search
date/time
 | Yorkshire Times A Voice of the Free Press |
4:03 PM 26th May 2022
business
What Is Good For Household Confidence Is Also Good For The Economy As A Whole
Chancellor of the Exchequer
IoD’s Chief Economist Kitty Ussher said:
“Whilst we would of course like to have seen direct help for business energy costs in today’s announcement, we completely understand that the priority should be to address the cost-of-living crisis for vulnerable households. And ultimately, what is good for household confidence is also good for the economy as a whole.
“However, it is still the case that high energy prices are causing huge concern for business leaders. In our own research, around half (46%) of Institute of Directors members state that the cost of energy is having a negative impact on their organisation, up from only 15% a year ago. While today’s announcement is rightly to support households, the Chancellor’s recent decision to do the opposite for business and raise costs further by hiking employers’ national insurance contributions is contributing to a reduction in business confidence in the economic outlook.”
“Whilst we would of course like to have seen direct help for business energy costs in today’s announcement, we completely understand that the priority should be to address the cost-of-living crisis for vulnerable households. And ultimately, what is good for household confidence is also good for the economy as a whole.
“However, it is still the case that high energy prices are causing huge concern for business leaders. In our own research, around half (46%) of Institute of Directors members state that the cost of energy is having a negative impact on their organisation, up from only 15% a year ago. While today’s announcement is rightly to support households, the Chancellor’s recent decision to do the opposite for business and raise costs further by hiking employers’ national insurance contributions is contributing to a reduction in business confidence in the economic outlook.”
Commenting on Chancellor Rishi Sunak’s 'Economy and Cost of Living Statement', Mark Littlewood, Director General at free market think tank the Institute of Economic Affairs, said:
“The worst way to make policy is to oppose something half-heartedly in principle, then procrastinate and finally change position as a result of political expediency. It is painfully obvious that in the battle of ideas, the government enters the arena wholly unarmed.
Rachel Reeves, the Shadow Chancellor, is right to say that this represents a policy victory for Labour. The default setting of the Conservatives now is to respond to virtually any problem by increasing taxes and spending even more money. The appetite and ability of the government to lower taxation or reduce the regulatory burden on businesses is approximately zero. The consequence will be a prolonged cost of living crisis and woefully disappointing economic growth.”
Commenting on measures to ease the cost of living, IEA Head of Public Policy, Matthew Lesh, said:
“The state is not the solution to the cost of living crisis, it is a key part of the problem: planning restrictions that push up the housing costs, cumbersome red tape that make childcare more extensive and tariffs, and quotas that restrict food imports.
“Support measures will help alleviate some of the rising cost of living — though we should question the lack of targeting. The money spent subsidising the energy bills of wealthier households could go much further supporting poorer families.
“Rishi rightly highlighted the importance of supply side reform, but measures on this front are lacklustre. Ambitious regulatory reform is what’s necessary to boost the supply side capacity of the economy and lower prices for consumers.”
Commenting on the Energy Profits Levy (windfall tax), IEA Chief Operating Officer and energy analyst, Andy Mayer, said:
“The partygate deflection tax on energy companies is a mistake. Unplanned, complex and retrospective taxation risks damaging business confidence and investment decisions. Why bother investing in the UK economy if when you make a profit it risks being taken away from you on a whim?
“Relief for billpayers and targeted support are welcome, but could be funded by borrowing or by higher than expected tax revenues.
“Investment incentives are a money merry-go-round, taking with one hand and giving with another, while adding administrative complexity. The incentives will either reward companies for doing what they would do anyway, or have unintended punitive impacts. Generally, it will make the operating environment more complex, unstable and unattractive.
“This sacrifices long-term solutions to the energy crisis for short term headlines and may lead to wider mistrust as other ‘fortunate’ industries fear future surprise taxation.”
Nigel Morris, Employment Tax Director at MHA, believes the government should have gone further to introduce a temporary reduction on National Insurance contribution (NIC) rates and a return to profit-related pay to deliver much-needed relief for families and businesses:
“While the government has lived up to their promise of evolving their response to the cost of living crisis, as demonstrated by a windfall tax on energy companies and the UK’s energy bill grant doubling to £400, a more rapid rethink on taxes and businesses incentives is urgently required to prevent an impending recession.
“Reducing the standard National Insurance contribution (NIC) rate back to 12% and lowering the income tax rate from 20% to 19%, even if only temporarily, would provide some much-needed relief for businesses and families across the UK. As demonstrated by the temporary VAT cut from 17.5% to 15% to tackle the 2008 financial crisis, short-term solutions can be highly effective to introduce vital relief and should be considered in the current climate.
“It’s imperative that businesses are incentivised to boost productivity and invest in new skills to ensure long-term economic prosperity. If the government is reluctant to reduce headline business rates, it should consider reintroducing profit-related pay (PRP) or thresholds where employees can benefit from the productivity and profits of their employer by receiving a set amount of their pay free of tax and NIC. While PRP was first introduced into the UK in 1987, some lateral or good old fashioned thinking might be the key to avoid or at least limit what would be a damaging recession for businesses, families and the wider economy.”
“While the government has lived up to their promise of evolving their response to the cost of living crisis, as demonstrated by a windfall tax on energy companies and the UK’s energy bill grant doubling to £400, a more rapid rethink on taxes and businesses incentives is urgently required to prevent an impending recession.
“Reducing the standard National Insurance contribution (NIC) rate back to 12% and lowering the income tax rate from 20% to 19%, even if only temporarily, would provide some much-needed relief for businesses and families across the UK. As demonstrated by the temporary VAT cut from 17.5% to 15% to tackle the 2008 financial crisis, short-term solutions can be highly effective to introduce vital relief and should be considered in the current climate.
“It’s imperative that businesses are incentivised to boost productivity and invest in new skills to ensure long-term economic prosperity. If the government is reluctant to reduce headline business rates, it should consider reintroducing profit-related pay (PRP) or thresholds where employees can benefit from the productivity and profits of their employer by receiving a set amount of their pay free of tax and NIC. While PRP was first introduced into the UK in 1987, some lateral or good old fashioned thinking might be the key to avoid or at least limit what would be a damaging recession for businesses, families and the wider economy.”
Speaking for the British Chambers of Commerce, Hannah Essex, Co-Executive Director, said:
“The sheer scale of the cost-of living crisis facing the British public means the Government is absolutely right to provide additional support to those worst affected.
“For business, the toxic mix of inflation, raw material costs and supply chain disruption is the flip-side of the coin to the problems facing consumers.
“Unless steps are also taken to ease business costs, they will likely feed into the inflationary pressure on the economy and quickly eat into the financial support announced today.
“A reduction in VAT to 5% on businesses’ energy bills would directly alleviate some of this pressure to raise prices.
“The Treasury must urgently consider the actions set out in our call for an Emergency Budget which would provide a way to break the inflationary cycle.
“If we can ease the pressure on businesses then they can keep a lid on the price rises. Firms will then have the breathing space they need to raise productivity and strengthen the economy.
“But a change of course is needed now. If the government does not act quickly then rising costs will put our economy in a stranglehold.”
On behalf of the CBI Rain Newton-Smith, CBI Chief Economist, commented:
“Helping people facing real hardship amid one of the worst cost-of-living crunches in recent memory is the right thing to do.
“Despite the investment incentive, the open-ended nature of the energy profits levy - and the potential to bring electricity generation into scope - will be damaging to investment needed for energy security and net zero ambitions.
“It sends the wrong signal to the whole sector at the wrong time against a backdrop of rising business taxation elsewhere.
“The Government must work with business on a genuine plan for increasing business investment and get growth going again, particularly in areas like energy efficiency.”
“Helping people facing real hardship amid one of the worst cost-of-living crunches in recent memory is the right thing to do.
“Despite the investment incentive, the open-ended nature of the energy profits levy - and the potential to bring electricity generation into scope - will be damaging to investment needed for energy security and net zero ambitions.
“It sends the wrong signal to the whole sector at the wrong time against a backdrop of rising business taxation elsewhere.
“The Government must work with business on a genuine plan for increasing business investment and get growth going again, particularly in areas like energy efficiency.”