How To Get Britain Growing
The Labour Party has taken power with a landslide victory not seen since 1997. Now it faces the same challenge that successive governments have struggled to tackle: kickstarting the UK economy.
Current Economic Landscape
The latest ICAEW Business Confidence Monitor (BCM) for Q2 2024 shows a sustained increase in confidence and is now at its highest level for two years. This optimism is driven by expectations of falling input price inflation, which businesses anticipate will support further growth in demand and profits in the coming year.
However, despite increased profits and sales, growth in capital investment and R&D budgets leveled off in Q2 2024 and companies are not expecting to raise their investment in either areas in the short term.
Immediate Problem Areas
The UK has experienced several “once in a lifetime” shocks in the past 15 years so it is unsurprising that businesses are hesitant to invest so soon after recovering. Providing businesses with a stable and predictive environment in which to operate should therefore be a priority.
The country is further hampered by its overly restrictive planning regime. This stringent regulatory framework is in desperate need of an overhaul, since increasingly becoming a bottleneck, stalling the progress of much-needed infrastructure and housing projects.
Confusion surrounding R&D tax credits also continues to stifle innovation. Many businesses find the current system complex and unclear, leading to underutilization of these incentives. HMRC could improve the situation by appointing a panel of external experts to review claims, ensuring consistency and legitimacy while reducing bottlenecks in the system.
Long Term Economic Revival
Earlier this year, the ICAEW released a broader manifesto outlining what it considers to the be the top 7 priorities for a productive, sustainable and resilient UK economy:
Productivity - Make the UK the best place to start, run and grow a business
Skills - Make it easier for workers to gain the strategic skills of the future
Sustainability - Lead on the transition technologies that will power growth
Innovation - Invest in the technologies where the UK can lead the world
Resilience - Ensure public administration is effective to unleash potential
Trust - Secure trust in companies to encourage investment in the UK
Trade - Give the UK’s vital services sector the prominence it deserves in trade
These ideas will take time to implement, but the Labour government has a historic opportunity to reshape the UK's economic landscape and create an environment where businesses feel confident to invest, innovate, and expand.