Ahead of the Budget announcement, leading business and financial adviser Grant Thornton UK LLP, which has its East Midlands regional office in Leicester, has set out its key policy recommendations to enable the UK’s dynamic mid-sized business* (MSB) population to continue powering the British economy.
The firm’s most recent Business Confidence Monitor with the ICAEW for January shows that despite strong economic growth during 2014, UK business confidence fell for the third consecutive quarter. The report revealed that in the East Midlands the BCM Confidence Index stands at +24.3 down from +45.5 earlier in 2014. Confidence nationally is now below the +37.7 reading for December 2013, but unemployment levels are falling faster than anywhere outside London, which has boosted consumer spending and therefore domestic sales in the area.
Grant Thornton’s Agents of Growth analysis suggests that further measures to promote growth and productivity in MSBs could add an additional £50 billion to the UK economy by 2020.
In the East Midlands, the firm produces its East Midlands Top 200 Report in partnership with the CBI, which focuses on the performance of the region’s MSBs by identifying the region’s fastest growing businesses based on the percentage increase in their annual profits.
Considering the findings of each of these reports, Grant Thornton strongly believes that the UK’s MSB population holds the key to unlocking significant growth across the UK economy, and has written to the Chancellor of the Exchequer to prioritise the five areas for business growth – exports, skills and training, regulation and administrative burdens, support in the Regions, and access to finance. Trevor Shaw, Business Tax Director at Grant Thornton’s Leicester office, explains:
Exports
The latest ONS figures show that the UK’s trade deficit widened last year to £34.8bn – the widest trade gap since 2010, largely driven by a steep fall in UK exports.
“According to Grant Thornton’s most recent East Midlands Top 200 Report, the fastest growing manufacturing businesses in the East Midlands that do export have increased their export levels in recent years with sales overseas representing 74% of total sales. Assistance for businesses to commence exporting or to export to new territories is to be supported,” says Trevor.
In its Autumn Statement submission, Grant Thornton set out proposals for a tax relief for the initial costs of researching and entering a new export market. The firm would welcome the launch of a Treasury consultation on this idea, which now has widespread support from a significant number of business organisations including CBI, Forum of Private Business, Institute of Directors, British Chamber of Commerce and ICAEW.
Skills and training
UK businesses reported increasing skills shortages in the most recent Grant Thornton/ICAEW Business Confidence Monitor.
Trevor explains: “The findings are consistent with the picture in the East Midlands, where its fastest growing businesses have identified finding appropriately skilled workforce to be a real barrier to the future growth and development of their business. The apprenticeships schemes are helping, but can be restrictive in developing the right additional skills for the existing workforce, especially where employees require a broad range of skills to meet commercial requirements. The development of more flexible and supportive training schemes will be good for both business and local educational establishments.”
Grant Thornton welcomed the Chancellor’s announcement in the Autumn Statement of an exemption from employer’s National Insurance Contributions for apprentices under 24 years old; but would now encourage the Treasury to extend this further, to apprentices of all ages, in order to further stimulate employer investment in training. The firm also supports the government’s continued commitment to give employers direct control of apprenticeship funding and would welcome further progress in implementing this at Budget.
Regulatory and administrative burdens
Grant Thornton’s Agents of Growth research found that regulatory burdens are now seen as the biggest barrier to growth by mid-sized businesses and 43.5% of MSBs reported that meeting regulatory requirements would be more of a challenge this year than 2014.
“MSBs are running the risk of being choked or tied up in red tape so that they spend far too much time completing administration rather than focusing on the priorities of growing and developing the business,” comments Trevor. “These MSBs accept that some red tape is required, but not everybody is a multi-national with lots of administrative staff to meet these requirements. Over 97.5% of businesses in the East Midlands Top 200 last year had turnover of less than £500m and over 32% of these had turnover in excess of £25m.”
The firm believes that the Office of Tax Simplification (OTS), which the Treasury set up in 2010, has played an important role and it strongly supports the recommendations of its review on the competitiveness of UK tax administration. Grant Thornton urges the Chancellor to commit to rapid implementation of all the OTS recommendations, including on raising the thresholds for transfer pricing and for quarterly instalment payments. It would also encourage government departments to stop treating all businesses with turnover above £25million as ‘large businesses’ for the purpose of new regulatory requirements, such as the new reporting requirements currently being introduced by the Department for Business Innovation and Skills.
Regions – the East Midlands
“The East Midlands is a dynamic region,” says Trevor, “but does require additional investment in infrastructure, including HS2 connectivity, and the devolution of power to local cities is important as demonstrated in Northern England, Yorkshire and Humber, where business confidence held steady according to the Business Confidence Monitor.”
Grant Thornton would welcome further commitments to empowering city regions, particularly on transport and skills and further consideration of business rates.
Access to long term growth finance
In the latest Grant Thornton International Business Report survey, only 8% of UK businesses pointed to access to short-term finance as a potential constraint; the lowest amongst global economies surveyed.
According to Trevor Shaw, many businesses in the East Midlands are struggling to find the right type of strategic finance to help them develop: “Although many companies have been paying down debt, some are looking for strategic finance to enable them to take the next step forward but finance can be difficult to find, especially where a business’s main assets are Intellectual Property and intangibles rather than bricks and mortar.
“The firm believes the government is right to focus on longer term growth capital, rather than short-term finance, and welcomes proposals for a new ‘Help to Grow’ initiative by the British Business Bank. Grant Thornton would also recommend a consultation on promoting corporate venturing, as also supported by Policy Exchange, RSA, BVCA, Social Market Foundation, COADEC and Centre for Entrepreneurs.”
“Ahead of one of the most hotly contested and unpredictable General Elections in modern memory, the Chancellor has a unique opportunity to set in motion policies which will enable the UK’s crucial business constituencies to grow the economy in the years ahead – irrespective of who wins the election,” says Trevor. “Policies aimed particularly at the UK MSB population – such as the recently announced ‘Help to Grow’ scheme to develop a ‘UK Mittelstand’ – are indeed commendable; yet more can and should be done to further engender a UK business environment fit for purpose in the long term. This includes not only enabling superstar high-growth companies to shine, but also recognising the crucial role played by its oft-overlooked mid-sized businesses which have kept the economy ticking in the downturn and are now re-establishing Britain as an international business hub.”
Grant Thornton’s Leicester office provides business and financial advice across Corporate and Personal Tax, audit and assurance, employer solutions, corporate finance, and sustainability, to organisations across the East Midlands.
