with a greater concentration on micro businesses, and a business-led national mentoring service.

John Walker, the FSB’s national chairman, said: “We all know we are living in an age of austerity and that these cuts will affect us all. But our members understand that to reduce the public sector deficit, these cuts had to be made.

“The small business community continues to have a vital part to play in driving a credible recovery and taking on new members of staff to help tackle unemployment, so it is now vital the Government puts a programme for growth into action immediately. As our research shows, small firms are at tipping point and lack the confidence to take on the 500,000 people that will be made redundant as a result of these cuts.”

The Forum of Private Business (FPB) highlighted moves in the review to create an even playing field on tax for small firms.

Government cuts include a requirement for HM Revenue and Customs to find savings of 15 per cent via new technology and other efficiency measures, and the FPB backed the reforms providing they save money for small businesses.

Other tax moves include investing £900 million in tackling tax evasion and fraud in order to claw back £7 billion in lost tax revenues.

Jane Bennett, the FPB’s head of campaigns, commented: “Some of the announcements on taxation were welcome, but for too long large companies have been able to exploit tax loopholes.

“This simply has to stop if SME growth and job creation is to drive sustained economic recovery. The government should clarify that, in addition to tackling tax evasion, clamping down on tax avoidance by large companies as well as financial institutions will be in its sights.”

Referring to the decision in the Budget to cut small companies’ corporation tax by a lower margin than large company tax, Ms Bennett added: “At the very least we want to see the lower rate of corporation tax reduced at the same level as the big business rate.

“But even if combined with a shake up of other cost barriers such as red tape and late payment this will not be enough to significantly stimulate small business growth and create the private sector jobs required following the 490,000 lost in the public sector. Bolder, more radical policies on tax and other barriers to small businesses must be introduced alongside these efficiency measures.”

The FPB called for an extension of the national insurance holiday given for the first 10 staff recruited by new start ups beyond a year and giving a similar break to established non-employers.

Miss Bennett also suggested reviewing supplementary business rates and other local taxes in development – such as workplace parking levies – ensuring they are introduced only with support of the local business community.

Richard Lambert, the director general of the CBI, said that the Chancellor had got the strategic direction of the spending review right and had stayed the course outlined in the June Budget.

Mr Lambert continued: “We particularly welcome the extra £2 billion a year on capital spending, and the focus on areas that support growth. These include transport and other infrastructure, education and science, and the low-carbon economy.

“The spending cuts, though painful, are essential to balance the UK’s books and build its future prosperity. Now the government must deliver its promised savings by re-engineering public services.”

On the science budget and apprenticeships, the CBI said: “The 75,000 extra apprenticeships will help re-skill the UK’s workforce, and adult apprenticeships are especially relevant for employers. And welcome the decision to freeze the overall science budget, and the government’s announcement that it will look for ways to improve how various funding streams operate.”