Treasury Committee
Tuesday 20th October 2026
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09:46
Speaker 1
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Speaker 1
Order, order! Welcome to the Treasury Select Committee on Tuesday the 20th of October 2026. Today we're continuing with our pre-Budget scrutiny sessions, and I'm delighted to welcome an expert set of witnesses today to help us in preparing for both for next week's budget, but also for when the Chancellor of the Exchequer appears in front of us after the budget, he will be appearing in front of us on the 11th of November. So I'm delighted to welcome our witnesses from my left to right. Doctor Jeff Tiley is the head of economics at the TUC or the trade Unions Trade Union Congress.
Louise Hellum is the chief economist at the Confederation of British Industry, also known as CBI. And David Hale is the government affairs director at the Federation of Small Businesses, often referred to as the FSB. We do try and spell out initials, so if you bear that in mind when we get into our alphabet soup of of organisations. If I could just start, perhaps I'll go along the line. So start with you if I can. Doctor Tiley, how would you describe the outlook for businesses in the UK at the moment?
Louise Hellum is the chief economist at the Confederation of British Industry, also known as CBI. And David Hale is the government affairs director at the Federation of Small Businesses, often referred to as the FSB. We do try and spell out initials, so if you bear that in mind when we get into our alphabet soup of of organisations. If I could just start, perhaps I'll go along the line. So start with you if I can. Doctor Tiley, how would you describe the outlook for businesses in the UK at the moment?
09:46
John Grady
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John Grady
We think that the economy has performed better than expected over this year, but we still think that there are a number of challenges that that we hope are dealt with in the budget. I think above all, I mean, and you asked me about businesses, but I think that the position on households is very important here, because we have to keep in mind how hard hit households have been for getting on for nearly 20 years. We've got an unprecedented living standards crisis, as I'm sure you know, real pay has barely moved since before the financial crisis.
Household disposable incomes, which include benefits and taxes, have have also not moved over the same period. And there's plenty of figures out there showing the scale of hardship. You know, a telling one, I think, is that 8 million households don't think they could support it, could finance an unexpected bill for £850. So we've in our we've we've put out a budget statement, which I think we've shared with the committee. And we've also in that statement, we also elaborate some additional costs that households have been facing since interest rates have gone up and since prices have gone up.
So we find that mortgages in particular have gone up by an extremely large amount. They've gone up from, say, a roughly a monthly payment of 600 to a monthly payment of £900, which amounts to £3,600 on a year. And we, we, well, maybe I won't go through all the costs, but they're they're large costs on mortgage, large costs on energy, large costs. If you have loans and large costs on water. And we outlined in terms of the economy, we outline a causality from a lack of spend, from a lack of from low incomes to a lack of consumer spending, where we see that the UK is performing particularly badly compared to other countries.
Household disposable incomes, which include benefits and taxes, have have also not moved over the same period. And there's plenty of figures out there showing the scale of hardship. You know, a telling one, I think, is that 8 million households don't think they could support it, could finance an unexpected bill for £850. So we've in our we've we've put out a budget statement, which I think we've shared with the committee. And we've also in that statement, we also elaborate some additional costs that households have been facing since interest rates have gone up and since prices have gone up.
So we find that mortgages in particular have gone up by an extremely large amount. They've gone up from, say, a roughly a monthly payment of 600 to a monthly payment of £900, which amounts to £3,600 on a year. And we, we, well, maybe I won't go through all the costs, but they're they're large costs on mortgage, large costs on energy, large costs. If you have loans and large costs on water. And we outlined in terms of the economy, we outline a causality from a lack of spend, from a lack of from low incomes to a lack of consumer spending, where we see that the UK is performing particularly badly compared to other countries.
09:49
09:49
John Grady
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John Grady
We're certainly saying the lack of it. And on the economy, I mean, there were there were figures the other day, the GDP figures showed that the business facing services were doing well. But consumer facing, consumer facing facing services were still down on where they were ahead of the financial crisis. We've if you if you look over the periods before the global financial crisis, sorry, before the pandemic to the present, and the UK has the slowest consumer spending growth out of all G7 economies. So we think that this this weak demand, in effect, is a critical factor in the weakness of the economy.
You know, you can do calculations. At the moment, consumer demand is contributing about 0.7 percentage points to GDP. In between the financial crisis and the pandemic, it was contributing 1.5. And before the financial crisis, financial crisis, it was contributing 2%.
You know, you can do calculations. At the moment, consumer demand is contributing about 0.7 percentage points to GDP. In between the financial crisis and the pandemic, it was contributing 1.5. And before the financial crisis, financial crisis, it was contributing 2%.
09:50
09:50
09:50
09:50
Speaker 2
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Speaker 2
Yeah. So I think when we speak to businesses across the economy, there's definitely a theme of resilience actually, but in quite a high cost environment for firms. And I think that's particularly, you know, costs around high energy costs, high employment costs, some of the kind of policy costs like around business rates and things like that as well. We are definitely seeing some sectors that are performing more strongly. I think particularly those firms in sectors like energy, like digital, defence, healthcare. And actually, as Geoff said, some of those more consumer facing sectors are the ones that are having the weakness.
But I think that we have been pleasantly surprised by that kind of resilience that we have seen across the economy, given just just the kind of both global and domestic headwinds that we have seen. I think one of the reasons for that in many ways, unfortunately, is because businesses have been adapted at kind of crisis management now. You know, they have developed strategies over the last few years, particularly when it comes to things like high energy costs. Now we have a lot of firms who are now, you know, hedging a lot more of their energy prices where they're able to have much higher kind of stock inventories.
But obviously that does then still have a impact on on businesses kind of bottom line and is tying up working capital. So I think whilst we're not seeing elevated kind of levels of distress that are kind of too high, what we are seeing is a lot of firms who are holding back on, on hiring, who are holding back on investment decisions as well.
But I think that we have been pleasantly surprised by that kind of resilience that we have seen across the economy, given just just the kind of both global and domestic headwinds that we have seen. I think one of the reasons for that in many ways, unfortunately, is because businesses have been adapted at kind of crisis management now. You know, they have developed strategies over the last few years, particularly when it comes to things like high energy costs. Now we have a lot of firms who are now, you know, hedging a lot more of their energy prices where they're able to have much higher kind of stock inventories.
But obviously that does then still have a impact on on businesses kind of bottom line and is tying up working capital. So I think whilst we're not seeing elevated kind of levels of distress that are kind of too high, what we are seeing is a lot of firms who are holding back on, on hiring, who are holding back on investment decisions as well.
09:52
09:52
Speaker 3
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Speaker 3
Yeah, I'm, I think on the small business side, it's I don't think it's any secret that I think confidence has been low. It's taken a hit in the last few years since coming out of the pandemic. I think costs are very high. Particularly fixed costs perhaps don't necessarily have the availability of some of those strategies to to hand that Louise was just was just talking about whether on energy, I think, you know, on a personal level, some of the labour cost issues get very difficult for small businesses because it's, you know, it's stuff that you are close to where you you do see very increased costs and businesses having to put in place strategies to manage that.
So, you know, overall in general, I would say it's very difficult not to say that businesses themselves are not optimistic. Quite often you would it helps it helps to be optimistic to to start and run a small business. So, you know, I wouldn't want to downplay it too much, but I think in general, it's a it's a low confidence environment. It's a high cost environment. And it's even for, for more businesses than not a falling revenue environment, which is, you know, particularly worrying.
So, you know, overall in general, I would say it's very difficult not to say that businesses themselves are not optimistic. Quite often you would it helps it helps to be optimistic to to start and run a small business. So, you know, I wouldn't want to downplay it too much, but I think in general, it's a it's a low confidence environment. It's a high cost environment. And it's even for, for more businesses than not a falling revenue environment, which is, you know, particularly worrying.
09:53
Speaker 1
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Speaker 1
I mean, Grant Thornton did a survey of businesses which highlighted that the second most cited challenge, the biggest challenge they faced. They asked, what's your biggest challenges is economic uncertainty. So, I mean, you've touched on it in a sort of obliquely, but do you think what what is if where how would you interpret that for your sectors? If I start with you, David Hale and go back, back along the line.
09:54
Speaker 3
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Speaker 3
So I, I mean, I, I think bluntly, if you were considering taking somebody on having a, you know, a cost that will sit with you for tens of thousands of pounds, you don't know what's going to happen with your energy costs. You might, you know, draw the conclusion from the last few years that, you know, there's more risk to go up than that. They go down. You don't know. You don't know what's happening with other government costs. There are worries around taxation. You don't know what's happening with the economy in general. I would say that.
The uncertainty makes it very difficult for people to place an investment when they when they know, if they place an investment that they're stuck with paying the cost of it.
The uncertainty makes it very difficult for people to place an investment when they when they know, if they place an investment that they're stuck with paying the cost of it.
09:54
Speaker 1
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Speaker 1
Mentioned. You mentioned any price, energy prices as one of those things. Is there any things that government has direct control of? So while the government is doing some things on energy prices, there are global shocks. There are the specific things that you think the government could do to help on economic uncertainty. I mean, this year, for example, there have been really no leaks around the budget, whereas last year there was a lot of speculation and some information in the public domain allegedly leaks or, you know, they never found anyone had leaked it. But do you think there's anything the government could be doing to improve the.
09:55
09:55
09:55
Speaker 3
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Speaker 3
Yeah, completely. I think I think what's really positive and what's potentially helpful with the new government is, I think, the conception of having breathing space at the same policies is intended to create breathing space at the same time as tackling some of the long term growth issues creates an opportunity. So on, on breathing space, the, you know, the thing that we have been asking for is an increase in small business rates relief. It has not increased since 2016. 2016 was a long time ago in in any terms, but particularly in terms of property costs and general inflation.
That that was that was a long time ago. So I think a proper increase in that creates some immediate benefit across Sectorally on energy specifically, you know, the government took steps with the renewables obligation for households, but not with businesses. And particularly at the small business end, small businesses tend to buy energy in a similar way to to households. I think if if the government could do something on renewables obligation that would be useful on breathing space, I think kind of going beyond that, talking about government imposed costs. But by far the largest one that is commonly referred to would would be what's happened on National Insurance.
Again, we would we would worry around mitigations that are being put in place for small businesses, not keeping pace with what's happening to wages. So the employment allowance, you know, didn't go up last year if it doesn't go up this year. But we see a general increase in wages, including regulated wages, then I think then I think that would be a negative. So again putting.
That that was that was a long time ago. So I think a proper increase in that creates some immediate benefit across Sectorally on energy specifically, you know, the government took steps with the renewables obligation for households, but not with businesses. And particularly at the small business end, small businesses tend to buy energy in a similar way to to households. I think if if the government could do something on renewables obligation that would be useful on breathing space, I think kind of going beyond that, talking about government imposed costs. But by far the largest one that is commonly referred to would would be what's happened on National Insurance.
Again, we would we would worry around mitigations that are being put in place for small businesses, not keeping pace with what's happening to wages. So the employment allowance, you know, didn't go up last year if it doesn't go up this year. But we see a general increase in wages, including regulated wages, then I think then I think that would be a negative. So again putting.
09:57
09:57
Speaker 2
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Speaker 2
Yeah. So I, I would echo some of that from. David. I think obviously there's a, there's a mix of kind of geopolitical and domestic factors that have featured into that uncertain environment. I think addressing some of the high costs that we're seeing, particularly around energy costs, and particularly we'd like to see policy costs move into general taxation rather than being on on businesses bills. I think one of the other things that we really are calling for is, is just kind of follow through and delivery as well on some of the big strategies that the government have set out, like the industrial strategy, like the ten year infrastructure plan to show that sense of continuity and commitment, because I think businesses do find that policy.
09:57
09:58
09:58
09:58
Speaker 2
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Speaker 2
Yeah. So, so I think obviously across something like the industrial strategy, you've got those kind of sector plans for each of them, but there's some commonalities. And I think some of the big ones are at this point around energy and grid connections. We've seen some really great progress already on planning and infrastructure. But again, we need to continue to see that and, and, and, and a lot more pace into the system. We'd like to see a lot more coordination across regulators and actually more accountability for them to not just look at the regulation in, in, in their own narrow area, but actually around how the whole system for that regulation.
09:58
Speaker 1
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Speaker 1
So we'll come to that. Great. We'll come to regulation in more detail, and then I'll come if I can go back to David Hale and then Louise and then Doctor Tilly. On the relationship with the EU. The Prime Minister signalled that he wants to change that relationship. What would business want to see and would that make a difference to business confidence? David Hale.
09:59
Speaker 3
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Speaker 3
So I guess to pick up on the last point Louise made around deliverables and around specifics, I think, you know, in the short term, getting a meaningful SPS agreement across the line is what we want to see. And I think, you know, there is a danger of getting distracted from what can be delivered now and what would be meaningful and positive, which, you know, I would point to that SPS agreement and getting too distracted about about the long term. So if I was to say focus on anything in relation to the EU, it would be okay.
09:59
09:59
09:59
09:59
Speaker 2
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Speaker 2
I mean, I think businesses are very supportive of having a closer relationship with the EU. I think, as David said, it's around tackling some of those current issues, both both SPS but also emissions trading scheme, I think very supportive about thinking about some kind of youth mobility scheme as well. One of the big concerns that businesses have at the moment in relation to Europe is around the Made in Europe scheme and around making sure that the UK has access to that. And I think that's both beneficial not only just for UK firms but for European firms as well, given the integration of supply chains that we have had.
So that's really top of mind at the moment.
So that's really top of mind at the moment.
10:00
10:00
John Grady
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John Grady
We're in favour of things to foster a closer relationship and better trading relationships. Could I could I just go back to the previous point because I basically wanted to agree we. About energy costs. We all know that energy costs are extremely difficult for British businesses. So we basically agree with what my colleagues have said about business support and moving the the British Industrial Manufacturing Scheme is extending that to cover the whole of the manufacturing sector and generally moving up costs into general taxation and away from energy costs. We've got our own proposals on a social tariff.
I don't know if you want to get into that now, but other support for living standards. So any support that can not only help households, but will help to increase the spending on the high street and wherever, I mean, is what we think.
I don't know if you want to get into that now, but other support for living standards. So any support that can not only help households, but will help to increase the spending on the high street and wherever, I mean, is what we think.
10:01
Speaker 1
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Speaker 1
Is we all talk about energy costs now because obviously the war, particularly the war in Iran and what happened in the war, ongoing war in Ukraine, have had a big shock on energy prices. But these are long term structural changes you seem to be highlighting there, Mr. Tilly and Louise. Helen, am I right that you really want to change the way that businesses should be paying so much for their energy costs, but more should fall on the general taxpayer? You both said that. Just to be clear for the record. Yes. And have you got an idea of what that would cost?
10:02
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10:03
10:03
John Grady
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John Grady
10:03
Speaker 2
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Speaker 2
Sorry, I was just going to say I expect the difference in the figures is our scheme is for all sectors rather than just for for manufacturing. And I think one of the big advantages of the scheme is about actually increasing demand. And we need to increase the demand for for electricity to help with the rollout of electrification. And that will also bring systems costs down. Then if we're spreading it over, over a greater demand.
10:03
10:03
Julie Minns
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Julie Minns
10:04
Speaker 2
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Speaker 2
So I think that we're positive where it's it's part of the broader system. I think from our perspective, it's not necessarily competition that is the issue, but actually just about connecting, forgive the pun, together around, you know, where is that demand and supply needed within the system. And like I say, just increasing a lot more pace to the decisions, which is more about capacity of decision makers.
10:04
Julie Minns
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Julie Minns
Thank you. That's you mentioned I just wanted to quickly ask, but let me just ask you about regulatory frameworks. I've I've worked for nearly 20 years in regulated industries. And so I've sat on the other side of the table, sometimes arguing for, sometimes arguing against. But can I ask a question to to you, Miss Holloman, and to you, Mr. Hale, about which regulatory frameworks present the biggest friction points for for business expansion.
10:04
Speaker 2
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Speaker 2
So I think our general view on the regulatory system is, is around some of the just overlapping regulations and requirements and the kind of duplication that we see across the the system. So quite often where we've got. You know, they might be in the kind of minutia of the detail and things like that. I mean, I think one of the areas that I'd maybe point to as an example of that is some of the regulation around kind of plastic packaging and things like that. The moment that we've got overlapping regulations around the extended producer responsibility, plastic packaging tax and the packaging recovery note system.
So actually just clearing out that system, what is it that we're trying to achieve? And then having regulation that that is just kind of one system for businesses to engage with would be a much better way, we think, to get the same outcome, but for much less cost and less complexity.
So actually just clearing out that system, what is it that we're trying to achieve? And then having regulation that that is just kind of one system for businesses to engage with would be a much better way, we think, to get the same outcome, but for much less cost and less complexity.
10:05
Speaker 3
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Speaker 3
Yeah, I mean, two things. One, I would just say we we currently are engaged with government on a joint piece of work as a regulatory task force that should report soon, which, you know, we hope will address some of those issues, particularly around, you know, those smaller things that are duplicative, etc.. I guess one I'd be really keen to draw to the committee's attention is we do find that when government looks at regulatory reduction, HMRC sits exempt from that. And this is purely on the on the administrative side. And you know we don't think that's right.
It is HMRC is frequently, if not the top, then one of the top 2 or 3, but often the the top administrative barrier that firms particularly particularly new young and small firms report as being very difficult and unnecessarily so. So we would point to that. And then again, I think I think there's a there's a number of different issues where we don't feel that companies House are perhaps being acting with the the, the practical interests of small businesses who are using their their systems would benefit from.
It is HMRC is frequently, if not the top, then one of the top 2 or 3, but often the the top administrative barrier that firms particularly particularly new young and small firms report as being very difficult and unnecessarily so. So we would point to that. And then again, I think I think there's a there's a number of different issues where we don't feel that companies House are perhaps being acting with the the, the practical interests of small businesses who are using their their systems would benefit from.
10:07
Speaker 3
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Speaker 3
So, so in terms of there's new verification steps that have been brought in, I don't think they've been particularly well designed with small businesses in mind. There are. It used to be that companies House was was never really mentioned when regulation came up. They've traditionally been a strong performer until the last year or two. And I guess this is slightly more of an engagement point. I'm not necessarily, you know, well, as as I say, we're engaged in a regulatory task force. So hopefully this is a point of of the past. And we can we can deal with it soon.
10:07
10:07
Harriett Baldwin
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Harriett Baldwin
Thank you. Chair, may I ask Mr. Hale another question? Because obviously small businesses are such a backbone of the UK economy, and they create so many of the jobs for people as well. And we are asking you for your evidence in the run up to the 2026 budget. And I just wondered if you could cast your mind back to the 2024 budget, the 2025 budget, and highlight for the committee which things in those budgets have been helpful for small businesses and which things in those budgets have been a challenge.
10:08
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10:08
Speaker 3
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Speaker 3
I of course, I mean, you know, in many ways it is difficult to get away from the 2024 budget. So, you know, the issue I mentioned that wasn't necessarily present in that was small business rates relief. But I would say the chancellor in that budget gave herself room to make more changes to the system. So I would hope that the new Chancellor would make use of that and increase small business rates relief. We've talked about renewable obligation in terms of national insurance, so that, you know, if I was to be critical, I think the 2024 budget was designed on a very optimistic view of where the labour market was.
That hasn't been borne out. I think, you know, I think it's fair to say it's done a lot of damage on the employment side, including in terms of how that is probably now starting to feed through to to households. But again, at that budget, there were steps taken on the employment allowance to protect small businesses at the lower end. But, you know, it being two years ago and looking looking to the future that has not kept pace with what's happening with wages. So I would I would look at that again. You know, if we look at 2024, that was where some of the the regulatory labour market reforms were coming in in terms of day one, sick pay, obviously, that's quite a well-worn conversation, but there is potential to take measures like a statutory sick pay rebate that would help ease the impact on firms and the workers that would be most impacted by those changes.
I think the one sorry not to go on, but the one that I would particularly draw attention to that I think has damaged small business intentions, is the changes that were made to entrepreneurs or business asset disposal relief. I think that has had an impact and perhaps a less well discussed impact than some of the other changes on on National Insurance. So we had the increase to 14% the April before last, and now the increase to 18%. You know, we would be keen for the Chancellor to ease that, at least to the 14% that we saw that April before last.
So I think hopefully that that's I.
That hasn't been borne out. I think, you know, I think it's fair to say it's done a lot of damage on the employment side, including in terms of how that is probably now starting to feed through to to households. But again, at that budget, there were steps taken on the employment allowance to protect small businesses at the lower end. But, you know, it being two years ago and looking looking to the future that has not kept pace with what's happening with wages. So I would I would look at that again. You know, if we look at 2024, that was where some of the the regulatory labour market reforms were coming in in terms of day one, sick pay, obviously, that's quite a well-worn conversation, but there is potential to take measures like a statutory sick pay rebate that would help ease the impact on firms and the workers that would be most impacted by those changes.
I think the one sorry not to go on, but the one that I would particularly draw attention to that I think has damaged small business intentions, is the changes that were made to entrepreneurs or business asset disposal relief. I think that has had an impact and perhaps a less well discussed impact than some of the other changes on on National Insurance. So we had the increase to 14% the April before last, and now the increase to 18%. You know, we would be keen for the Chancellor to ease that, at least to the 14% that we saw that April before last.
So I think hopefully that that's I.
10:10
10:11
Speaker 3
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Speaker 3
Look, I mean, there is an extent of unwinding challenges that have come through budgets. I think, you know, I would point to the employment allowance, which was a positive that was delivered itself as a mitigation, but that is a positive that is delivered. And all we are really keen to do is to make sure that that maintains its real value relative to wages. But yeah.
10:11
10:11
Speaker 3
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Speaker 3
I wouldn't. I'm not sure about expectations to do with this budget. I think the making tax digital process is, is an example of where we would prefer that HMRC was subject to the same sort of regulatory ambition that the rest of government is at least, if not more, given, given where it sits, I wouldn't say what I was expecting or otherwise. In terms of MTD, I think some of the things that are sort of HMRC driven that I would be more worried about at the that I'm particularly worried about the budget next week, are some of the sort of doom reseller rules to do with that, which I don't know if we're intending to get onto, but that those sorts of things would concern me at the budget next week primarily.
10:12
10:12
10:12
Julie Minns
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Julie Minns
Thank you. Chair, I just want to go back to something you both, Miss Holliman and Mr. Ho, you were talking about earlier when you were expressing a view that perhaps a focus on delivery and a little less tinkering might be might be beneficial. Can you just expand on that? You know , what, what would you what would you like to see the government do in terms of stopping with the tinkering and just, you know, delivering a period of stability in terms of policy?
10:13
Speaker 2
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Speaker 2
Yeah. I mean, I think some of it, like I say, relates to those areas I mentioned before, like, you know, we now have the industrial strategy, the infrastructure strategy to, to, to, to, to enable some of that to, to really get in and see the systems on the ground. I think some of it, particularly when you mentioned tinkering, you know, the tax system does come to mind within that and maybe one that we've touched on very briefly, but not in that much detail, is around business rates. I mean, that is a system that comes up time and time again with businesses in terms of the overall cost.
It's also one where we've been promised a fundamental reform. And at the moment we seem to go from one fiscal event to another with a different part of the system being tinkered with. So we would like to see more long term reform on that, particularly to smooth a lot of the cliff edges that are around the system, particularly around the kind of 51,000 and £500,000 thresholds. But also it's a system where, you know, the multipliers are not fixed within the system. You have a fiscal neutrality clause within that, that it just means that businesses don't know what their business rates bill is going to be kind of year to year.
And obviously, we have had instances over the last couple of years, particularly for, for for some sectors where they've seen, you know, 100% or more kind of increases in their business rates bill, either because of policy decisions or the decisions by the by, the VOA as well. And that's led to, you know, cancelling investments worth millions of pounds because they have these kind of tax bills landed on their doors. So I think we would like to see a fundamental reform of that system rather than potentially another kind of merry go round of tinkering. This this time around.
It's also one where we've been promised a fundamental reform. And at the moment we seem to go from one fiscal event to another with a different part of the system being tinkered with. So we would like to see more long term reform on that, particularly to smooth a lot of the cliff edges that are around the system, particularly around the kind of 51,000 and £500,000 thresholds. But also it's a system where, you know, the multipliers are not fixed within the system. You have a fiscal neutrality clause within that, that it just means that businesses don't know what their business rates bill is going to be kind of year to year.
And obviously, we have had instances over the last couple of years, particularly for, for for some sectors where they've seen, you know, 100% or more kind of increases in their business rates bill, either because of policy decisions or the decisions by the by, the VOA as well. And that's led to, you know, cancelling investments worth millions of pounds because they have these kind of tax bills landed on their doors. So I think we would like to see a fundamental reform of that system rather than potentially another kind of merry go round of tinkering. This this time around.
10:14
10:14
Speaker 3
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Speaker 3
I'm probably have a somewhat different take from the small business side. It's not necessarily it's it's it's more an action rather than kind of long term ambition, long term, you know, postponement of decision point from our perspective, which is why I would say on business rates, just, you know, we have the system as it is, we have an element of the system that has not kept pace in terms of small business rates relief. Let's get on and do that. That's an easy, actionable change. It can bring the breathing space that the government has talked about, which is which is, I think, helpful.
And then on the longer term challenges side, you know, we talked about national insurance and sick pay. We have, you know, we have challenges around the edge of the labour market, particularly particularly related to health. And what you have at the moment is you have a situation where there are some firms, large and small. That are taking on people that are likely to have time off sick, and they are structurally disadvantaged by, by the way, we organise our labour market rules. So putting in place things like statutory sick pay, helping the small firms that do it, in particular through the employment allowance, just just would be helpful.
And then on the longer term challenges side, you know, we talked about national insurance and sick pay. We have, you know, we have challenges around the edge of the labour market, particularly particularly related to health. And what you have at the moment is you have a situation where there are some firms, large and small. That are taking on people that are likely to have time off sick, and they are structurally disadvantaged by, by the way, we organise our labour market rules. So putting in place things like statutory sick pay, helping the small firms that do it, in particular through the employment allowance, just just would be helpful.
10:16
Julie Minns
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Julie Minns
So just on this point about stability, we often think about it in terms of new things that the government wants business to pick up. There are a number of things that you've already highlighted a couple today that you disagree with, that the government's done governments have done in recent years. Does your desire for stability extend to actually can you just not even reverse those things that you've put in? Because we like the certainty of knowing what we're dealing with for the next 2 or 3 years?
10:16
10:16
Speaker 2
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Speaker 2
I was going to say, I think from our perspective, quite often when, when we call for kind of stability, it's about that predictability. So it's are the messages that the government is giving out then consistent with the policy that you're talking about? So I think, you know, one of the big hits around National Insurance was not only obviously the cost to businesses, but the fact that the government was saying at the time, we want to increase growth. We want to, you know, help get more people into work. And then we have a policy that makes it a lot harder for businesses to to employ people.
And that's the same with, you know, some of the policies around the Employment Rights Act as well. I think what, what businesses would like to see really is that kind of pathway to, to, to reform. And that is in keeping with the ambitions of the government is kind of setting out. I don't think that means that you can't change anything, but it's about how can you change systems kind of in those conversations with with businesses as well, and to understand some of these issues and barriers and, and actually, a lot of it then is around the simplification rather than necessarily kind of rates and things like that.
And that's the same with, you know, some of the policies around the Employment Rights Act as well. I think what, what businesses would like to see really is that kind of pathway to, to, to reform. And that is in keeping with the ambitions of the government is kind of setting out. I don't think that means that you can't change anything, but it's about how can you change systems kind of in those conversations with with businesses as well, and to understand some of these issues and barriers and, and actually, a lot of it then is around the simplification rather than necessarily kind of rates and things like that.
10:17
10:17
Speaker 3
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Speaker 3
Yeah, I think I think it's what really worries me is when government gives the impression that it confuses a business desire for stability with inaction on things that would help businesses. And I think there are a number of government policies that effectively ratchet up the kind of negative risks that we've seen develop. So, you know, whether it's when general energy prices rise, so does so does what the government taxes, whether it's you know, we've all seen what's happened with with property prices, but we still have a small business rate system set in a 2016 framework.
We know that wages, wages have increased. But but the tax measures that are there to help make sure small businesses can continue to afford them haven't. And even, you know, talk about the secondary threshold that went up, you know, like that that hadn't gone up previously in line with wages as it normally should have done. So I think what we have, what we have at the moment is too many areas of government policy that enhance instability because, because they tend to ratchet with it and not enough, you know, small changes at the tiller to make sure that the stability that businesses need because it from the small business side, it really comes back to, you know, I want to I want to invest 30 or £40,000 in a new member of staff are various things, including government going to disrupt that.
So suddenly I can't afford my mortgage,
We know that wages, wages have increased. But but the tax measures that are there to help make sure small businesses can continue to afford them haven't. And even, you know, talk about the secondary threshold that went up, you know, like that that hadn't gone up previously in line with wages as it normally should have done. So I think what we have, what we have at the moment is too many areas of government policy that enhance instability because, because they tend to ratchet with it and not enough, you know, small changes at the tiller to make sure that the stability that businesses need because it from the small business side, it really comes back to, you know, I want to I want to invest 30 or £40,000 in a new member of staff are various things, including government going to disrupt that.
So suddenly I can't afford my mortgage,
10:19
10:19
10:19
10:19
John Grady
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John Grady
I mean, I just wanted to make a general remark on this, this stability point, in contrast with the need for action, the Dane Baldwin was talking. about Dame Harriet, sorry, was talking about the 2024 budget. And I'd like to put in a good word for the 2024 budget. When the government made a decent effort at supporting government consumption and government investment, we know that public service spending. We know that public service spending has been a very, very starved for a long time, and public service spending both supports the economy from a spend, from a demand side and from a supply side.
I know at the time.
I know at the time.
10:20
10:20
John Grady
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John Grady
I think both it was, you know, and I think it was about I can't remember it was about 5050, wasn't it, on investment spending and 50% on current spending. And I think they were both needed at the time the decision was made to use to use National Insurance. And I think even the IMF at the time said that that was a reasonable approach overall. Maybe there was a maybe the government could have gone further on different taxes to National Insurance. But I think overall it was a sensible package and it was a needed package, and there is still spending needed.
And the previous question was answered about difficulties with HMRC. But I imagine HMRC staff cuts and resources have been quite badly starved, so there is a need for public spending. There is a need for action on some of these things as well.
And the previous question was answered about difficulties with HMRC. But I imagine HMRC staff cuts and resources have been quite badly starved, so there is a need for public spending. There is a need for action on some of these things as well.
10:21
10:21
John Glen
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John Glen
Yeah. I want to sort of focus in on some of the measures that you've said you wanted as, respectively, the organisations, and then look at the issue of the labour market. Mr. Hale the FSB has asked for an increase in the VAT threshold to 100,000 in your budget submission. It's currently 90,001 of the highest in the amongst our peers. What effect do you think it would have and how much would it cost, do you think?
10:21
10:22
10:22
Speaker 3
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Speaker 3
I'd have to check. Exactly. But in the in the low hundreds of millions. But obviously you know the Treasury understandably is concerned about the fifth year. And that's what I would point to from a from the point of view of long term growth, I think what it what it achieves pushing the threshold higher is it it simply means that you're not getting businesses that get to a point where they say, well, this is too much of a headache, you know, and there's some price effects as well, but it's too much of a headache. I'm just not going to work for part of the year.
And I think particularly now where we see a lot of people that scale very quickly in terms of revenue, you know, obviously at the the smaller end, particularly with online, we are seeing people go into the VAT system who are not equipped to properly file.
And I think particularly now where we see a lot of people that scale very quickly in terms of revenue, you know, obviously at the the smaller end, particularly with online, we are seeing people go into the VAT system who are not equipped to properly file.
10:22
10:23
Speaker 3
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Speaker 3
I don't know. On this occasion, I think there has been a welcome change in the last few years in terms of how the VAT threshold has been viewed. I think there is a there is more of a general appreciation, in part because of who's bumping up against it and how they've how that's changed with with younger.
10:23
10:23
10:23
10:23
Speaker 3
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Speaker 3
Yeah. I mean, selling online through social media, selling online through different things. It just makes it it makes it means that businesses can potentially scale quite, quite quickly from quite a, a low base. Whereas traditionally, I think we would always ask, which is again, relevant to the 100,000 for the VAT threshold to be set above the level of what one person working on their own without staff with a, you know, a reasonable cost base, but not a particularly large one would be able to afford it. And that's that's really what we're aiming for. If 100,000 achieves that, I think it depends on what trade somebody is working for.
But that's, that's what we would like to see.
But that's, that's what we would like to see.
10:24
10:24
10:24
Bobby Dean
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Bobby Dean
So a lot of people's minds, it just moves where that pinch point is. Right? So there's a different scaling challenge now, but now it's at 100,080 thousand. Wouldn't the more radical thing to do to lower the threshold? Wouldn't that get rid of a lot of the lumping problems that you say? Maybe you lower it down to, say, the median wage in the UK or something around to 30,000. And so basically everybody's brought in price competitiveness equation changes the sort of threshold issue you're talking about changes what businesses reaction be to that.
10:24
Speaker 3
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Speaker 3
So so it's the structure of trading that makes that so. So there are far more people that have around 30,000 of independent income than have around 95,000. So you will always have a bumping effect. If you set it at zero, you would have a huge one because it would just be a barrier to entering business altogether. If you set it at the median wage, it would be a barrier, you know, in practice to anyone who was like, well, you know what? Maybe my employed job is not working out and here's this, here's this, this self-employed route that I could take.
But there are just, there are, you know, there are far fewer people who are obtaining 100,000 of revenue than there are. So if you set it at 500,000 revenue, but basically there would be no bumping problem because there are so few people that are bumping into it as that kind of sole trader. So it's just it's a structure that that I think speaks to that.
But there are just, there are, you know, there are far fewer people who are obtaining 100,000 of revenue than there are. So if you set it at 500,000 revenue, but basically there would be no bumping problem because there are so few people that are bumping into it as that kind of sole trader. So it's just it's a structure that that I think speaks to that.
10:25
10:25
John Glen
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John Glen
Yes. Can I move to Miss Helen? It's widely anticipated that the one tax that is going up for businesses, tax on banks, and they represent 10 to 12% of the economy. They also fund businesses with loans and obviously interest rates, etc.. Have you done any work on the effect that this would have on the economy?
10:26
Speaker 2
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Speaker 2
So I think we haven't done any kind of quantitative work. I think again, at the moment, this is obviously something that has has been kind of rumoured, but I mean, we it is something that has come up is a big concern for, for our members and also, I think a realization that it would have an impact on, on kind of all sectors in terms of impacting on some of the availability of finance as well. So, I mean, I think it's it's again, probably going back to one of the points earlier that mentioned around, you know, what are some of the rhetoric and objectives from government and then the policies that they're looking at?
I think this week or last week, the Chancellor described their sector as the kind of jewel in the UK's crown. So. So to do that and then in the same breath, increase banking taxes again.
I think this week or last week, the Chancellor described their sector as the kind of jewel in the UK's crown. So. So to do that and then in the same breath, increase banking taxes again.
10:27
10:27
John Glen
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John Glen
Okay. And broadly in your roadmap you talk about this. We've had enough strategies. You need delivery. These these come out in numerous submissions in the run up to budget. It's always difficult for us here because it's all rhetoric. What what do you think is the sort of delivery imperative of government that you find most, you know, compelling for your members? Miss Helen?
10:27
Speaker 2
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Speaker 2
I think, like I said, it's picking up on some of those themes that we've talked about around energy, around planning. I think another one that we talk quite a lot about is around kind of investable pipeline. So it's where government is talking about particular projects that they, they want to, to see build. Actually, how can you help to make sure you've got the right ecosystem around that, both in terms of planning but also around skills.
10:27
10:28
Speaker 2
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Speaker 2
I mean, I think one of the practical things, and this wouldn't relate to one specific project, but would be around what are the right mechanisms in which that you can bring a kind of private financing into some of these investment propositions? Because quite often when you're looking at infrastructure build, it is still private capital that might be be delivering some of those, but we don't currently really have a proper public private partnership framework in the UK. And so I think that's where the UK is quite different to other countries that actually, you know, we all, I'm sure familiar with some of the issues around kind of fizz, but actually it's a system that the UK started.
We don't have a, a real way to apply that in the UK anymore.
We don't have a, a real way to apply that in the UK anymore.
10:28
10:28
10:28
10:28
Speaker 2
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Speaker 2
I think that's where the Treasury could set out a framework and saying in for these kinds of projects, these are the kind of models that we would look at. These are the conversations and the people that should be involved in those from a government perspective. And then obviously you can have people who can bid into those. But at the moment, there's not a way to kind of connect those bits of the system together.
10:29
John Glen
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John Glen
Right. Okay. Doctor Tyler, could I come to you on the labour market issues today? We see vacancies at their lowest in the last five years. Vacancies fell 21,000 in 3 months to September 691,000. We also see a trend in AI. And obviously the UK economy is relying a lot on services. One theory out there that we've heard from witnesses is that productivity may be increased by the fact that the cost of employing people is higher, so people are not employing people, and instead they're using AI and other efficiency savings. And what do your members say about the state of the labour market, and what specific measures to address these problems in the labour market would you wish to see in the budget?
10:30
John Grady
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John Grady
So I think I think our judgment about the position of the labour market is that it's it's it's mixed. The the statistics are difficult to read, but we think that the picture is quite mixed. We we have we now have official payroll figures that tend to have been a bit more negative than the headline Labour Force survey figures. And of course in the headline figures are that unemployment is relatively low and employment is relatively high. But the the payroll figures have been deteriorating for longer. I think we'd flagged that the deterioration in the payroll figures has been has been in there for quite a long time.
We've got we've got a chart in our report that shows that the the splits between the. If you look at the private sector and the public sector different. Separately in the employment data, you see the private sector employment gains have been slowing for quite a long time. They were slowing from 2023. They begin to fall in the start of 2024. So it's something deeply embedded. And we think part of that is cyclical related to the monetary policy actions of the Bank of England. And and that that remains to be the case. Maybe at the moment the vacancies may have bottomed out now.
So there may be some improvement coming in in terms of what to do. I think, again, we would stress that we should consider cyclical and structural factors separately to the to the extent.
We've got we've got a chart in our report that shows that the the splits between the. If you look at the private sector and the public sector different. Separately in the employment data, you see the private sector employment gains have been slowing for quite a long time. They were slowing from 2023. They begin to fall in the start of 2024. So it's something deeply embedded. And we think part of that is cyclical related to the monetary policy actions of the Bank of England. And and that that remains to be the case. Maybe at the moment the vacancies may have bottomed out now.
So there may be some improvement coming in in terms of what to do. I think, again, we would stress that we should consider cyclical and structural factors separately to the to the extent.
10:31
John Grady
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John Grady
See on cyclical. If there is cyclical unemployment, then that that belongs at the door of the Bank of England and also the government to support demand in the economy, the actions that we think that the government should take and we. And we're putting. We've put forward in our budget submission is more action around the Youth guarantee. The government announced the scheme in the last budget that was aimed at people who had been unemployed for 18 months or on on benefits for 18 months.
So we we suggest that should be moved to to six months.
So we we suggest that should be moved to to six months.
10:32
John Glen
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John Glen
10:32
John Grady
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John Grady
So again, we think that deterioration is partly cyclical that it has because youth unemployment, the structural trend is that more and more over time, youth unemployment has been taking a bigger hit. And that's back to 1992. And it goes through to the present. And there isn't really any discontinuity. Then. Youth unemployment is a higher proportion of overall unemployment. So we think that's a structural factor in answering your question. We we as I say, we support an extension of the jobs guarantee. And then we support measures within universal Credit on the taper rate that we think that the taper rate within Universal Credit doesn't permit young workers to keep as much of their salaries as they should, and therefore acts as a disincentive.
So we would we would we would support some action on the taper rate, and we've got some costings on that to reduce it from 55 to 45. And I think we've estimated that would cost 4 billion. And again, that's the sort of 4 billion, some of which would be recouped. But I think there are key measures on the jobs guarantee.
So we would we would we would support some action on the taper rate, and we've got some costings on that to reduce it from 55 to 45. And I think we've estimated that would cost 4 billion. And again, that's the sort of 4 billion, some of which would be recouped. But I think there are key measures on the jobs guarantee.
10:33
John Glen
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John Glen
So when you look at the labour market and you look at the interaction with welfare reform, and obviously it's been the topic of the day. And the Secretary of State, Angela Rayner, was on the today programme this morning discussing some of those trade offs. As people talk about the changes that may be needed in welfare. Does does your organisation and your members have a view on on this matter?
10:34
John Grady
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John Grady
I think our organisation has heard for a very long time that reductions in benefits are some sort of price that we must pay for improved and improved labour market, but we categorically reject that. It's a narrative that we've heard for many, many years, decades even, and it's a narrative that's been acted on for many, many years and decades. But we don't think that benefits are standing in the way of improving our young people.
10:34
10:34
John Grady
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John Grady
Yeah, of course, we we recognise that a benefit system should support workers when they're in hardship, but also encourage workers back to work. But we don't in general feel that workers are the workers don't want work, workers want work. There may be a worry that there isn't enough work out there, to the extent that there's a cyclical problem as well, but we think workers want work.
10:35
10:35
John Grady
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John Grady
Of course, youth unemployment is a terrible thing, and it's but it's a it's a terrible thing that has been terrible for many decades. And it's a thing that we keep hearing that the solution is, you know, to take it might be, you know, people might argue it's to take away benefits. But we don't think that we think that the the best approach is to consider good pathways to work. It's to use the benefits system to incentivise. But the measures we've talked about on the taper rate of Universal Credit is where benefits might be increased to help people into work.
We don't think that we. We suspect that people have suffered enough cuts of benefits, and that is not the problem.
We don't think that we. We suspect that people have suffered enough cuts of benefits, and that is not the problem.
10:36
John Glen
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John Glen
10:36
10:36
10:36
10:37
John Grady
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John Grady
I think that the we the economy needs more support in general, and it seems fair to ask those with the broadest shoulders to pay more. I would draw attention to the scale of the profits they've made. The big four banks have made 29 billion over the first half of this year, which is over a billion a week. And these are big numbers in the context of the fiscal policy debate, these profits are up 40% on five years ago. It's it's difficult to judge over the longer term. But if you look at financial corporations as a whole, profits in the financial corporation sector now are basically double to what they were ahead of the global financial crisis.
So we think there's we think there's a lot of room without some massive Marxist agenda to take loads of money away from the financial sector. We, you know, we could even we could even cite Mrs. Thatcher here. And we've, we've.
So we think there's we think there's a lot of room without some massive Marxist agenda to take loads of money away from the financial sector. We, you know, we could even we could even cite Mrs. Thatcher here. And we've, we've.
10:37
John Glen
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John Glen
Very, very happy to continue very, very happy to continue hearing what you're reading out. But can I just draw you into the fact that if you look at ten year gilts, notwithstanding global pressures, we are at a higher rate than our peers and the tax burden is at a record level. Do you not think that the markets are going to feel uncomfortable about even more tax increases overall? We saw we heard from Miss Helen Howe that there needs to be certainty around where you can investment propositions in the UK economy. Do those two two facts not concern you?
10:38
John Grady
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John Grady
I don't I don't think markets would fear an increase in bank taxes. I think you heard it last week from Lord O'Neill that probably bank taxes was a sensible, sensible place to aim. And, you know, a lot of money can be raised here if you if you raised it to the energy profits levy, 60 billion over four years, 15 billion a year, doubling it would raise 16 billion. And even just replacing the. The old rate would raise 2 billion a year. We we we just don't think that these massive you know, these these are massive supernormal profits.
And these this isn't a level of profitability that, you know, is sensible. It's going to shareholders. It would be more sensible to use some of that money to support the economy in other ways.
And these this isn't a level of profitability that, you know, is sensible. It's going to shareholders. It would be more sensible to use some of that money to support the economy in other ways.
10:39
10:39
Catherine West
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Catherine West
10:39
Speaker 3
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Speaker 3
Absolutely, is the short answer. I think you know it. Growth in every postcode almost feels like one of those things that that shouldn't need to be said. As you know, presumably what we are all aiming for. But I think including on some of the reaction to growth in every postcode, it probably showcases. Quite why it is important to have that as a as a mantra and for policy to to follow beyond that, you know, won't labour the point. But whether that's business rates relief or whether it's national insurance, it. Small businesses in particular are present in every postcode.
Small businesses, self-employed people. I think too often it is easy for policy to get distracted by the latest flashy thing here or there. I would I would say it's a it's it's a helpful mantra even even if it shouldn't be.
Small businesses, self-employed people. I think too often it is easy for policy to get distracted by the latest flashy thing here or there. I would I would say it's a it's it's a helpful mantra even even if it shouldn't be.
10:40
10:40
Speaker 2
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Speaker 2
So I think we're, we're very supportive of a more kind of regional place based approach to growth. I think there is obviously a question about for growth in every postcode, whether you are, you know, trying to get that kind of uniform growth absolutely everywhere. And that is not necessarily the approach that that we would advocate for, but actually thinking about where are some of those kind of specialisms? Where can those centres of excellence be and make sure that they are up and down the country? And I think that fits very much with, you know, some of the kind of approach with the industrial strategy that we've seen.
And again, embedding that in a more place based way and thinking about how we in particular, you know, just increase some of those opportunities around our kind of second cities and make sure we've got good transport links into those so that people in every postcode can access those opportunities. I think one of the big things that that we would advocate for within this is to make sure that any decision making that is done in a local level is matched by the right capabilities and the right capacity as well. And I think that goes to some of the earlier points before around making policies really deliver on the ground is thinking through what is each of those, you know, kind of capabilities that need to be built up to make make this policy successful?
And again, embedding that in a more place based way and thinking about how we in particular, you know, just increase some of those opportunities around our kind of second cities and make sure we've got good transport links into those so that people in every postcode can access those opportunities. I think one of the big things that that we would advocate for within this is to make sure that any decision making that is done in a local level is matched by the right capabilities and the right capacity as well. And I think that goes to some of the earlier points before around making policies really deliver on the ground is thinking through what is each of those, you know, kind of capabilities that need to be built up to make make this policy successful?
10:42
Catherine West
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Catherine West
Mr. Tiley, last week in the Treasury Select Committee, we heard that Lord O'Neill felt it was a bit too much poetry and not enough prose. And he was arguing basically for, you know, the cities and the agglomeration effect that you get within a city because of the transport hubs, because of the the sense that you can get to those jobs. Does the TUC have a view on every postcode versus sort of cities and sort of leadership of mayors, all those sorts of questions around what's the right size within our very diverse economies that we have to tie the UK?
10:42
John Grady
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John Grady
We we think that the aspiration is obviously completely right. It's a hugely important part of the UK's economic problem over decades that that prosperity and growth hasn't been shared across the country and great parts have been left behind. Even in prosperous parts of the country. There are pockets that have been left behind as well. And and we also know and we have analysis in our budget submission that there hasn't really been any improvement. You know, this has been emphasized for a number of years, but over the the 20 tens, there was no gains. London comes out of the financial crisis and remains ahead, and other places remain behind.
Even in the latest period since the pandemic, there's actually some narrowing, but the narrowing is achieved by London growing more slowly, but the other regions still staying at the same place as they were before. So we think the aspiration is completely right. I think rather than good growth in every part, in every postcode, we want to ensure that people have access to good work across the whole of the country, whether the postcode frame is the right frame for that. And we we think that the action must be an interplay. It must be an interplay of the industrial strategy at national level and then region, and then autonomy at a regional level.
Even in the latest period since the pandemic, there's actually some narrowing, but the narrowing is achieved by London growing more slowly, but the other regions still staying at the same place as they were before. So we think the aspiration is completely right. I think rather than good growth in every part, in every postcode, we want to ensure that people have access to good work across the whole of the country, whether the postcode frame is the right frame for that. And we we think that the action must be an interplay. It must be an interplay of the industrial strategy at national level and then region, and then autonomy at a regional level.
10:43
Catherine West
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Catherine West
I could just pick up that question of inequality within a region. And as a London MP, we see this in constituency work every day. How do we try and promote the growth of, say, London and Manchester, but also cope with, say, Fallowfield or, you know, certain London boroughs which have very, very high rates of children living in poverty. What is the answer to that from an economic point of view? And if we can go this way, Doctor Tyler and across, then.
10:44
John Grady
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John Grady
I'm you know, it is partly the regional agenda, isn't it? And the regional and national agenda. We have a the trade union movement, as I'm sure you know, has got a regional and national dimension to it, who are. And these are these union officials are heavily engaged with the issues in their region. And and again, so I think it's about it's about having the frameworks and the infrastructure for a dialogue at regional level. But it's also about resources. I don't think you can get away from it. There are obviously some things that are cheaper than other things.
There's an important skills dimension that can that can be devolved, but again, perhaps benefits from a central guidance as well as a regional. But in terms of strengthening industry across the country, then that must have a regional dimension. But again, I think it it should be a goal, a big agenda for the TUC is reindustrialisation. We see the purpose of the industry strategy as reindustrialisation, and I think Reindustrialisation has a very important regional dimension.
There's an important skills dimension that can that can be devolved, but again, perhaps benefits from a central guidance as well as a regional. But in terms of strengthening industry across the country, then that must have a regional dimension. But again, I think it it should be a goal, a big agenda for the TUC is reindustrialisation. We see the purpose of the industry strategy as reindustrialisation, and I think Reindustrialisation has a very important regional dimension.
10:45
Catherine West
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Catherine West
Miss Helen, could I just ask quickly about your point around capability and capacity within local government? Because we know, for example, in Cornwall, just taking an example where there isn't a mayor, but perhaps maybe not getting as many grants into that area, both with the withdrawal of the EU funding, but also, what do we do Not getting as many grants into that area, both with the withdrawal of the EU funding. But also, what do we do to build up. capacity for where there are pots of money, sometimes. underspent to get that capacity from a region, into .
10:46
Speaker 1
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Speaker 1
Getting that money into the and do it quickly. Yeah. I mean, I think the example of Cornwall is a kind of striking one. I think there is a bit of a risk that areas like that that don't have a mayor or, you know, it looks like if it was ever to happen, it is a very long way down the road kind of risk being left behind, particularly if some of the kind of growth strategies are really based upon that kind of mayoral model. So I think that either obviously needs to be a lot of engagement with the area around.
If that is something that is going to happen in the future. And I'm not thinking about, you know, what is the other way to to engage with them? I think one of the things that we have been very welcoming of is the idea about moving some of the. current capacity, perhaps within the kind of civil service, and thinking about how people could be. deployed in, in more local areas as well as, I think obviously trying to, to build up the kind of.
capacity kind .
If that is something that is going to happen in the future. And I'm not thinking about, you know, what is the other way to to engage with them? I think one of the things that we have been very welcoming of is the idea about moving some of the. current capacity, perhaps within the kind of civil service, and thinking about how people could be. deployed in, in more local areas as well as, I think obviously trying to, to build up the kind of.
capacity kind .
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10:47
Speaker 2
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Speaker 2
Etc., to really try and get our economy going? I mean, in terms of Fsb's role as Federation of small businesses, you know, we're we're we're there to. represent the small. businesses that give people opportunities. And I think, you know, your constituency is a good example of this is not a. conglomeration versus a non. conglomeration point. It's a, you know, I, I think I think the basic fact is that businesses who are more likely to give people. opportunities are more likely to be small businesses or more likely to be people setting up their own businesses, but they are the businesses that are less able to access some of those, some of those strategies that Louise was talking about earlier in terms of hedging with energy costs, etcetera.
I think if we if we focus on that half of the business.
I think if we if we focus on that half of the business.
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10:48
Speaker 2
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Speaker 2
1 or 2 areas. That would be broadly what I would say. I just wanted to chip in. Yeah. I'm sorry. I maybe I was being a bit vague, but just in terms of the interplay of the industrial and regional strategy, I think it's important to note that when it comes to industrial strategy, we consider that the government's. identified eight key. sectors are a bit narrow. You know, it makes sense to identify them as as areas of strong growth. But in terms of resilience, in terms of security, then we think the industrial. strategy should be broader.
And I think if you if the industrial strategy is broad to take into account, say, bricks and glass and food and drink, then that .
And I think if you if the industrial strategy is broad to take into account, say, bricks and glass and food and drink, then that .
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10:48
Julie Minns
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Julie Minns
Thank you. Thank you very much. Julie Mins MP . Thank you. I represent a northern constituency, arguably one that has been left behind. I'm acutely aware that our wages are not as high as other areas. So clearly the cost of labour is not the reason why large. employers are not coming and setting up in Carlisle. What's the one thing that would change that? Perhaps we could start with you, Doctor Tilly.
You know what? What would you like to see government do to get businesses to locate to areas like Carlisle? And then I'll come to you .
You know what? What would you like to see government do to get businesses to locate to areas like Carlisle? And then I'll come to you .
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Speaker 2
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Speaker 2
Some putting, putting some real money behind it. What that means for Carlisle, I think it means. Finding, finding industries to, to. strengthen across the manufacturing sector and funding them, having. discussions between businesses, between. government and with workers about which of the industries and and looking for funding, looking for increased funding across the economy. We've we've one of the questions I think we might talk about the National Wealth Fund, but there's.
There could be the National Wealth fund could could be used to. reinvest as partly as a. reindustrialisation fund and money through that would .
There could be the National Wealth fund could could be used to. reinvest as partly as a. reindustrialisation fund and money through that would .
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Speaker 1
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Speaker 1
And. Yeah, I mean, first I would just make a note that I, I do still feel that things like high employment costs do have a factor to on the opportunity to, to provide new kind of jobs. And that's, that's both a ransom of the tax increases that we've seen and things like the employment rights bill. But actually, like , Jeff, actually, I think a lot of it is around that point of how you can bring the industrial strategy to life in a place based way. I mean, I think briefly, one of the great examples that that I would.
probably highlight and is in, in kind of my neck of woods where I grew up in, in, in Rotherham is the advanced manufacturing. capital centre up in there. And I think that's been a great example of where it's linked to some of those industries that we want to promote in the future. It's very kind of place based, bringing together those big local employers with the rest of the kind of supply chain, with the local universities, with the local.
probably highlight and is in, in kind of my neck of woods where I grew up in, in, in Rotherham is the advanced manufacturing. capital centre up in there. And I think that's been a great example of where it's linked to some of those industries that we want to promote in the future. It's very kind of place based, bringing together those big local employers with the rest of the kind of supply chain, with the local universities, with the local.
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Speaker 2
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Speaker 2
Mr. Hale, do you have anything from a small business perspective? Yeah, I guess just to build on that from from Louise . And, you know, a lot of times it's it's the local supplier base and the condition of that that dictates where primes will invest. And, you know, in terms of my neck of the woods in, in the Midlands, we have a really strong automotive supply supplier base. We used to have a different prime than the one we've got now. The supplier base is not dependent on the prime. The prime is attracted to to the base.
And I think that's a really important point that can sometimes be missed in some of the detail of the industrial strategy. We too often look to how can we get this particular prime in this particular place and not how can we build a really solid supplier base so that people are wanting to come?
And I think that's a really important point that can sometimes be missed in some of the detail of the industrial strategy. We too often look to how can we get this particular prime in this particular place and not how can we build a really solid supplier base so that people are wanting to come?
10:52
10:52
Bobby Dean
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Bobby Dean
Thank you very much indeed. Bobby Dean MP. Thank you chair. Doctor Tully, earlier on in your defence of the. 2024 budget, you said that public spending can support demand and supply side and be ultimately good for growth. Can you point to evidence of where public spending has led to growth in the last couple of years? And then just more broadly, where do you think public .
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10:53
John Grady
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John Grady
Think were the drivers for growth? In general? I think public spending, if it's supporting spending into the economy, then it's helpful. So that's helpful at aggregate level. It's helpful to the it's helpful to keep the NHS funded because that that you know, that the function of the NHS is to make people better. And so therefore they can get back into the economy. So the NHS spending is helpful. But I do think it's helpful in its own right in an economy where there isn't enough spending to have public spending going in, it obviously helps. Investment spending is generally agreed to be very helpful, and it had been pulled back quite a lot.
So the increased resources into investment spending, I think, is very helpful. And I think I would flip it on its head as well to to remind us all of the. experience when public spending was withdrawn from the economy from, from 2010 onwards, because the the. effects of cutting spending, both on investment, both on current spending, was severely damaging to the economy. And we found out not just us, but countries across the world found out that if you pull back public spending when the economy can't take it, it's it's very. damaging to economic activity more generally.
So I think public spending is, is hugely.
So the increased resources into investment spending, I think, is very helpful. And I think I would flip it on its head as well to to remind us all of the. experience when public spending was withdrawn from the economy from, from 2010 onwards, because the the. effects of cutting spending, both on investment, both on current spending, was severely damaging to the economy. And we found out not just us, but countries across the world found out that if you pull back public spending when the economy can't take it, it's it's very. damaging to economic activity more generally.
So I think public spending is, is hugely.
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10:55
Bobby Dean
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Bobby Dean
In a, in a demand sense for the economy. And, and your arguments are broadly in the aggregate. Okay. And Miss Helen, you talked about earlier about the lack of framework for public private. partnerships in the UK. Can you give us more information about how you think that would work for business? I mean, what would be businesses asks in terms of the models? Because clearly, as you said, there was a there was a negative experience in the past in this country, but other countries seem to have learnt the lessons and proceeded with Pgps in a different way.
So .
So .
10:55
Speaker 1
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Speaker 1
What would be the models you'd be seeking for the UK government to take on? So, I mean, I think there's a variety of options. And you know, we've done a done a paper on this that I'm very, very happy to to share with the committee. I mean, I think you've got some some models like the kind of Rad model and things like that. So I, so I think there's a variety of models out there. I think it depends on what the.
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10:56
Speaker 1
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Speaker 1
You know, kind of infrastructure investment is. One of the important things though, I think is, is not only just about understanding of the pipeline of opportunities and the types of models is also around making sure that you've got the right. capabilities on both sides. And I think that was one of the lessons from the, the previous models around actually making sure you've got, again, those right. capabilities in government around kind of contracting and things like that as well.
So that again, throughout the process, everybody's got a clear. understanding of, of kind of. expectations .
So that again, throughout the process, everybody's got a clear. understanding of, of kind of. expectations .
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Bobby Dean
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Bobby Dean
And kind of costs along with those as well. And I think that was one of the important lessons from last time. You mentioned in your answer there infrastructure investment as well. I just want to probe on that a bit further. Do you think this could be applicable to sort of not only energy and transport infrastructure, but perhaps social infrastructure? Again, sort of building out of hospitals, for example. And do you think that it could go further into the industrial strategy and maybe support.
specific .
specific .
10:56
Speaker 1
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Speaker 1
Businesses too? Is that the kind of involvement you'd like to see from? I'm not sure about specific businesses. You might have to, to, to elaborate more on that, but. definitely I don't see there's any reason why it couldn't be used for things like public infrastructure. I think that's something that we can see the possibilities of, but we can understand where you might want to at least start with .
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10:57
Bobby Dean
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Bobby Dean
On the business side, I guess I'm talking about some of the key areas in the industrial strategy. So perhaps there might be. particular advanced manufacturing businesses or clean green technology businesses that the UK might want to, to, to, to form partnerships with private sector on maybe through the national welfare, maybe for other public financial institutions.
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Speaker 1
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Speaker 1
I think is incredibly important. I think that's one of the positive things that we're seeing through, through things like the, the National Wealth Fund and helping to kind of bring in some more of that kind of private. financing by, by the kind of co-investment with the, with the kind of public sector as well. And I think that that can be both to, to help kind of create new markets. I think one of the kind of recent examples is I think there's a mine in, in kind of Cornwall, that we've had some kind of national wealth fund money for, to kind of start that project off.
And I think that that, again, speaks to where the government wants to build up sectors within the UK to improve the UK's resilience .
And I think that that, again, speaks to where the government wants to build up sectors within the UK to improve the UK's resilience .
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10:58
Bobby Dean
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Bobby Dean
UK supply chains as well. So I think there's there's definitely an important role there. Can I just take a step back then as well, because this feels like a million miles away from the sorts of things that business would be advocating for, say, 20 years ago, which was much more about letting the market do its job. And now there seems to be an invitation from government to get involved and.
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Speaker 1
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Speaker 1
Investment and and distorting the market? Yeah, I think it is around, you know, normally we'd think about it if if there is a kind of. market failure there for, for kind of y public sector might get involved or like I say, particularly around nascent markets and where there might be a lot of risk attached to it. I think that's where we see in particular a big role where you can have have kind of .
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10:59
Speaker 2
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Speaker 2
Opportunities for small and medium sized businesses? I guess if we looked at some possible spending reductions, you might you might see opportunities. So we do not think the government procures well. And I do think a way to get action rather than rather than just kind of more. strategy is, you know, and this, this would be more for the spending review is, is, is, is to set reductions in. procurement spend as a target through that. And I think one way that you can make sure that that doesn't have any undue negative impact on the sort of quality of services that people receive is you can get more small businesses involved.
The government supplier base looks nothing like any large companies. Like most large companies, around two thirds of their suppliers are small businesses.
The government supplier base looks nothing like any large companies. Like most large companies, around two thirds of their suppliers are small businesses.
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11:00
Speaker 2
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Speaker 2
Doesn't even get, you know, doesn't even get to one third. And I think the reason why large companies tend to have a supplier base more full of smaller companies is it's a way to get proper competition when, when they procure and to get to get better prices. And I don't think the government takes that effect. But I do think if you were to put some sort of headline reductions in for departments to reduce spend, then that would help on on that. And then again, on, on some of the the guardrails, I do think you need some guardrails to make sure we're not making less good use of money than we should when it's, you know, innovation funding in particular.
I think, unfortunately, we've moved from a very firm. neutral tax credit R&D system to quite to, to putting a lot of onus on government to identify particular businesses through agencies like innovate UK. And I think the lack of the guardrails, you do lose some of the market discipline that would, would, would, would get there. Having said that, from from an infrastructure point of view, from small businesses, last mile, it's roads, it's small, it's it's small blockages and roads that, you know, affects your smaller roads in the constituency, the motorway network. I'm not saying it's perfect by any means, but it is more around, you know, the small roundabouts that are causing problems in local areas.
That's that sort of thing is roads is I guess it's less flashy.
I think, unfortunately, we've moved from a very firm. neutral tax credit R&D system to quite to, to putting a lot of onus on government to identify particular businesses through agencies like innovate UK. And I think the lack of the guardrails, you do lose some of the market discipline that would, would, would, would get there. Having said that, from from an infrastructure point of view, from small businesses, last mile, it's roads, it's small, it's it's small blockages and roads that, you know, affects your smaller roads in the constituency, the motorway network. I'm not saying it's perfect by any means, but it is more around, you know, the small roundabouts that are causing problems in local areas.
That's that sort of thing is roads is I guess it's less flashy.
11:01
Bobby Dean
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Bobby Dean
So it's sometimes gets less discussed. But I think we would always point to roads. Can I just put one specific to you that I've heard others advocate for things like AI and tech adoption, adoption programs that can support maybe small and medium sized enterprises from taking on technology in the same way that larger businesses do. Is .
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11:01
Speaker 2
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Speaker 2
Governments should be getting involved in? I think we're at the point of take up on AI, where small, where you see quite a lot of rapid adoption in small businesses. And in terms of the IT sector, that's kind of making use of, which is quite small, small business. dominated in in a way which is making use of AI quite, quite quickly. Is there I don't think I think it'll be a few years till we're really in that sort of thing that you eventually get to in technology, where some small businesses adopt very quickly and then some small then than some small businesses adopt very slowly.
It's much it's much less even than amongst large businesses in general technology adoption. So. It's not the first thing that comes to my mind, AI, tech adoption necessarily. I think the sorts of things that we, you know, similar to whether are good programs like Cyber essentials to help keep people secure, you could do that sort of approach to AI, but a broad. adoption spending driven program,
It's much it's much less even than amongst large businesses in general technology adoption. So. It's not the first thing that comes to my mind, AI, tech adoption necessarily. I think the sorts of things that we, you know, similar to whether are good programs like Cyber essentials to help keep people secure, you could do that sort of approach to AI, but a broad. adoption spending driven program,
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John Grady
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John Grady
But the the National wealth fund doesn't seem to be being as used as as as extensively as it might be. So in our submission, we. discuss that maybe that the key problem is that there's a short horizon over which projects are judged. I think there's a five year. horizon that the national wealth fund judges projects at the moment. And we we suggest extending that to 15 years and perhaps requiring a lower return.
So then it can be used to advance on a broader front. And .
So then it can be used to advance on a broader front. And .
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11:03
Speaker 1
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Speaker 1
Use National Wealth Fund as well as the. 15 you had a brief comment to come in. Yeah. I was just briefly going to come in on the AI adoption point, because I think that is one of the big areas that we would like to see progress on in the budget. particularly to have a business AI. adoption kind of task force to see see more roll out across the economy, particularly for, for small and medium size firms. And I think one of the really positive schemes we've seen over the last few years is the Made Smarter scheme, which, you know, provides.
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11:04
Speaker 2
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Speaker 2
And then I guess within that, how to get small businesses in. I think it's things like greater use of. dpps and frameworks that you can join easily. Because at the moment, if you're not a framework, too often, if you're not on a framework at the start, it's quite difficult to enter. Too often we have these very aggregated contracts, so you end up with a situation where only 1 or 2 people are bidding for a contract, and that's never going to get you the best price. You want many more people to to bid for that. And it's not just about price.
It's also around, you know, is someone going to come up with an innovative solution? Probably not. If they're the only person that's going to bid for the product. That's just not how people work. So I think. You know, and then there's simply how well contracts are advertised. You get into a level of detail where it's just just about kind of performing a little bit better from a possible small business perspective.
If you look at particular industries like.
It's also around, you know, is someone going to come up with an innovative solution? Probably not. If they're the only person that's going to bid for the product. That's just not how people work. So I think. You know, and then there's simply how well contracts are advertised. You get into a level of detail where it's just just about kind of performing a little bit better from a possible small business perspective.
If you look at particular industries like.
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11:05
Speaker 2
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Speaker 2
The the vetting procedure is a large barrier for small business entrants because, because they don't have the capacity to sort of speed it along or the existing capacity to have people in a business who are already vetted. So if you might or might not enter a contract, the vetting will hold you back. So whether there could be something to speed that up .
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11:06
Speaker 2
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Speaker 2
Industrial strategy is working for small businesses on the ground? I mean, I think when we talk about the grants in particular, when we talk about the kind of guardrail points, you know, a very simple mechanism to check is how many of these grants are going in practice to small firms, and does it match the prevalence of small firms in the economy? You know, and you worry with things like industrial strategy that it won't. But that's a good discipline. You know, if half of firms or, you know, half of employment is more than half is with SMEs, is that is that matched in the funding?
And then when it gets to kind of things like how can you kind of build and develop supplier bases in places where you particularly want them to? You know, perhaps there should be more, but I wouldn't I wouldn't I just think we should .
And then when it gets to kind of things like how can you kind of build and develop supplier bases in places where you particularly want them to? You know, perhaps there should be more, but I wouldn't I wouldn't I just think we should .
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Speaker 1
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Speaker 1
Significant part of solving the start up to scale up problem? Yeah, I mean, I think the the start up scale up kind of cliff edge in the UK is well known. I think, you know, we, we would like to see more support from that. Some of that can be through some of the kind of puffins like the British Business Bank and others. I think it is also around how can we improve just the depth of capital. markets in the UK so that we don't see as many firms kind of start here in great innovations here, but then kind of moving in particular to the US to to access those deeper capital markets as well.
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John Grady
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John Grady
Britain fund, which again, would come out through the National Wealth Fund to make sure there's some money on the ground. And likewise, as has just been discussed as part of this, we think there should be a procurement bill because, you know, trade unions have always argued that procurement has potential great benefits to the domestic.
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John Grady
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John Grady
Again, I think it comes down to dialogue. We've got a very a national the trade union movement is across the country. We have a union learning fund that we are hoping gets reinstated. We heard from the Chancellor at our Congress. So we think. operating at a at a place based level with worker voice, with employer needs, is the right approach to getting skills right across the country.
So again, I think it comes down to the , the broader design of a .
So again, I think it comes down to the , the broader design of a .
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John Grady
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John Grady
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John Grady
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John Grady
Certainly know we've got a list of areas where AI might be affecting hiring. But I think that the approach has got to be proactive. And it's it's got to, in part, depend on training for skills. But but it's also got to depend on how AI is more broadly adopted across the economy. You know, there's this I think there's a fear that AI is used only for to save on costs, but it really should be used to help expand to, to, to, you know, to make people have to do less of .
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Chris Coghlan
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Chris Coghlan
Bad jobs and more of good jobs. It shouldn't be a zero sum situation. I mean, on that, there's quite a lot of reporting, I guess, around AI makes it very hard for entry level workers because they're the jobs that first start to get replaced, whereas middle managers are safer because they've got seniority and the judgment. They're almost directing AI instead of entry level workers. But is there a case that you could use AI to, in effect, upskill entry level workers so they could operate .
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John Grady
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John Grady
Say, middle managers with AI? I mean, it has it has to be a key part of skills training, doesn't it, to have workers use AI and, and how they use digital. I mean, there's, there's probably an argument that AI should be a sector in its own right in the industry strategy. But, you know, there's, there's massive. uncertainty in this area, isn't there? We don't know whether it's going to be improved productivity. And there are all these worries that we heard from the IMF and the OECD recently that it could be quite perilous for the .
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11:12
Speaker 1
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Speaker 1
The. industrialisation strategy. If anyone wants to go first, I'd be happy to go first. I mean, I think one of the big things for us and is maybe a bit of a theme of our conversation today, is I don't think you can have a proper. reindustrialisation strategy in the UK without addressing high energy costs. So I mean, that is. definitely our hope, if not for for this budget that very soon we are going to see more substantive action from government on that. And I think that's both. Like I say, one of our immediate asks is to remove policy costs from bills, but also to really be.
engaging with government and, and think about this kind of end to end approach to, to improve kind of grid connectivity and make sure we've got a system that is really working together. And I think that's both for the benefits of.
engaging with government and, and think about this kind of end to end approach to, to improve kind of grid connectivity and make sure we've got a system that is really working together. And I think that's both for the benefits of.
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Speaker 2
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Speaker 2
And that would be one of the big areas for us. So yeah, following on from that, it just needs needs to have some, some great, I can't be or I would hope it doesn't end up being kind of 1 or 2 primes making announcements that sound good. That's not actually tackling the kind of real issues that are kind of applying across the industrial base, energy being the one of the moment, but one of one of a few. So that would be good. And just briefly from May on labour costs because. Maybe this is why we've had some disagreements on some aspects of policy, but we would really see it as a as a.
structural issue for people who are outside or in danger of being kept outside of the labour force. There are real reasons why that group finds it harder to enter work over the last 20 years and and perhaps getting accelerated. And the only thing that, you know, optimist about AI. But what's slightly worries me is it's the same. It's the same roles where you could foresee easily AI having an impact on those kind of entry level roles that are becoming harder to, to get into because, you know, for all the focus on individual job seekers, you either need to make your own job and be self-employed, or you need somebody to, to give you a job.
And I think it's harder to do that from outside the labour market than it, than it used to be. And I think we need to be looking at that if we're not to see a constraint .
structural issue for people who are outside or in danger of being kept outside of the labour force. There are real reasons why that group finds it harder to enter work over the last 20 years and and perhaps getting accelerated. And the only thing that, you know, optimist about AI. But what's slightly worries me is it's the same. It's the same roles where you could foresee easily AI having an impact on those kind of entry level roles that are becoming harder to, to get into because, you know, for all the focus on individual job seekers, you either need to make your own job and be self-employed, or you need somebody to, to give you a job.
And I think it's harder to do that from outside the labour market than it, than it used to be. And I think we need to be looking at that if we're not to see a constraint .
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John Grady
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John Grady
As as we've discussed earlier, we support measures to reduce energy costs for. businesses more broadly. We support bold action and we need we support money in there. But but I should also mention that it's not just the industrial strategy. It's about living standards. We have a measure for. businesses on reducing business costs, but we also have a proposal for a social tariff for households, which we think is very important. We think that strengthening living standards is an important part of strengthening the economy because of a shortfall in demand, because of high interest rates and so on.
And and I should reiterate that we that we that we think that the Employment Rights Bill is vital to both action in the short term and in the long term. All the. evidence these days .
And and I should reiterate that we that we that we think that the Employment Rights Bill is vital to both action in the short term and in the long term. All the. evidence these days .
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11:15
Speaker 3
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Speaker 3
To the fact that what's good for workers is good for the economy. Thank you. I just want to touch back on energy costs again, and particularly to you, Miss Helen, because you have framed the cost of electricity as an essential competitive issue for UK businesses. So can you just crystallize what government could do or what could or the sector could do to, to try and smooth that and .
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Speaker 1
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Speaker 1
What the particular cliff edges are between the UK and other countries. Yeah. So in terms of industrial energy prices, so they're kind of. 36% above the EU average. 47% above the G7 average. What we would like to do and is, is one of the reasons why that difference is so large is that at the moment, we've got the renewables obligation and the feed in tariff and indeed the climate change levy, all on.
business bills. We'd like to see those all moved into general taxation.
business bills. We'd like to see those all moved into general taxation.
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Speaker 1
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Speaker 1
That those government levies that are causing the difference, that that is the big immediate action that we'd like the government to take. I think there are some of the longer term actions, like we say, around making sure we can have that greater roll out of. electrification through the kind of grid.
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Speaker 1
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Speaker 1
Premises and business operations. So what are the barriers to. So one of the barriers at the moment is these policy costs, which means that if you're looking at the cost of electricity versus gas, that's one of the one of the things that make that higher. So you need to reduce that kind of spark gap. And then you need to make sure that businesses have got the. opportunity to. electrify because they have got the attachment to the grid, things like that as well. And at the moment, sometimes you don't have the right. conversations with the grid saying, there isn't demand in this .
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Speaker 1
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Speaker 1
I think there's those measures that that we've already talked about in terms of business rates. So that would be one of the the big areas, particularly removing some of the cliff edges in the system. I think some of the other areas that that we would like to see. You know, perhaps on the kind of smaller end. But for example, you know, we still have a lot of issues from from businesses, particularly on the kind of SM end around Ir35. And actually there's measures you can put in place there to, to create kind of safe harbours for, for, for those who are certified to be.
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Speaker 1
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Speaker 1
Problem is in terms of customer interaction? Yeah, I mean, there's a variety of things. I mean, I think you mentioned the kind of 15 billing there in terms of just compliance costs and things like that. So some of those things are very practical things. I think within the CT regime, the compliance frameworks and things like. 985 boxes, I think that, you know, just the regime itself can be simplified. There's there's an ongoing. discussion at the moment. around how the domestic CT. regime coexists. Now we've got the International Pillar two regime. Again, there's a lot of duplication in the system there.
You can take out. We we just have the very simple issue of if a firm is in contact with.
You can take out. We we just have the very simple issue of if a firm is in contact with.
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Speaker 1
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Speaker 1
And how do you see an appropriate change would affect it? Yeah. So our proposal is, is you call it the kind of slab to slice system. And that is improving the system for everybody. It is not going down the route of having different rates for different sectors or different types of businesses. And indeed, we think that that's quite important to make sure that you're just not creating more. complexities and more kind of cliff edges within the system. And I think, as you say, you know, people might think about the kind of shop on the high street, but actually there is there is always a warehouse at some point along the chain for that as well.
So actually, we think it's much better to just improve the system. Some of the points around cliff edges, for example, like I say, there's these cliff edges around. 51,000 and. 500,000 for the property value. So that if you go over that by £1, you will have a much, much, much greater to bill. So actually, that is one of the things that can also either catch businesses unawares or again, mean they've got a. disincentive to.
expand .
So actually, we think it's much better to just improve the system. Some of the points around cliff edges, for example, like I say, there's these cliff edges around. 51,000 and. 500,000 for the property value. So that if you go over that by £1, you will have a much, much, much greater to bill. So actually, that is one of the things that can also either catch businesses unawares or again, mean they've got a. disincentive to.
expand .
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John Glen
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John Glen
See one as disappointing as that will be for people in the sector. What what would your top ask be for the. hospitality sector in specific? You know, UK. hospitality has been very. powerful in their. advocacy and. criticism over the fusion of the inflation above inflation. Increases in the national living wage, combined with the Employment Act. Contrary to what Doctor Tilly said, and, you know, the the.
overall operating environment on the high street, what .
overall operating environment on the high street, what .
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Speaker 2
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Speaker 2
Say would be the best alternative to that if they're not going to have that? A few things, if I may, because I think it goes back to where government can kind of negatively interact with the sort of ratcheting costs that that businesses are, are seeing. So hospitality is a big user of energy. Like, you know, the renewables obligation point stands for hospitality as as much, if not probably in general more than other sectors. So, so I would include that small business rates relief of, you know, is, is really. important for, for the hospitality businesses that that will help, you know, people on, on, on the national living wage in particular, which, which, you know, which is , which is.
increasing the national insurance tax take is, is, is , has increased particularly on that, you know, sometimes a distraction to talk about the wage when we could be talking about about the tax rate coming down. And that's what we would point to in terms of in terms of where can you bear down on the national insurance costs? Obviously, sick pay and the proposals are. particularly tricky in an industry that in general employs people that are more likely to have have days off sick.
So again, the sort of statutory sick pay.
increasing the national insurance tax take is, is, is , has increased particularly on that, you know, sometimes a distraction to talk about the wage when we could be talking about about the tax rate coming down. And that's what we would point to in terms of in terms of where can you bear down on the national insurance costs? Obviously, sick pay and the proposals are. particularly tricky in an industry that in general employs people that are more likely to have have days off sick.
So again, the sort of statutory sick pay.
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John Glen
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John Glen
Headline VAT reductions, which I'm I'm just not expecting to see. So I'm not I'm not really clear if they're not going to increase, if they're not going to reduce the National. Insurance employer. contributions and the national living wage will go up and there won't be any changes to the employment rights and sick pay will come in and very early,
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John Grady
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John Grady
Scope or the rate. Would that be something you would have supported? Yeah, we it is something we would have supported. We recognise that those figures that you have mentioned. We note that it was deployed relatively successful by the previous. chancellor when when CGT rates were raised and it raised an impressive .
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John Grady
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John Grady
But YP, the Institute for Policy and Research of. Mr. P there. But they've put out analysis showing that there are better ways to support dynamism in the. economy and in general, capital gains tax. It isn't a barrier to entrepreneurship. So we continue to support an increase in capital gains tax. You know, and again, you come back to this, you have to come back to this point that the difficult point, the difficult position, the economy is in, the the support that is needed and the need for those who can best afford it to, to pay .
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John Grady
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John Grady
Is the Chancellor's hanging on every word of his session. One area that we have looked at and we've got there's material in our submission, and I think we're putting some material out this week is around corporation tax reliefs because we've we've noted that the corporation tax paid seems only to be about half of the rate of corporation tax. We understand that there are lots of reliefs in. operation when it comes to corporation tax, many .
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Speaker 3
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Speaker 3
To, to see where the shortfall is as large as it is. Thank you very much. An example of when government changes things and then the aggregate position hasn't always been looked at. So. Okay. Thank you. Thank you very much indeed. To our witnesses, that's Doctor Jeff Tyler of the Trade Union Congress of the Confederation of British Industry and David Hale of the Federation of Small Businesses.
The transcript of this session will be available on the website in the next couple of days.
The transcript of this session will be available on the website in the next couple of days.
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Speaker 3
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Speaker 3
And thank you to our colleagues at Hansard for that. Thank you to our colleagues at Bow Tie for the broadcasting. And just a reminder that after the budget next week, we have a number of witnesses the week after, and then the Chancellor of the Exchequer in front of this committee on the 11th of November.
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