Business bosses have urged Chancellor George Osborne to boost capital spending in tomorrow’s Autumn Statement by unlocking private investment and reallocating government spending towards infrastructure schemes.
The call is one of ten recommendations published today by the Institute of Directors, in advance of Osborne’s speech to MPs on the government’s plans for the economy.In Ten considerations for the chancellor, the group urged the chancellor to stick to his deficit reduction plan while taking steps to ensure the UK’s transport and energy infrastructure provided ‘a firm basis’ for economic recovery.
It said a survey of IoD members showed that 87% believed government infrastructure spending should increase over the next three years and, of those, 63% thought this should be financed by cuts to other areas of government spending.
As well as reallocating Whitehall funds, the submission called for a time-limited increase in tax breaks for businesses to invest in plant and machinery. UK businesses are sitting on around £700bn in cash, the report stated, and although this is partly due to economic uncertainty, an increase in capital allowances could encourage investment now.
Osborne is expected to announce reforms to the Private Finance Initiative funding scheme tomorrow in an attempt to boost private investment in infrastructure and other public sector construction projects.
Under the new model, to be known as PF2, the government will take an equity stake of up to 49% in the consortiums that build and operate PFI schemes, to allow the public sector to share in profits. This will attempt to address the criticism levelled at the funding mechanism by the Commons Public Accounts Committee, which concluded it led to ‘excessively high' returns for private investors.
The IoD also called on the government to implement the findings of the Davies Commission on increasing UK airport capacity as soon as it concludes.
Ten considerations for the chancellor also reiterated the institute’s call earlier this year for an overhaul of the ‘hopelessly complicated’ tax system and the introduction of a 30% flat tax rate on all income. This would make tax collection cheaper, reduce evasion and boost the UK’s competitiveness, the report added. However, it would require public spending to be gradually reduced to 33% of gross domestic product, down from around 48% in 2009/10.
Director general Simon Walker said the chancellor was in a difficult position. ‘The global economy has been much rockier over the past two years than most people expected; growth has been weaker and public borrowing higher than we hoped.
‘Some are calling on George Osborne to abandon his targets and embrace bigger deficits, but he must hold his nerve. It is only through controlling public debt that Britain will retain the confidence of the markets and create strong foundations for recovery.’
