In its Programme for Government document, the Coalition stated that business is the ‘driver of economic growth and innovation’. Promoting business in the economy is central to the deficit reduction strategy. However, although the Government has aimed to cut red tape, rebalance the relationship with the regions and promote SMEs, sustained economic growth continues to prove elusive.
Despite the gloomy economic outlook, the Government’s regulatory reforms have been broad and ambitious. In terms of implementation, this is an area of business policy where real progress has been made. The Better Regulation Executive has coordinated a number of key reforms including: imposing sunset clauses on new legislation; introducing a ‘one-in, two out’ rule for new legislation; and opening sector-specific public consultations on deregulation under the guise of the ‘Red Tape Challenge’. Despite this, the Government and the Business Secretary find themselves in a difficult position with their hands tied by the constraints of coalition. Whilst the Tory right have called for further deregulation and supply side measures, some Liberal Democrats and the opposition Labour Party have condemned what they perceive to be an ideological zeal to cut red tape and slash workers rights.
The Coalition has been keen to capitalise on the falling pound and the opportunities for UK exporters that this presents. Given that just under half of the UK’s exports are to the Eurozone, where demand is dwindling, the Government has looked to promote business further afield with trade delegations to BRIC economies which have allowed SMEs to boost their profile abroad. It has also looked to promote SMEs domestically with an increase in Research and Development tax credits designed to foster greater innovation, and by promoting Supply Chain Finance to improve companies’ access to credit.
Further rebalancing has already taken place as the Government continues to boost private sector growth. It has looked to revitalise the regions with the creation of Local Enterprise Partnerships. Most notably, it will adopt Lord Heseltine’s recommendation – outlined in his report, No Stone Unturned – to provide a single funding pot, hived off from Whitehall, from which Partnerships will be encouraged to bid for funds based on the credibility of their business plans.
With the Office of Budget Responsibility’s growth forecast cut to 0.6% for the year (rising to 1.8% in 2014), many within Government, including the Business Secretary, have advocated an increase in capital spending in order to boost demand in the economy. The business community will, however, be encouraged by the Chancellor’s announcement that he will be holding firm with his Corporation Tax pledge to bring the rate down to 20% by 2015 (it was 28% at the time of the election).
This Government has prioritised rebalancing the economy, promoting exports and fostering innovation with a reasonable level of success at the mid-term stage. Yet despite its reforming zeal the conditions for business in the UK remain volatile and the Government faces a stern test in boosting productivity and output.
Progress against the Coalition Agreement
Pledge: We will cut red tape by introducing a ‘one-in, one-out’ rule whereby no new regulation is brought in without other regulation being cut by a greater amount.
Status: Done – The Government introduced the ‘one-in, one-out’ regulation principle in 2011, reporting savings of £1bn across central departments during that period (as verified by the Regulatory Policy Committee). This was then replaced in January 2013 with a ‘more ambitious’ ‘one-in, two-out‘rule.
Pledge: We will end the culture of ‘tick-box’ regulation, and instead target inspections on high-risk organisations through co-regulation and improving professional standards.
Status: In progress – The Government’s sector-specific regulatory reviews are currently underway through its Focus on Enforcement programme. The Department of Business, Innovation & Skills also established the Better Regulation Delivery Office which has been overseeing the extension of Primary Authority partnership schemes. These allow businesses operating across local council boundaries to become recognised by a single local authority in areas relating to environmental health and trading standards regulation.
Pledge: We will impose ‘sunset clauses’ on regulations and regulators to ensure that the need for each regulation is regularly reviewed.
Status: Done – The Government has already introduced sunset clauses in over 130 pieces of secondary legislation introduced during this Parliament, specifically those affecting business. The Enterprise and Regulatory Reform Bill, currently undergoing its passage through Parliament, will legislate to streamline this process when it receives Royal Assent this year.
Pledge: We will review IR35, as part of a wholesale review of all small business taxation, and seek to replace it with simpler measures that prevent tax avoidance but do not place undue administrative burdens or uncertainty on the self-employed, or restrict labour market flexibility.
Status: In progress – The Office of Tax Simplification was tasked with the review of IR35 (the legislation covering ‘disguised employment’) and concluded that it should be retained to avoid a shortfall in revenue. Nevertheless, the Government has restated its aim to introduce simpler anti-tax avoidance measures by strengthening specialist teams within HM Revenue & Customs.
Pledge: We will find a practical way to make small business rate relief automatic.
Status: Not achieved - The Government removed the legal requirement for ratepayers to submit an application form for relief through the 2011 Localism Act. However, local councils now have responsibility for administering the scheme. The Government has therefore delegated the task of automating the relief to local authorities.
Pledge: We will reform the corporate tax system by simplifying reliefs and allowances, and tackling avoidance, in order to reduce headline rates. Our aim is to create the most competitive corporate tax regime in the G20, while protecting manufacturing industries.
Status: In progress - The UK currently has the fourth lowest corporate tax rate in the EU at 24%. The Government’s intention is the gradual reduction of the rate from 28 per to 20 per cent by 2015, as was reiterated at the 2013 Budget. The road map for the simplification of the tax regime is outlined in the HM Treasury policy paper, Corporate Tax Reform: Delivering a more competitive system.
Pledge: We will seek to ensure an injection of private capital into Royal Mail, including opportunities for employee ownership. We will retain Post Office Ltd in public ownership.
Status: In progress - The Department for Business, Innovation & Skills has declared its intention to privatise the Royal Mail Group, valued at up to £3bn given recent re-evaluations, by 2014. Although all courses for privatisation strategy are still up for discussion, the Government has already started tendering for a syndicate of banks to advise on a possible stock market floatation of the Group, with appointments to be made by the end of May 2013. BIS Ministers have stated that at least 10% of shares will be handed to employees, whether it be free or at a discount. This is now a possibility given that Royal Mail and Post Office Ltd were legally separated in April 2012, the latter set to remain under full public ownership.
Pledge: We will seek to ensure a level playing field between small and large retailers by enabling councils to take competition issues into account when drawing up their local plans to shape the direction and type of new retail development.
Status: In progress – With regard to developing local plans to shape retail development, the independent Portas review recommended that: local authorities should use their new discretionary powers to give business rate concessions to new local businesses; large retailers should support and mentor local businesses and independent retailers; and, retailers should report on their support of local high streets in their annual report. The Government is yet to legislate on these recommendations.
Pledge: We will give the public the opportunity to challenge the worst regulations.
Status: Done – The Coalition provided the public with this opportunity in the form of the Red Tape Challenge. To date it has committed to abolish or reduce 3,000 out of 6,500 regulations. It has identified 1,500 of these as financially beneficial to business.
Pledge: We will review employment and workplace laws, for employers and employees, to ensure they maximise flexibility for both parties while protecting fairness and providing the competitive environment required for enterprise to thrive.
Status: In progress – The raft of reforms to employment and workplace regulations are currently included in the Enterprise and Regulatory Reform Bill. Once it receives Parliamentary approval the legislation will: facilitate employment tribunals; facilitate the early resolution of workplace disputes; and, encourage early resolution of workplace disputes.
Pledge: We will make it easier for people to set up new enterprises by cutting the time it takes to start a new business. Our ambition is to make the UK one of the fastest countries in the world to start up a new business. We will reduce the number of forms needed to register a new business, and move towards a ‘one-click’ registration model.
Status: In progress - The Government’s progress on this pledge is lacking. While HM Revenue & Customs have developed a joint filing service for company accounts to streamline filing requirements, little progress has been made in moving towards a ‘one click’ registration model. However, the take-up in the use of its ‘Taking on an employee’ tool has been encouraging since it was created in April 2012.
Pledge: We will end the ban on social tenants starting businesses in their own homes.
Status: In progress – While the former Housing Minister Grant Shapps has urged council and housing association landlords to encourage social tenants to work and set up businesses from home, little progress has been made since the Government’s publication of The Home Business Guide in May 2012.
Pledge: We will promote small business procurement, in particular by introducing an aspiration that 25 per cent of government contracts should be awarded to small and medium-sized businesses and by publishing government tenders in full online and free of charge.
Status: In progress - The Parliamentary Secretary to the Cabinet Office, Chloe Smith MP, announced in February 2013 that departmental SME spend for 2011/12 increased from £3.2bn (6.8%) in 2010/11 to £4.4bn (10%) in 2011/12.The Government therefore remains some way off its target of 25%. Departmental spend data is also now available online.
Pledge: We will consider the implementation of the Dyson Review to make the UK the leading hi-tech exporter in Europe, and refocus the research and development tax credit on hi-tech companies, small firms and start-ups.
Status: Done – The Government increased the R&D Tax Credit – which applies to SMEs and high tech companies – to 225% in April 2012. It has also published the Innovation and Research Strategy for Growth which considers the recommendations of the Dyson review. Consequently it announced the launch of both the Small Business Research Initiative and the UK Centre for Challenge Prizes.
Pledge: We will review the range of factors that can be considered by regulators when takeovers are proposed.
Status: Done – The Government has undertaken its review of the UK Takeover Code. It amended restrictive measures such as break fees and non-solicitation agreements.
Pledge: We will reinstate an Operating and Financial Review to ensure that directors’ social and environmental duties have to be covered in company reporting, and investigate further ways of improving corporate accountability and transparency.
Status: In progress – The Government will legislate to improve directors’ reporting in October 2013. The legislation and the measures that it will include has not yet been specified.
Pledge: We will ensure that Post Offices are allowed to offer a wide range of services in order to sustain the network, and we will look at the case for developing new sources of revenue, such as the creation of a Post Office Bank.
Status: In progress – The Government has been rolling out its new local model of postal branch models, an initiative to modernise at least 11,500 branches. The Business, Innovation & Skills Committee however has voiced concerns with regards to the deficiencies of the staff training programme and the inflexibility of the proposals. With regard to increasing services in branches, the Government is currently working to secure new sources of revenue through a more diverse offering of financial services.
Pledge: We will end the so-called ‘gold-plating’ of EU rules, so that British businesses are not disadvantaged relative to their European competitors.
Status: In progress – Having stated in the Coalition Agreement that it would end the ‘gold-plating’ of EU rules, the Government’s review of the Guiding Principles has found little evidence of the above despite its statement of intent.
Pledge: We will support the creation of Local Enterprise Partnerships, LEPs, joint local authority business bodies brought forward by local authorities themselves to promote local economic development, to replace Regional Development Agencies,RDAs. These may take the form of the existing RDAs in areas where they are popular.
Status: Done – The Government can claim to have supported the creation of 39 LEPs through the Start-Up and Capacity Funding pots. Lord Heseltine’s report, Leaving No Stone Unturned, which was published in October 2012, nudged the Government into making a further announcement stating that it would further decentralise the funding of LEPs. The Government has announced that it will establish a ‘Single Local Growth Fund’, with decisions on its composition and size being left until the June 2013 Spending Review.
Pledge: We will take steps to improve the competitiveness of the UK tourism industry, recognising the important part it plays in our national economy.
Status: Done - The Government can claim to have improved the competitiveness of the UK tourist industry, having climbed two places to fifth in the World Economic Forum’s Economic Competitiveness Index 2013.