A litmus test of the Queen's Speech, the foundations of the government's programme for the next five years, must be: "does it help build a vibrant UK economy, in which people and business can thrive". As we put the 2008 financial crash behind us and the UK economy continues to grow we nonetheless enter an increasingly uncertain world of institutional instability, rapid change and global economic fragility. Against this backdrop, a vibrant economy needs to be based on three ingredients: trust and integrity in markets; unlocking the growth potential of dynamic businesses; and creating cities and places across the UK where business and people can thrive. How do the proposals in the Queen's Speech measure up to this?
Unlocking growth in dynamic businesses
Reducing the skills gap is a top priority for dynamic businesses in the UK, who are increasingly reporting skills shortages. Investment in skills is an important ingredient in boosting productivity. Proposals for creating a further 3 million apprentices in the Employment Bill are therefore very welcome. Business will also want to see continued progress on measures started by the Coalition Government to put skills funding in the hands of employers.
The Tax Lock Bill brings some certainty for business over the next 5 years in terms of payroll and VAT administration by preventing rises in income tax, NIC and VAT rates. However, it won’t be until the Budget in 6 weeks that we see what George Osborne's position is in on wider tax; having tied his hands on NIC, VAT and Income Tax we will wait to see if there are changes elsewhere. The Tax Free minimum wage may be a boost for all income tax payers but businesses should bear in mind that the threshold for employer National Insurance Contributions does not change.
The Coalition Government did a lot to reduce regulation for the smallest firms but mid-sized businesses are reporting regulation as an increasing challenge. So the Enterprise Bill to reduce regulatory burdens is welcome. The government is also right to look at the regulators. We are increasingly hearing from our clients that it is the inconsistent or over-zealous application of regulations by regulators and enforcement officials – rather than the regulations per se – that get in the way of growth. It is good to see government is committed to addressing this.
There are two areas where we would like to see the government go further. In order to boost productivity and jobs, we now need to see a greater focus from government on unlocking the growth potential of our mid-sized businesses. Too often mid-sized businesses are treated the same as large corporations; we would like to see government look at exempting more mid-sized businesses from the most stringent regulation. We know that the 17,000 plus pages of the tax code are a major cause of red tape – until now governments have always kept tax out of red tape reductions; it is time that tax rules were included in targets to reduce bureaucracy. We welcome the fact that the previous government took steps to assist mid-sized businesses as regards the impact of taxation by HMRC introducing “event” support for mid-sized businesses. Now is the time to be bold, and to build on these first steps.
Over recent months business confidence has been dented by uncertainty created by the election as well as developments in the Eurozone. A clear election result and stable government has helped restore confidence. Whilst an EU Referendum creates further uncertainty for business at least the EU Referendum Bill will start to provide clarity on the timetable and process ahead. We believe it will be extremely important that the views of the dynamic mid-sized businesses are heard in the EU debate. To date the media has reported on what 'small firms;' and 'big business' thinks but has neglected the views of our agents of growth in the mid-market. Over the coming months Grant Thornton will continue its important work with a further independent survey of mid-sized businesses to help give this important sector a voice in the debate.
Trust and Integrity in markets
Barely half the UK population trust business, even fewer trust the financial sector. Recent high profile corporate failings have raised questions about the value attached to treatment of customers, the public purse, the workforce and even shareholders. Public trust is essential for business growth: to ensure a receptive market for new services and products; for investors to have confidence in the market; to maintain open global markets rather than protectionism; and for talented people to choose to work for private enterprise. Business cultures that encourage long termism, rather than short term profit, are important in making investment on research, skills and innovation that raises productivity.
The proposals in the Enterprise Bill for a Small Business Conciliation Service are a good step to support long term supply chain relationships between large and small firms. There are few other proposals in the Queen's Speech which seek to restore trust and integrity in markets and promote long term approaches to corporate culture. The fact that government is not rushing into legislation in this area is welcome. We need an honest debate about the shortfalls of current corporate culture and reasoned thinking to ensure we adopt the best tools to create more sustainable, productive markets. Arguably a new approach is needed to avoid the unintended consequences of simply replacing 'pursuit of short term return' with 'minimal compliance risk' as the overarching driver of behaviour. It is to be hoped that the business and City ministers in the government will engage in a debate on this in coming months with a view to a longer term programme over the next few years.
Vibrant places where businesses and people can thrive
The Scotland Bill, devolving further powers, should give business some long term certainty in Scotland and the Scottish government the tools to build a vibrant economy. The commitment to implement in full the proposals agreed unanimously by the Smith Commission provides business with a stable agenda; however further uncertainty will be introduced if the Government promises devolution of further unspecified powers in the future; better to agree additional powers now (which could enable a more cohesive set of powers to support economic growth) in a single, conclusive devolution Bill which business can plan for.
The Wales Bill and Cities Devolution Bill are also welcome measures, which have been expected and reflect recent debate. The City Devolution Bill is an inspired, game changing piece of legislation. City devolution has the potential to enable more innovative and efficient public services, joined up and tailored to local circumstances and outcomes, and investment in local economic priorities that can support business growth. Proposals for integrated health and social care should complement this. As well as looking at devolution to major cities, the Government does also need to think about smaller metropolitan areas and London Boroughs. It is these councils, many of which have seen some of the biggest spending cuts to date and Grant Thornton analysis shows have significant financial resilience issues, which could benefit from the innovation and joined up services that greater flexibility or devolution could bring. Counties could also benefit from greater flexibility to support economic growth. The Wales Bill and proposed local government reorganisation provide an opportunity to devolve powers further from the Welsh Assembly to develop the growth agenda throughout Wales and a real chance to develop the burgeoning partnership between the major conurbations of south Wales and Bristol to build a "western powerhouse". Similarly in Scotland there is an opportunity for the Scottish Government to devolve further powers to local authorities to enable them to develop their own approach to creating vibrant communities.
The Right to Buy Bill, extends the right for housing association tenants to purchase their property at a significant discount so it becomes applicable to a much wider tenant base. It will create challenges for housing associations. It will impact on their financial resilience and ability to borrow to build more housing stock and fundamentally challenges their position as independent entities (many of which are charitable), able to protect and maximise the value from their asset base.
There is also a risk that this may create additional financial pressures on tenants, those who take advantage of a great opportunity but who are financially overstretched as a result, especially at a time of changes to the welfare system. An alternative approach would be to look at housing in the context of devolution, and for Government to empower local authorities and housing associations to work together to take local measures to increase the supply of social rent and affordable homes for key workers and families.
Continued investment in Infrastructure is also critical to stimulating growth across the UK and raising productivity. The Government's commitment to legislate for high speed rail links will therefore be welcomed by businesses.
In short this Queen's Speech provides some good measures for building a balanced, vibrant economy. The Right to Buy Bill does raise serious concerns for housing policy which could impact local communities. That is more than balanced out on the plus side with measures on apprentices, deregulation and enterprise, infrastructure and devolution which should all contribute to raising productivity and economic growth throughout the UK. It is not the whole story as the Budget on 8 July will provide an opportunity for the government to set out further ambition and detail on its agenda to boost productivity and help business create more jobs.