Improving the climate for
1. Economic Outlook
The year 2004 was the strongest year for the global economy for more than three decades.
But global growth peaked in the first half of 2004, and has since slowed. The global
economy is facing serious problems and imbalances that will limit growth. For example,
terrorism, huge budget and external deficits, trade tensions, and excessive debt. These
pressures are exacerbated by high oil prices, rising US interest rates, and US dollar
On balance, global prospects are still benign. But the risks are serious, and the pace of
expansion is set to slow in the next 1-2 years. The US economy is slowing, but will still
grow more rapidly than the Eurozone and Japan. The growth gap in favour of the US will
remain large and persistent, in spite of huge US imbalances. Eurozone growth is set to
remain unduly weak.
UK quarterly growth improved in Q4 2004. But UK year-on-year growth has decelerated
steadily since mid-2004, and we expect the underlying slowdown in the pace of activity to
continue and probably intensify.
In average year-on-year terms, the UK economy is set to decelerate over the next two
years. In the February 2005 BCC Quarterly Forecast, UK GDP growth is expected to slow,
from 3.1% for 2004, to 2.5% for 2005 and 2.3% in 2006. The BCC’s UK GDP forecasts
for2005 and 2006 are below the official forecasts quoted in the December 2004 Pre-Budget
The expected slowdown in UK GDP will be driven mainly by lower growth in household
consumption, as the cooling housing market, and the increased personal debt burden, both
dampen personal spending. UK GDP growth will remain stronger than in the Eurozone, but
weaker than in the US.
The outlook for UK interest rates is uncertain. A rise in the repo (base) rate is still possible.
But raising rates is unnecessary and potentially harmful. On balance, we believe that base
rate has peaked at 4.75%. Our central forecast is that the repo (base) rate will stay
unchanged at 4.75% in the next 5-8 months, followed by cuts to 4.50% in Q4 2005 and to
4.25% in 2006. We expect sterling to weaken over the next 12-18 months, initially against
non-US dollar currencies.
Investment and exports are set to grow faster than in our previous forecast. But imports are
also higher. The UK budgetary position has improved in recent months, but is still
stretched. The official forecasts for the Current Budget Balance, which determines
adherence to the Golden Rule, still seem optimistic.
Most independent analysts believe that, on the existing definitions, the Golden Rule will be
broken without tax increases totalling some £10bn. The proposed reclassification of some
road maintenance spending, from current to capital spending, may help the Chancellor to
adhere to the Golden Rule without additional fiscal tightening. But this major statistical
change will be controversial.
Relatively low public debt levels give the Chancellor room for manoeuvre. But the large
budget deficit, and concerns that tax increases may be needed in the future, will make it
more difficult for the MPC to cut interest rates. Manufacturing output is forecast to grow at
a modest pace: 1.8% in both 2005 and 2006, after 1.3% in 2004. The sector’s performance
in recent years has been very disappointing, and there are risks that the outcome will be
The UK current account deficit is forecast to remain sizable. Earnings growth is set to edge
up gradually over the next year, but the underlying rate of increase is likely to remain
UK CPI inflation is set to edge up over the next 12-18 months, as the pound weakens,
commodity prices stay high, and labour costs edge up. But the upturn in CPI inflation is
forecast to be moderate: in annual average terms, 1.8% in 2005, and 2.0% in 2006, after
1.4% in 2004.
Recent UK economic performance has been satisfactory overall - with good growth,
low inflation, and strong job creation. But the business climate is becoming riskier
and more difficult. Growth is set to slow, and UK businesses will continue facing
serious risks and burdens. Overall the Q4 Quarterly Economic Survey (QES) results
highlighted major risks in the economic climate. There were improvements in the
export and confidence balances, but for the economy as a whole, the Q4 results
signaled warnings, and do not reverse the deterioration witnessed in the previous
Excessive regulations and higher taxes are growing threats. Potential changes in labour
market regulations appear particularly damaging. It is imperative to avoid new tax and
regulatory burdens. Government support for the business sector is vital to nurturing the
recovery. Clear demonstration that budgetary pressures are easing and tax increases can be
avoided will boost confidence.
a) UK GDP and the main components of demand
Recent GDP trends: Preliminary GDP figures for Q4 2004 show that quarterly growth was
0.7%. But Q4 growth may be revised up slightly, following the December manufacturing
figures. Q4 GDP was s slightly stronger than expected, and higher than the 0.5% increase
in Q3, but below the 0.9% quarterly increase in Q2. Year-on year growth in Q4 was 2.8%,
down from 3.2% in Q3, and a peak of 3.6% in Q2. GDP growth in 2004 as a whole was
3.1%, after 2.2% full year GDP growth in 2003.
GDP prospects: In spite of the slightly better than expected Q4 GDP figure, UK economic
growth is slowing. The Q4 2004 figure does not alter our expectation that 2005 and 2006
GDP growth will be markedly lower than in 2004.
Consumer spending is set to slow markedly in 2005 and 2006. The cooling housing market,
and the increased personal debt burden, will both dampen personal spending. Investment
and exports, while stronger than in our previous forecast, are most unlikely to fill up the
slack created by weaker growth in consumer spending.
Against this background, our GDP growth forecast continues to indicate a gradual
slowdown in year-on-year terms, to 2.5% in 2005 and 2.3% in 2006. However, in quarter-
on-quarter terms, the UK slowdown is set to end early in 2006, and growth should
gradually improve after the spring of next year. UK growth is set to remain stronger than in
Our GDP growth forecasts for 2005 and 2006 are below the official estimates in the recent
Pre-Budget Report (PBR). The PBR forecast was for 3-3.5% GDP growth in 2005,
followed by 2.5-3% growth in 2006.
We expect quarterly growth in household consumption to decelerate, due to a cooling
housing market, and greater caution fostered by the personal debt burden. In annual
average terms, we forecast household consumption to grow by 2.3% in 2005 and 2.1% in
2006 (after 3.3% in 2004) slightly weaker than the expected growth in GDP.
Investment prospects have improved. We now forecast total investment growth of 6.1% in
2004, followed by lower but still robust growth of 4.1% in 2005 and 3.8% in 2006.
Exports of goods and services forecast: Assuming moderate growth from now onwards,
exports of goods and services are forecast to grow 3.8% in 2005, and 3.2% in 2006.
Table 1: UK GDP and Main Demand Components, % Change Year on Year
2001 2002 2003 2004 2005 2006
GDP 2.3% 1.8% 2.2% 3.1% 2.5% 2.3%
Household Consumption 3.1% 3.2% 2.3% 3.3% 2.3% 2.1%
General Government 2.6% 3.8% 3.5% 4.7% 4.8% 4.1%
Investment 2.6% 2.7% 2.2% 6.1% 4.1% 3.8%
Exports 2.9% 0.1% 0.9% 1.9% 3.8% 3.2%
Imports 4.9% 4.1% 1.8% 4.5% 6.2% 4.7%
b) UK economy, the main sectors: manufacturing, services, and construction
Manufacturing output rose 0.6% in December, better than expected. There were also
upward revisions to previous figures. In Q4 2004, manufacturing recorded a slight
quarterly rise of 0.2%, rather than a fall, after falling 0.8% in Q3, and was 0.5% higher than
in Q4 2003. The revised manufacturing figures for December confirm that the sector is not
in recession, but its overall performance remains most disappointing. The crucial fact is
that manufacturing is persistently failing to sustain recovery. In Q4 2004, manufa cturing
output was 3.5% below its end-2000 peak. The share of manufacturing in GDP fell below
16% in 2002.
Manufacturing output is expected to expand at a modest pace over the next 12-18 months,
with annual average growth forecast at 1.8% in both 2005 and 2006, after 1.3% in 2004.
Manufacturing employment will fall further, but more modestly than in recent years.
Quarterly growth in manufacturing output was 1.0% in Q4 2004, after 0.9% in Q3, and
1.0% in Q2; year-on-year services growth was 4.0% in Q4, after 4.3% in Q3, and 4.2% in
Q2. Full year services growth in 2004 as a whole is estimated at 4.0%. Assuming a gradual
slowdown in the pace of expansion, we expect annual average service sector growth of
3.0% for 2005, and 2.5% for 2006, above the expected growth in total GDP.
Quarterly growth in construction output was 0.8% in Q4 2004, after 1.2% in Q3, slightly
below expectations. Year-on year growth in Q4 was 2.5%. Full year construction sector
growth in 2004 as a whole is estimated at 3.6%. In spite of the relatively weak recent
performance, construction growth is expected to stay buoyant, benefiting from strong
public spending. Our construction output growth forecast is 5.5% for 2005 and 5.9% for
Table 2: UK Main Sectors, % Change Year-on-Year
2001 2002 2003 2004 2005 2006
Manufacturing Output -1.4% -3.1% 0.4% 1.3% 1.8% 1.8%
Services Output 3.3% 2.7% 2.5% 4.0% 3.0% 2.5%
Construction Output 1.8% 3.8% 5.2% 3.6% 5.5% 5.9%
c) The twin UK deficits – public sector net borrowing (PSNB), current budget, and
the balance of payments (BofP) on current account
Long-term trends in UK public finances: Between 2000/01 and 2003/04, we have seen a
huge budgetary swing totalling 4.8% of GDP, from 1.6% PSNB surplus to 3.2% deficit.
The deterioration was particularly sharp in 2002/03 and 2003/04. Though the position has
stabilised in the current financial year 2004/05, UK public finances are still stretched.
Recent figures have been volatile. After worsening sharply in the three months September-
November 2004, the public finances improved sharply in December and January. The
budgetary position is stronger than earlier in the current financial year, and the official Pre-
Budget Report (PBR) forecasts for the PSNB are realistic. But the official forecasts for the
Current Budget Balance, which determines adherence to the Golden Rule, are still too
Most independent analysts still believe that, on the existing definitions, the Golden Rule
will be broken without tax increases totalling some £10bn. The proposed reclassification of
some road maintenance spending, from current to capital spending, may help the
Chancellor to adhere to the Golden Rule without additional tightening. But this major
statistical change will be controversial.
Table 3: UK Public Finances – Comparison of Forecasts
2003/04 2004/05 2005/06 2006/07
Current Budget-£bn-March2003 Budget Forecast -8.4 -1.0 2.0 6.0
Current Budget-£bn-March2004 Budget Forecast -21.3 -10.5 -5 0
Current Budget-£bn-Dec2004 PBR Forecast -21.1 -12.5 -7 1
Current Budget-£bn-BCC Forecast -20.7 -18.0 -14.5 -8.2
PSNB-£bn-March2003 Budget Forecast 27.3 24 23 22
PSNB-£bn-March2004 Budget Forecast 37.5 33 31 27
PSNB-£bn-Dec2004 PBR Forecast 34.8 34.2 33 29
PSNB-£bn-BCC Forecast 35.4 34.0 32.2 27.8
*BCC figures for 2003-04 are the most up-to-date revised actual figures
**Positive PSNB figure indicates budgetary deficit, negative PSNB figure indicates surplus
Relatively low public debt levels give the Chancellor room for manoeuvre. But the large
budget deficit, and unresolved concerns that tax increases may be needed in the future, will
make it more difficult for the MPC to cut interest rates.
The UK current account deficit widened from £5.8bn in Q2 to £8.8bn in Q3 2004, much
worse than expected, and near to an all- time high. The deterioration was mainly due to a
fall in investment income, possibly due to the translation effects of the fall in the US$.
Balance of payments (BofP) forecast: Following the Q3 figures, we have raised our forecast
for the UK current account deficit: to £27.0bn in 2004, £28.0bn in 2005, and £26.0bn in
2006, after a revised £18.6bn in 2003.
Table 4: The UK Twin Deficits - Public Borrowing and BofP Current Account
2001 2002 2003 2004 2005 2006
BofP-CurrentAccount-%GDP -2.4% -1.7% -1.7% -2.3% -2.3% -2.0%
PSNB-FinYears-%GDP 0.0% 2.4% 3.2% 2.9% 2.6% 2.1%
CurrentBudget-FinYrs-%GDP 0.9% -1.3% -1.9% -1.5% -1.2% -0.6%
BofP-CurrentAccount-£bn -23.5 -17.6 -18.6 -27.0 -28.0 -26.0
PSNB-FinYears-£bn 0.5 25.2 35.4 34.0 32.2 27.8
CurrentBudget-FinYrs-£bn 9.4 -13.9 -20.7 -18.0 -14.5 -8.2
*Positive PSNB figure indicates budgetary deficit, negative PSNB figure surplus
d) UK labour market
Britain’s labour market remains strong overall. Employment is rising, and wage rises are
edging up, but pressures are still manageable. Meanwhile, unemployment is rising on the
Labour Force Survey (LFS) measure and is falling on the claimant count (CC). But the
level of inactivity remains too high, and the UK labour market is potentially threatened by
growing regulatory burdens.
January CC unemployment was 813,200, down 11,000 from December, down 78,500 over
the year, and the lowest figure since June 1975. On the Labour Force Survey (LFS)
measure, unemployment was 1,411,000 in the three months October-December, a rise of
32,000 on the previous three months, but down 56,000 over the year.
The jobless rate was 2.6% (January) on the CC measure, and 4.7% (October-December) on
the LFS measure.
The employment level (LFS) was 28,521,000 in October-December, up 90,000 over the
quarter and by 296,000 over the year, and highest since records began in 1971. The
working age employment rate was 74.9% in October-December, up 0.3 percentage points
(pp) on the year. The inactivity rate for people of working age was 21.3% in October-
December, down from 21.5% in the previous quarter.
Manufacturing employment was 3,240,000 in October-December, 104,000 lower than a
year earlier, and the lowest level since comparable records began in 1978.
The jobless rate (LFS measure) in October-December was lowest in the South West (3.3%),
the South East (3.5%), and Eastern (3.8%). Regional jobless rates were highest in London
(7.3%), the North East (6.3%), and Scotland (5.6%).
Average earnings annual growth, including bonuses, was 4.3% in October-December, 0.1pp
up from September-November. Excluding volatile bonuses, annual earnings growth rose
0.1pp to 4.5% in October-December, up from 3.5% a year earlier, and highest since January
2002. In the year to October-December 2004, pay growth (excluding bonuses) was 4.4%
for the private sector, and 4.7% for the public sector. Including bonus payments, pay
growth was 4.3% for the private sector, and 4.7% for the public sector.
Looking ahead, the labour market is likely to remain resilient overall. Output growth is set
to slow, but there is only limited spare capacity in the economy, and low unemployment
could exert upward pressure on wages. Strong public sector spending may trigger higher
wage claims and strike threats; but this should be partly mitigated by the planned
downsizing of the Civil Service. On balance, earnings growth is set to edge up gradually
over the next year, but the underlying rate of increase is likely to remain below 5%.
e) UK inflation
CPI inflation, the basis for assessing the 2% inflation target, remained unchanged at 1.6%
in January, slightly above market forecasts. CPI inflation was last above 1.6% in December
2002. Inflation on the all- items retail price index (RPI) fell from 3.5% in December to 3.2%
in January. ‘Underlying’ retail price inflation (RPIX), which excludes mortgage interest,
fell from 2.5% in December to 2.1% in January. Both the RPI and RPIX inflation measures
were both below expectations in January. The gap between RPIX and HICP fell sharply in
January, from 0.9% to 0.5%.
January goods price inflation was negative (on both the CPI and RPI measures), at -0.5%
on the RPI measure, and at –0.2% on the CPI measure. In contrast, services price inflation
was relatively high in January, at 4.0% on the RPI measure, and at 3.7% on the CPI
measure. January CPI inflation was slightly higher than expected. But margins remain
under pressure, especially in the goods market. Over the 12 months to January 2005,
producer input prices rose 9.5%, while factory gate output prices rose only 2.6%, signaling
acute pressure on manufacturing margins. High street margins also remain under pressure,
as high street prices continue to show year-on-year declines.
Most upward influences on inflation are still being driven by higher oil and energy prices,
either directly or indirectly (mainly through utility bills). Future trends will mainly depend
on whether the strong increases in petrol and utility prices become embedded in higher
labour costs. There is clearly some concern over recent increases in underlying earnings.
On balance, we expect UK inflation to edge up over the next year, as spare capacity shrinks
and labour costs move up. But the upturn in inflation is forecast to be moderate, with CPI
inflation edging up (in average year-on- year terms) from 1.4% in 2004, to 1.8% in 2005,
and 2.0% in 2006.
2. Small Business Taxation
The BCC was pleased to have the opportunity to respond to the Treasury’s consultation
document on small business tax issues that was published alongside the Pre-Budget Report.
We raised a number of issues in our response to the document and we would like to
reiterate some of the key points in this submission.
The overarching message is that employers want a stable tax system that is easy for
them to administer. Our concern is that changes in recent years have, however,
served to create instability rather than stability and that business’ workload in terms of
administering taxes has increased rather than decreased.
The IR35 legislation is a primary example of this instability, as it has created a great
deal of uncertainty amongst owner- managed firms. We are particularly concerned that
some companies are liable to pay-as-you-earn (PAYE) and National Insurance
contributions (NICs) on business income earned as though the owner of the company
had the status of an employee while, at the same time, such a person has no
employment rights at law. The BCC does not want to see additional regulations
covering the segmentation of owner- managers of companies from other company
owners for tax purposes. Rather, what is needed is a clear definition of what
distinguishes employment income from that of self-employed business income. This
would help to clarify the apparent anomaly described above and, more generally, the
uncertainty surrounding the IR35 legislation.
b) Taxation of husband and wife businesses
The Inland Revenue’s challenge of family-owned companies under the settlements
provisions has created a further sense of instability amongst small businesses. This
challenge, and the subsequent ruling, appears to conflict with the principle of independent
taxation that has existed since the 1980s. We want the formation of family companies –
where it is normal for husbands and wives to genuinely work together – to be encouraged.
We urge the Government to amend the settlements provisions to ensure that husbands and
wives who run bona fide companies are treated as separate individuals and are not
c) Payroll taxes
The creation of the Small Business Unit (SBU) within the Inland Revenue –
announced in the 2004 Pre-Budget – is a welcome development. Indeed, we are
pleased to note that one of the main work areas of the new unit will be to reduce the
amount of paperwork that small businesses have to contend with by creating a single
return for all taxes and that the unit will also explore the possibility of creating a
single account for the payments of all business taxes. However, the creation of the
SBU offers a real opportunity to simplify life for small businesses across the whole of
the tax spectrum, particularly in relation to payroll administration.
The administration of payroll taxes remains a very substantial compliance burden for small
firms. Employers and their staff spend a great deal of time grappling with the complexities
of the payroll system when this time could be spent more productively on running and
growing the business.
We are encouraged that the Government has started to acknowledge some of our
concerns on this issue. For example, we were pleased that the childcare strategy
document published alongside the Pre-Budget Report included a commitment to
consider handing the administration of Statutory Maternity Statutory, Paternity and
Adoption Pay to the Inland Revenue. Employers would welcome such a move and
we urge the Government to press ahead with this reform. Furthermore, we were
pleased by the Government’s announcement in the 2004 Budget that payment-via-
employers (PVE) for tax credits would be abolished. However, this policy has yet to
be implemented and businesses are still required to administer these benefits on behalf
of the state. This issue must be addressed without further delay.
In addition to calling for a general reduction in the number of payroll obligations
placed on firms, we continue to argue for reform of National Insurance (NI) so that its
operation is made simpler for businesses. Our arguments for the reform of NI are
well- versed. The salient issues are that the rules governing NI are unnecessarily
complex and that, along with pay-as-you-earn, it accounts for 40 per cent of total
payroll compliance costs for firms. If NI was reformed along the lines that we have
set out to the Treasury, the amount of time that small firms spent on dealing with the
frustrating anomalies and complexities that the present system produces would
Reform of NI should therefore form a major work initiative of the Government units
tasked with addressing tax simplification for smaller firms, namely the SME Taxation
Team within the Treasury and the SBU within the Inland Revenue. Indeed, the BCC
would like the Government to consider the possibility of setting up a high- level
working group to fully consider the case for reform of NI and to explore the potential
ramifications of such a reform for both government and individuals, in addition to
d) Incentives for growth and enterprise
The fact that employers favour a stable, straightforward tax system does not mean that
certain incentive structures cannot produce benefits for businesses. Provided that
incentives are properly targeted, they undoubtedly can have a favourable impact on
business activity. For example, the Enterprise Investment Scheme performs a valuable role
in raising capital for small businesses, as do Venture Capital Trusts. Similarly, the capital
allowance for expenditure on plant and machinery provides an important incentive for
businesses to grow and invest further. As a consequence, we urge the Government to
continue to support these incentive structures for firms. To further capital allowances we
would like to see the 50% FYA allowance for small businesses extended or made
permanent and the 100% capital allowances for small firms’ investment in ICT which ran
out in April 2004, be revised and made permanent.
The BCC fully supports the Government’s emphasis on research and development (R&D)
as a means of enhancing innovation amongst UK firms and of increasing our productivity
in comparison to our competitors. As part of this process, the R&D tax credit has played a
useful role in developing R&D amongst businesses that have already considered innovation
as a means of growing their business. In addition, the extension of the criteria for materials
qualifying for tax relief under R&D expenditure has helped to ensure that more firms have
benefited as the scheme has progressed.
That said, we are concerned that a considerable number of smaller firms are failing to
benefit from the R&D tax credit. This credit is good for those companies that aim for and
achieve profit as their allowance for credit is in proportion to that profit. However, small
and innovative companies often do not make a great deal of profit during the early stages of
their development and this limits their ability to claim under the existing R&D system.
Moreover, there is a real problem in getting firms to the stage where they can contemplate
R&D activity. Small businesses are often simply too busy running their companies to
contemplate running an R&D project as well. The upshot of this is that the R&D tax credit
may only be reaching those companies that would carry out R&D work regardless of the
credit’s existence and that it is not serving to change the behaviour of other firms.
Reform is therefore necessary so that R&D incentives have a greater chance of reaching
smaller, family- run firms that have not previously considered innovation. One possible
option is to introduce some form of incentive that rewards firms for seeking information
from a recognised business support provider about the potential benefits of innovation and
research. The purpose of such an incentive would be to encourage more businesses to
explore R&D options and, as a result, to use innovation and research as a means to grow
and develop. It would potentially benefit a wider array of smaller companies and, by
promoting innovative business activity, provide obvious benefits for the UK economy as a
Summary of recommendations
• In order to clarify the uncertainty created by the IR35 legislation, a clear
definition is required as to what distinguishes employment income from that
of self-employed business income.
• Government should amend the settlements provisions so that husbands and
wives who run bona fide companies are treated as separate individuals and
• Responsibility for the administration of Statutory Maternity, Paternity and
Adoption Pay should be transferred to the Inland Revenue.
• The policy to end PVE for tax credits should be implemented without further
• Government should establish a high- level working group to fully consider the
case for reform of NI and to explore the potential ramifications of such a
reform for both government and individuals, in addition to businesses.
• We support the retention of capital allowances for firms’ expenditure on plant
and machinery and the continuance of the Enterprise Investment Scheme and
Venture Capital Trusts.
• Reform is necessary so that R&D incentives reach a greater proportion of small
firms who have not previously considered innovation as a means of growing their
business. We would therefore support some form of incentive to reward firms for
seeking information from a recognised business support provider about the potential
benefits of innovation and research
e) Corporate Tax reform
The BCC has responded to the Treasury’s latest consultation on the reform of corporation
tax. We would, however, like to take this opportunity to restate some key points on this
As they currently stand, the Government’s proposed changes to schedular taxation are
likely to be of limited benefit to smaller companies and to businesses more generally.
Indeed, the proposals fall well short of the BCC’s preferred proposal of a full pooling of
schedules. Smaller firms in particular simply do not understand why they cannot offset
losses made in one part of the company against profits gained in another. The fact that they
cannot makes the tax system much more complex as a result. A full pooling of schedules –
so that losses made under any schedule of income could be offset against gains made under
any other schedule of income – would make things much easier for businesses and
represent an important step towards a relatively stable and straightforward tax system.
In terms of the Government’s proposal for the creation of a new operating business
income schedule, a particularly contentious issue is whether, and to what extent,
companies will be allowed to carry forward existing losses under the present system
to the new system (i.e. the issue of ‘pre-commencement losses’). BCC would prefer a
system that allowed all companies to carry forward existing losses under the current
corporate tax regime into any new system without restriction, however we recognise
that the Government may not be able to agree to this. We therefore favour a solution
that allows all companies, regardless of their size, to carry forward a fixed amount of
losses into the new system. We suggest that this figure should be £1 million.
Any losses above this amount would not be eligible for carry- forward under the new
system. However, we would want to ensure that any losses above the fixed amount
were treated under the new system in the same way as they are under the existing
system (i.e. companies would still be allowed to carry forward losses and offset them
against future income gained under the same income schedule). It is important that
firms are not left worse off as a result of the new system.
Summary of recommendations
• BCC would prefer a full pooling of schedules to make the administration of
corporate taxation much simpler for businesses
• On the issue of pre-commencement losses, the BCC favours a solution that
would allow all companies, regardless of their size, to carry forward a fixed
amount of losses into the new system (i.e. the operating business income
schedule). We suggest that this figure should be £1 million.
• Any losses above this fixed amount should be treated under the new system in
the same way as they are treated under the existing system. This will ensure
that firms are not worse off under the new system.
f) Capital Allowances
The Government’s decision to review the operation of capital allowances for cars is a
welcome one. The administration of allowances for cars costing less than £12,000 is
relatively simple for employers. However, the process is much more complicated for firms
purchasing cars costing £12,000 or above and, given the present marketplace, a great many
vehicles fall into this category. The BCC believes that the benefits of the pooling system
should be extended to cover cars costing more than £12,000.
In order to ensure that smaller firms are not worse off as a result of such a move we would
like to see capital allowances on cars costing under £12,000 still attracting the 25% writing
down allowances, with the possibility of all companies of whatever size being able to pool
all acquisitions of new cars under one pool. For many larger companies the latter could
greatly reduce compliance costs. The Government has indicated that they are willing to do
this but with a lower writing down allowance. In this respect the option of using one pool
would be beneficial if the allowance were to be at a rate near to 25%
Such a reform would greatly simplify the administration of capital allowances for cars. It
is important to state that this simplification should not be compromised by the introduction
of additional allowances to encourage the purchase of low-emission cars. This would only
lead to yet further complexity and the Government should acknowledge that incentives
already exist within the tax system to encourage the take- up of low emission vehicles (e.g.
the lower rate of fuel duty for low emission vehicles).
A further welcome development is the Government’s proposal to extend the allowance that
applies to capital expenditure on industrial buildings and hotels to those in the commercial
sector (i.e. offices and retail outlets). However, as a result of this change, the Treasury has
indicated that the sub-structures of a building (e.g. lifts, doors, etc) that are currently
subject to a capital allowance of 25 per cent, will in future be treated under the new
allowance for commercial buildings. This causes us some concern, as the present value of
the capital allowance covering industrial buildings is only 4 per cent. Thus, although the
proposal to extend the allowance is potentially welcome, the impact of this extension on
companies will ultimately be determined by the level at which the new allowance is set.
We would therefore like to see the new commercial allowance set as near to 25 per cent as
possible to ensure that firms do not lose out as a result of the change. Furthermore, the
Government must produce a clear list detailing the items that will qualify for relief under
the existing capital allowance for plant and machinery and those that will fall under the
new allowance for expenditure on commercial buildings. This will help to clarify matters
for businesses that might otherwise struggle to understand the terms of the new system.
Summary of recommendations
• The benefits of the pooling system should be extended to cover cars costing
more than £12,000. The level of the capital allowance for cars in this category
should be set at a rate as close to 25% as possible.
• Cars costing less than £12,000 should continue to attract a 25% writing down
• The Government should refrain from introducing further allowances to
encourage the take-up of low-emission cars. This would introduce further
comp lexity into the system.
• The new capital allowance for commercial buildings should be set at a rate as
close to 25% as possible to ensure that businesses do not lose out as a result of
the new system.
• The Government should produce a clear list detailing the items that will
qualify for relief under the existing capital allowance for plant and machinery
and those that will fall under the new allowance for expenditure on
g) Local Government Finance
Whilst central government increasingly devolves power to local government, we
recognise that there are related problems in local government finance and that, as a
consequence, there is a need for reform. In 2003-04, the cash amount raised by
business rates had increased to £15.6 billion. As a result, we believe that the needs
and concerns of business, which contributes such a substantial sum of money to local
government, should be properly acknowledged. We would not, however, want to see
the business rate returned to local control.
The BCC and the Chamber network campaigned prior to 1989 for the introduction of
a uniform business rate, precisely because increases in costs under the local system
were arbitrary, excessive and unrelated to any benefit provided to business. Retaining
the business rate at a national level ensures national scrutiny of it, whereas returning it
to local control would avoid any effective accountability. The setting of business rates
should remain under a uniform national system of control. With no direct
accountability to business, there is a strong likelihood that we will see a return to
previous times when business rates were increased to unsustainable levels, imposing
an additional burden on business and serving to discourage, rather than to foster,
We are willing to consider changes to local government funding, building on the
Local Authority Business Growth Incentive (LABGI) scheme and the existing powers
for BIDs. The BCC suggested Business Improvement Districts (BIDs) as an
alternative to the Government’s supplementary business rate proposals, and now that
the final legislation has been passed, we hope that BIDs will soon become a common
feature of the UK’s business landscape. We also believe that the LABGI scheme has
the potential to benefit local business communities by focusing efforts on regeneration
and policies to encourage business growth.
The BCC, as well as many individual Chambers of Commerce around the country,
will be meeting with Sir Michael Lyons over the coming months as he conducts his
inquiry into local government funding
• We are very concerned about the proposals to place the setting of business
rates back under the control of local authorities.
• Retaining the business rate at a national level ensures national scrutiny of it,
whereas returning it to local control would avoid any effective accountability.
• We fear that a return to local control would see business rates increased to
unsustainable levels and serving to discourage, rather than to foster, enterprise.
• Such increases would be particularly damaging to firms in disadvantaged
• We are willing to consider some changes to local government funding
building on the LABGI scheme and the existing powers for BIDs.
The BCC recently submitted its response to the First Report of the Pensions Commission.
Our response contained a number of recommendations with a view to bolstering private
pension provision and increasing overall levels of saving in the UK. These
recommendations are set out in an annex to this submission.
i) Employers’ Liability Compulsory Insurance (ELCI)
The BCC is hugely dismayed by the Department for Health’s proposals to recover NHS
costs from insurance companies in personal injury cases. Representatives of the insurance
industry have indicated that this proposal could add anything between 5-7 per cent to the
cost of firms’ liability premiums, as insurers will look to protect themselves from the
impact of these costs. This issue is of great concern to our members. A BCC survey
conducted in July 2004 indicated that more than one-third of firms had suffered an increase
of between 20 and 50 per cent in the cost of their premiums in the previous twelve months
and the DfH’s proposal is set to make a bad situation worse.
Given the continued volatility of the ELCI market, we urge the government to scrap
this ill-considered proposal entirely or, at the very least, to postpone its introduction
until there is clear evidence that the market has stabilised. We have conveyed these
views in the strongest possible terms to both the Secretary of State for Work and
Pensions and to the Minister for Small Businesses and we urge the Government to
address this issue in the forthcoming Budget.
j) European Union Insurance Mediation Directive
The Insurance Mediation Directive came into effect on 14 January 2005. Since that date,
freight forwarders have been required to register with the Financial Services Authority
(FSA) if they wish to offer insurance for their customer’s goods. This requirement places
very onerous legal requirements on freight forwarders and, as a result, a majority of freight
forwarders have declined to register with the FSA and have ceased to offer insurance as
part of the overall transportation package.
A number of our members that use freight forwarding companies on a regular basis
have reported that this has had a detrimental impact on their business. Firms that
previously used to get insurance coverage from the freight forwarding company are
now forced to deal directly with insurance brokers, costing them both extra time and
money. Freight forwarders could previously offer a very effective ‘one stop shop’
service, but this has been undermined by the FSA’s strict terms of registration.
The BCC is concerned that this is a classic example of the goldplating of EU legislation on
the part of a UK government body. There is little evidence to suggest that the terms of the
Directive have been applied so stringently in other countries and its strict application in the
UK could damage our trading capacity. In light of evidence from other European countries,
we hope that the Government will review the requirement for freight forwarders wishing to
offer insurance to register with the FSA, or at the very least to relax the terms of
registration so that they are less onerous for companies.
k) Landfill Tax
There is growing concern that the landfill tax is failing to meet its objectives. It is
increasingly viewed as a punitive tax that is achieving little environmental
improvement. With the growing amount of legislation that business has to implement
and meet, it is time to examine the effectiveness of the landfill tax and consider
removing it. There is little evidence available that demonstrates that the landfill tax
has been successful in bringing about a greater environmental improvement. The
current level of the tax is not high enough to deter big commercial operators,
however, the proposed increases will represent a significant burden on small
businesses and add the risk of more fly tipping.
We would prefer incentives to be used to reward sustainable environmental behaviour on
the part of businesses. We would welcome schemes that provide allowances or reliefs
against other taxes for businesses investing in environmentally friendly technology and
3. Global Competitiveness
a) Cuts in the UKTI’s trade development budget
The BCC is deeply dismayed by the cuts imposed on the UKTI following the 2004
Comprehensive Spending Review. The trade development arm of the UKTI conducts
important export promotion activity and we feel that this activity will be compromised
given the fact that, by 2008, the budget for trade development will decrease from £231
million per annum to £166 million. Whilst the BCC recognises the need to control public
spending, we feel that these cuts could prove to have damaging consequences for the
British exports industry.
Indeed, British exports have performed poorly in recent years. In 2002 and 2003,
exports of goods and services were stagnant, recording minimal real growth of only
0.1%. These results clearly suggest that our existing exporters need greater support to
boost their performance and improve Britain’s share of world exports.
The UKTI is, however, set to switch its focus to two main areas, namely to the needs
of new to export firms and inward investors. This is reflected by the fact that the
proportion of trade development funding for new to export firms is expected to
increase by 30 per cent over the current spending review period, whilst 17 per cent of
the trade development budget will be transferred to inward investment promotion.
The export community is not opposed to inward investment per se or to attempts at
attracting more firms to engage in export activity. These are, without question, important
aims. Rather, it is concerned that the Government’s focus on these two areas will prove to
be at the expense of help and support for the UK’s existing exporters.
These concerns are fuelled by the fact that one of the UKTI’s most successful export
promotion schemes - the Horizontal Outward Mission Scheme - will be discontinued from
April 2005. Chambers of Commerce alone have facilitated up to 230 trade missions per
annum in recent years, reaching over 3000 businesses and generating more than £225
million worth of trade in the process. It is almost certain that such results would not have
been achieved without the Horizontal Outward Mission Scheme.
We understand that the Government is proposing to carry out a study in an attempt to
assess the relative benefits of trade activity against those of inward investment. Although
we will be very interested to see the results of this exercise, we believe that such a study
should have been conducted prior to the change in policy being implemented. Whatever
the outcome of the study, the fact remains that the promotion of inward investment should
not occur at the expense of support for existing exporters.
We therefore urge the Government to reverse its decision to cut funding for export
promotion activity. At a time when Britain’s share of world exports is declining, we are
firmly of the opinion that our export firms need more help not less. In particular, there
needs to be a greater emphasis on the opportunities that the developing economies of Asia
and Eastern Europe represent for our exporters.
b) Rising Energy Prices and Emissions Trading
Climate change is an important item that is set to appear on the agenda of the UK’s
presidency of the EU. Businesses undoubtedly have an important role to play in
relation to this issue but it is of concern that some attempts to control polluting
behaviour are harming the competitiveness of UK firms.
Over recent months, our members have reported steep rises in energy prices following
contract renewals particularly within high energy using sectors such as ceramics. Gas
price increases of between 30% and 50% and electricity increases as high as 60%
have been experienced. Recent steep gas and electricity price rises are compounded
by the Renewables Obligation, under which businesses have had to accommodate a
3.7% levy on the price of electricity. It is our view that Government must balance
emission reduction aims with the need to retain a competitive environment for British
business activity. If international manufacturers locate abroad in countries with far
lower environmental standards, the global environmental benefit that environmental
targets seek to achieve will be effectively negated.
4. Reducing the Burden on Business
a) Regulation and Red Tape
The BCC, in partnership with academics from the London and Manchester Business
Schools, have produced a ‘burdens barometer’ for each of the last five years. The
barometer has calculated the cost of compliance with new regulations since 1997 as £10
billion in 2001; £15 billion in 2002; £20.6 billion in 2003, £30 billion in 2004, excluding
the cost of the minimum wage. Our latest figure published in February this year found the
cost has risen to £38.9bn. Our figures are calculated by using the government’s own
Regulatory Impact Assessment (RIA) figures which means it reflects the government’s
own generally conservative estimates.
In 2004 we reported again on the way in which government departments apply their own
rules in preparing RIAs in covering the cost/benefit of new regulations. The report in 2004
showed that the rules are not followed rigorously and that few proposals quantify the
benefits. The BCC is producing a new report on RIAs in April and our initial findings
indicate that although there have been improvements in the application of RIAs, they are
still failing to achieve their intended objective. The BCC believes that the only way to
practically improve the burden of regulation on business is by challenging the system to
bring about improvements both in theory and practice.
• Adopt the BCC’s database of RIAs as the standard RIA reference point nationally
for all government departments.
• Incentivise government departments to carry out genuine consultations when
compiling a RIA and submit the cons ultation process to independent scrutiny.
• Strengthen the RIA process by reinforcing the presumption that Ministers only
sign off RIAs where benefits outweigh the costs.
• Sunset clauses should be applied to new regulations based on a review of the
balance of costs and benefits contained in the RIA following implementation.
• Set measurable targets for each government department for the reduction of
compliance costs to business through deregulation.
• Introduce government departmental budgets for every new regulation
introduced and incentives for avoiding legislation and finding non-regulatory
b) Hampton Review
The BCC responded to the Hampton Interim Report. The Report broadly deals with the
issues of most concern to our members, including access to information, paperwork
quantities, greater emphasis on advice rather than inspection and the inconsistencies
between regulators. The Report has a strong business focus and recognises the distinct
problems which SMEs face when dealing with the burdens of regulation. The BCC also
broadly supports the initial solutions presented in the Report. The regulatory system is in
need of real modernisation and simplification. Simplifying and reducing the forms business
needs to complete is essential. The regulatory system must be based upon business advice
and incentives rather than inspection and penalty.
c) Flexible Working
The BCC supports flexible working. The BCC supports encouraging flexible working and
achieving a successful work- life balance. However, our members are concerned about the
pace of new rights and the impact these will have on the operation of their business.
The BCC’s Employment Survey 2004 of 1,200 businesses found strong opposition to
increasing current flexible working rights. Our survey found a direct correlation between
the strength of opposition and the size of the business, with opposition strengthening as the
business size decreased.
Over 80% of businesses disagreed with Government proposals to extend paid maternity
leave to 12 months. The central issue of concern is not the direct costs associated with
extending paid maternity leave from 6 months to eventually 12 months, but that it will in
time, make it more probable that employees will take the full year entitlement. It may be
extremely damaging for an employer of a micro business with just a few employees to lose
a key member of staff for one year. This problem is exacerbated by the current skills
shortages within the economy.
Since 2003 businesses have had to comply with additional flexible working rights and
extensions to paid and unpaid maternity and paternity leave. However, we do not support
the introduction of additional legislation, but rather a flexible approach to meeting the
needs of the individual employer and employee.
d) Retirement age
The BCC fully supports the Government’s decision to allow employers to set a retirement
age at 65 years old. We support the objectives of the age discrimination aspects of the
Employment Directive but it is important for employers to define the end point of the
employer/employee. The BCC also supports the right of employees to agree with their
employers to work beyond this age.
e) Common commencement dates
The BCC supports common commencements dates. In view of the fact that the cost to
business of compliance with regulations since 1997 has now reached £38.9 billion
(BCC’s Burdens Barometer February 2005), greater coordination of regulations in
this way could assist businesses and promote business awareness of new and existing
legislation. However, although common commencements dates will help businesses
to comply, it is crucial that the will to deregulate underlies all policy changes in the
area of regulation.
The BCC remains concerned about having two common commencement dates. Our
1. Larger businesses with discrete functions could probably deal with interacting
changes. However, smaller businesses would find it preferable not to have a
two commencement dates across the board. So, for example, if one is
handling change s to employment legislation on day X, it is probably not
helpful also to be dealing with environmental changes on the same day -
although it may be better to have all payroll system-related changes occurring
2. In principle, we would be happy to see common commencement dates applied
to employment legislation, to environmental legislation, to company law and
to tax measures insofar as they impact on payroll and corporate tax legislation
respectively. The rationale is that these tend to be areas that give rise to a
systems based change in the companies concerned, and where senior managers
can give these specific areas attention. For planning law and utility regulation,
we are concerned that the volume of changes occurring simultaneously may be
excessive and that the costs or impacts of delay in some cases, may also be
3. As to preferred dates, we would prefer employment changes to occur on 1st
October each year, for tax changes affecting payroll to occur on 6th April, for
corporate tax measures to apply on 1st January, for environmental changes to
occur on 1st November and for company law changes on 1 st March. These link
to the issues of financial year-ends, corporate AGMs and the tax year, while
avoiding over-burdening at the height of the summer or the end of the year and
Christmas/ New Year period.
f) National Minimum Wage
The BCC supports a national minimum wage. However, our members are opposed to
increasing the minimum wage to £5.05 this year and to £5.35 in October 2006. The BCC’s
Employment Survey 2004 questioned employers about future rates and 80% supported a
cap on futures increases. The majority of those supported a cap in line with inflation. The
minimum wage has increased at approximately double the rate of average earning for the
last two years. Our members are increasingly concerned about the impact of future rises on
competitiveness and employment levels.
There is an important distinction between setting a minimum wage at a level which is
reasonable for the employer and the employee and setting the rate at a level which places a
financial strain on a business, ultimately leading to job losses. The October 2004 rate of
£4.85 has started to tip the level towards an unmanageable financial burden on business.
The BCC believes that the minimum wage must now be capped in line with inflation.
g) Working Time Directive
The BCC welcomes the European Commission’s confirmation that individual opt outs from
the maximum 48 hour working week can remain. An important part of the UK’s flexible
labour market is the right of employers and employees to define their own working weeks.
However, the BCC is concerned about the progression of the Commission’s proposals
through the European Parliament. The Parliament has previously expressed strong
opposition to the UK opt out and it is essential the UK MEPs vote to retain the opt out.
5. Creating Sustainable Communities
Creating a Highly Skilled Workforce
The objective of the education system must be to promote high standards of academic
excellence, but equally to encourage young people to take vocational courses such as
construction or mechanical engineering.
The BCC supports much of the Government’s White Paper on the Tomlinson Report.
In particular we support the business involvement in the new vocational diploma, the
drive to boost basic skills, the stretching of the brightest students at A level, a stronger
focus on GCSE English and Maths, the principle of encouraging young people to
remain in education and training up to the age of 18 years old.
However, the BCC supported the Tomlinson proposal for a full over arching diploma
incorporating A’ Level and GCSEs as components. A fundamental obstacle to
improving the take up of vocational learning is the long standing perception that
vocational routes are second place to academic routes. The BCC believes that a full
diploma would have helped address this problems. We are therefore disappointed that
the Government has rejected this principle.
a) Skills Organisations
The delivery of skills policy is fragmented and over burdensome. There are numerous
organisations and initiatives which each aim to improve different aspects of the
system. The BCC is concerned that employers have been presented with a plethora of
schemes and initiatives, many of which have not been fully implemented. The BCC
proposes a full and comprehensive review of the organisational structures and roles of
skills bodies which deal with businesses.
b) Career advice system
The BCC believes there must be a radical reform of the career advice system to
ensure all options available to young people are presented as equal options. There is
currently a heavy biased towards university and little available information about
workbased learning such as apprenticeships. Careers advisers much be fully trained
and comprehensive advice much be available to all young people and not just the
c) Employer Representation
To ensure that employers are properly represented, it is essential that the BCC is a
member of the National Skills Alliance. The BCC is both an employer representative,
with our business members employing 5.2 million employees, as well as the largest
private training provider in the UK. The BCC is therefore ideally and uniquely placed
to ensure that skills reflect the needs of business.
The current funding system restricts the options available for employers to
access funding to train their employees. Businesses want flexible training options to
meet their needs and the current system fails to provide this flexibility. By opening up
the workforce development budget to include Further Education Colleges,
independent providers and employers, businesses will have the complete choice they
need to successfully improve the skills of their workforce.
e) Free Training for the unemployed
If an adult loses their job and becomes unemployed they should be able to receive free
training to improve their skills. At present unemployed people can’t get access to free
training for 6 months. This means that the people that need the training the most, can’t
get instant access. Free training should become available to unemployed people
immediately and not after a 6 month period. This will allow them to improve their
skills and get back to work quickly.
f) Higher Education
The BCC does not believe it is necessary to have a target for university admissions.
The currents skills shortage facing business will not be addressed by sending
increasing numbers of young people to university. The BCC welcomes the increased
take up of foundation degrees but those taking these courses still represent less than
1% of the total numbers in Higher Education.
Crime Against Business
Tackling business crime is essential to both the creation and the maintenance of sustainable
communities. The BCC is pleased that the posts for the regional Business Crime Reduction
Advisers (BCRAs) have received funding for a further year. The BCRAs are currently
involved in the important task of promoting the issue of business crime amongst local
Crime and Disorder Reduction Partnerships (CDRPs) and the BCC hopes that in future
years the Government will introduce a statutory requirement for CDRPs to include business
crime in their triennial audits.
Like the BCC, the BCRA’s have also identified that there is a real problem in the way
that the issue of business crime is addressed on industrial estates and business parks.
Whereas many town centres benefit from crime partnerships that involve businesses
working together to reduce crime, partnership coverage on industrial estates is much
more sporadic. This apparent ‘gap’ must be addressed if the Government is to tackle
business crime in its entirety.
The principles that apply to town centre crime partnerships must therefore be rolled out to
cover industrial estates and business parks. Under an accredited scheme such as the ‘Safer
Industrial Estates Award’, these partnerships would ensure that all businesses, and not
merely those based in town centres, had access to the benefits of crime partnerships. Such
a scheme requires access to seedcorn funding and we urge the Government to place
pressure on the RDA’s to provide the income for this activity.
6. The Built Environment
If Britain is to continue to compete globally, there is a critical need for the
government to provide a world-class infrastructure where businesses can thrive.
a) Land-Use planning
The BCC strongly supports measures that would simplify, speed up and clarify the
planning system. There has long been frustration at the lack of urgency,
inconsistency, cost, inflexibility and complexity of the current planning system. A key
concern is that, over the last few years, there has been an increasing amount of
development both locally and nationally but, at the same time, the resources of
planning departments appear to have been reduced.
As such, we have welcomed many of the Government’s proposed reforms. We believe that
the planning Green Paper identified many of the problems of the current system and has
gone some way to identify measures to rectify them. In terms of reform, the BCC is
looking for the planning system of the future to deliver greater flexibility than before. It
needs to be able to respond to the evolving demands of the business sector, while also
being embedded within local communities.
We do have concerns, however, about the recent proposals for increases in planning
fees. We recognise that it may be necessary to review the level of planning fees
periodically, such that fees should reflect the value of the planning service and the
costs of providing it. We are concerned, however, about the size of the increases
recently proposed. An average increase in planning fees of 39% is excessive and
disproportionate to inflation.
It is our belief that fee increases must be related to an inc rease in the quality of service that
is being provided. The recent proposals aim to do no more than erode the current 39%
shortfall in fee cost. We believe that there should be a direct relationship between an
increase in planning fees and the quality of service provided. Our members have reported
many problems with regards to the quality of service that they experience and these
problems need to be addressed if fees are to be increased.
b) Investment in additional road capacity is crucial
Road congestion is a serious constraint on business and costs both local and the
national economy dear. We calculate transport failings as costing the economy £15bn
a year. Motorways are our safest trade routes and carry a fifth of all road traffic.
However, some sections of our key trade routes are severely congested.
The government has committed to expanding a number of key routes and this is
welcome. However, these welcome announcements have not been matched by the
funds needed to actually construct them. It is vital that funds are made available as a
matter of urgency to construct these key routes. This view is shared by a broad
spectrum of industry bodies and groups including the Freight Transport Association,
RAC Foundation, AA, Road Haulage Association and CBI. We calculate that an
additional £4.2bn should be made available for new road capacity over the next three
years. The key routes that need to be expanded include the M1, M4, M25, M6 and
M6 and M6 Toll
Action is needed urgently to relieve the problems caused by traffic congestion on the
existing M6 through Staffordshire. Local roads in many of the urban conurbations
surrounding the M6 are often grid- locked as a result of congestion on the motorway.
This not only affects business, but also impacts on schools and other local services as
well as contributing to local pollution.
There is no doubt that extra capacity, whether this is by widening the existing M6 or
building an additional motorway, is essential. BCC welcomes the government’s
commitment to increase the capacity on this route, by one of two methods.
Whichever option the Department chooses, the priority must be to commence work on
the project as soon as possible. The Expressway solution has many attractions, our
major concern about it is that this cannot be delivered until 2016. The problems that
congestion is imposing on business are so severe that twelve years for a solution is too
long to wait.
The road network is essential to the business operations of 84% of firms who have no
alternative than to pay for fuel. The pressure on industry remains and oil prices are
expected to remain high for the foreseeable future. This price increase is having a
knock on effect on our members and any further increase at this juncture is ill advised,
as it would place UK firms at a further competitive disadvantage.
c) Investment in Light-Rail
London Crossrail - The business need for Crossrail in London is crucial and we need
to see firm financial backing from the Treasury so that this project can proceed.
Manchester Metrolink – Metrolink is critical to the future competitiveness of the
Manchester city-region. Metrolink underpins the regeneration of deprived areas
across the Greater Manchester conurbation and is a key factor in attracting significant
private sector support; £200m of public money has already been spent on advancing
the project. The National Audit Office Report on Light Rail judged the Manchester
scheme to be a success, particularly in the context of affecting modal share in favour
of public transport and in generating economic benefits.
Leeds Metrolink – Leeds has seen rapid economic growth over the last ten years and
this growth is set to continue over the next decade. Transport constraints in the city
pose a major constraint, as nearly 100,000 people commute in and out of the city each
day. The light rail project is seen as the only way of moving large numbers along the
main commuter routes.
d) Air Passenger Duty
Air transport is one of the UK’s most efficiently run forms of public transport and is
crucial to UK competitiveness. Business use of air transport is growing, with 37% of
businesses increasing their use of air travel over the last 5 years (BCC Transport
Survey 2004). The tourism industry is especially dependent on the aviation sector. In
view of this, the steps taken by government to plan the expansion of UK air capacity
over the next 30 years are particularly welcome.
It is vital that the airline industry remains able to compete on an internatio nal plain.
The government should strenuously resist calls for an increase in air passenger duty.
Summary of BCC’s recommendations in response to the First Report of the Pensions
Section 2 (of the Commission’s Report) – How to respond to the demographic challenge
§ The BCC is opposed to the option of higher business taxes/ employer NI
contributions to pay for pensions. Further tax increases would damage the
competitiveness of UK industry and harm growth prospects.
§ Compulsory employer contributions to pension schemes would represent a form of
taxation and, as such, would be unacceptable to business.
§ A mixture of higher savings and higher average retirement ages is necessary to pay
for pensions in the future.
§ In order to ensure that the state pension remains affordable over time and in order to
encourage later average retirement ages, a rise in the SPA, broadly in line with
increasing longevity, will be necessary in future years.
§ Business needs the flexibility to define the end-point of the employer/employee
relationship and we see no reason for the default retirement age and the SPA to
differ. If, as we believe it should, the SPA rises in the future the BCC would
support a corresponding increase in the default retirement age.
§ The BCC believes that the goal of higher savings cannot be realised within the
present state pension system. The option to increase the SPA must therefore be
viewed within the context of a reformed state system.
Section 3 – Reform of the state pension system
§ The state pension system must be reformed to create a framework that is conducive
to voluntary saving on the part of individuals.
§ The present state system contains two major barriers to private saving. These are:
(1) Complexity and (2) Means testing. The system sends out confused messages to
individuals as to what they must do in order to make adequate provision for their
retirement and it is therefore unsurprising that many people are failing to save.
§ The BCC supports a radical simplification of the state pension system. We would
like to see a single, flat rate, state pension that is set at a higher level than the
§ The new state pension would be financed through the phasing out of the S2P, with
accrued benefits protected, the abolition of contracted-out rebates, the withdrawal
of means testing and a steady rise in the SPA. Such a reform is broadly in line with
the government’s projected spending on pensions.
§ A simplified system of this nature would serve to encourage, rather than discourage,
private pensions saving.
Section 4 - Revitalisation of the voluntary system
§ The decline of DB schemes and the subsequent switch to DC schemes has been
largely unavoidable, although excessive government regulations and actions have
accelerated this trend. There is now a deep pessimism in relation to pension
provision amongst a wide range of employers and it is crucial that positive steps are
taken to encourage greater employer and employee participation in pensions.
§ The government should take action to encourage employers to automatically enrol
employees into their occupational pension schemes or require employees to make
an active decision about whether or not they wish to join the scheme. This should
help to boost take- up of occupational pensions.
§ The government should provide additional financial incentives to encourage
employers to offer pension contributions. Small firms in particular would benefit
from such incentives and an increase in the tax relief on pension contributions
available to SMEs would be a positive step.
§ The potential of multi- employer schemes to broaden access to occupational pension
schemes should be fully examined.
§ The benefits associated with the present system of tax relief on pension
contributions should be better promoted amongst employers and employees.
Government should take the lead in promoting this benefit, but employers also have
an important role to play in disseminating this information amongst staff.
§ The BCC does not want to see, as a result of the government’s information and
advice pilots, the introduction of burdensome regulations that require employers to
provide employees with access to costly independent financial advice. Rather, the
government should consider providing a financial ‘reward’ for companies that
provide and pay for an annual visit by an IFA, perhaps in the form of a lump sum
§ The government should take the lead on the provision of information and advice on
pensions by producing an information pack that employers can easily distribute to
§ Legislation that prevents employers from promoting the benefits of pension
schemes should be altered so that employers do not feel constrained when
discussing pensions issues with their staff.
§ BCC supports the aim of the government’s ‘Save More To morrow’ initiative,
whereby employees can arrange to commit a portion of their future salary increases
to a pension scheme, and would be willing to assist in the piloting of the scheme in
§ The government should examine the case for extending the tax relief that currently
applies to pension contributions to individual’s contributions to building society
accounts. Tax relief could also apply to employer contributions, provided that the
administrative burden on employers did not increase as a result. Penalties would
have to apply to withdrawals so as to encourage people to retain money in the
Section 5 – Compulsory Pension Contributions
§ The BCC is strongly opposed to compulsory employer pension contributions.
Compulsion would represent a premature and knee-jerk reaction to the problem of
under-saving. We believe that the voluntary system can work, provided that a
suitable framework exists to facilitate private saving.
§ Compulsory employer pension contributions would represent an additional unfair
tax on business. Compulsion would increase the burden of employing people and
harm job creation and the UK’s competitiveness as a consequence.
§ Compulsion would also be an unwelcome tax on employees. For some employees,
the decision not to pay into a pension is an entirely rational one based upon the
individual’s particular circumstances.
§ It is far from clear that compulsion would achieve the objective of significantly
raising the level of savings in the UK. It could simply force individuals to reduce
other forms of saving, as has happened in Australia following the introduction of
compulsion in 1986.
Section 6 – Further Issues
§ The BCC urges the government to proceed with its planned reform of public sector
pensions by raising the retirement age to the level of the SPA and by replacing final
salary arrangements with less expensive schemes.
§ In addition, the government should increase the level of contributions that
individuals make to their pensions in the public sector and subsequently decrease
the level of the employer (i.e. government) contribution.