Economic | G Pontin

Budget 2016 – A budget for small business and savers

This year’s Budget is one that small companies should be excited about, the chancellor not only announced his intention to lower corporation tax to 17% by 2020 but also a raft of measures to shift support towards smaller businesses and savings.

Many will ask, why is such a shift important? SMEs make up a significant proportion of businesses and economic activity in the UK. The FSB estimate that small businesses accounted for 99.3% of all private sector businesses at the start of 2015. That is a lot of activity and economic potential that could be unlocked.

Whilst there have been some announcements that add costs of items such as the implementation of the National Living Wage, assistance to small companies during the transition until 2020 will help to relieve cash flow issues.

There were also new saving products in the budget with the launch of Help to Save and the lifetime ISA. These will be a welcome relief to individuals that have struggled to improve their financial position give the historically low interest rates.

Infrastructure was another potential beneficiary with the announcement of HS3, Crossrail 2, several road investments and extra funds for flood defences. Such investment is key to ensuring the economic potential of the UK in the future. Caution should, however, be urged. Whilst the commitment to these projects is sound progress the UK still struggles in the international rankings for its infrastructure and its investment levels are generally considered to be below where they need to be.

Below is a summary of the key announcements from the budget documents (click here)

Announcements

Permanently double Small Business Rate Relief from 50% to 100%.
Increase the threshold for the standard business rates multiplier to a rateable value of £51,000.
From April 2020, switch in the annual indexation of business rates from RPI to CPI
By 2022 local authority business rate systems will be linked to HMRC digital tax accounts
From April 2018, Class 2 NICs will be abolished
The government will reform Class 4 NICs
The introduction of two new £1,000 allowances for property and trading income.
From 6 April 2016, the higher rate of Capital Gains Tax (CGT) will be reduced from 28% to 20%, and the basic rate will be reduced from 18% to 10%.
A restriction of the amount of profit (in excess of £5m) that can be offset through losses carried forward.
Abolish the CRC energy efficiency scheme following the 2018-19 compliance year
The reform of stamp duty on commercial property
Increase the VAT registration threshold in line with inflation to £83,000 from 1 April 2016
A further £3.5bn of savings from public spending in 2019-20
Around £1.5bn investment in areas such as housing, schools and transport over the next three years
Increasing the personal allowance from £11,000 in 2016-17 to £11,500 in 2017-18
Increase the higher rate threshold by £2,000 to £45,000 in 2017-18
The devolution of power to school leaders, expecting all schools to become academies by 2020
Create a National Funding Formula for schools from 2017-18.
Invest £20 million a year of new funding in a Northern Powerhouse Schools.
A new soft drinks industry levy targeted at producers and importers of soft drinks that contain added sugar.
The ISA allowance will rise from £15,240 to £20,000 in April 2017
From 6 April 2017 any adult under 40 will be able to open a new Lifetime ISA. They can save up to £4,000 each year and will receive a 25% bonus from the government on every pound they put in
A new Help to Save scheme for those on low incomes
Increase the existing £150 Income Tax and National Insurance relief for employer arranged pension advice to £500
The delivery of 13,000 affordable homes by bringing forward £250 million of capital spending
Move to a more zonal and ‘red line’ planning approach
The new mandatory National Living Wage (NLW) will come into effect from 1 April 2016, set at £7.20 an hour for workers aged 25 and above.
The main rate of the NMW, which applies for workers aged between 21 and 24, at £6.95 from October 2016
An individual lifetime limit of £100,000 on gains eligible for Capital Gains Tax (CGT) exemption through Employee Shareholder Status
£300 million of funding to improve northern transport connectivity and is giving the green light to High Speed 3
The green light to Crossrail 2, supported by £80 million to help fund development
Deliver a 5G strategy in 2017
Launch of the second Roads Investment Strategy, which will determine the investment plans for the period from 2020-21 to 2024-25
Allocate a £50 million Pothole Action Fund for England in 2016-17
Boost spending on flood defence and resilience by over £700 million by 2020-21
£50 million for innovation in energy storage
Auction Contracts for Difference of up to £730 million this Parliament
Establish a new Broadband Investment Fund
Commit to the 750MHz public sector spectrum in bands under 10GHz being made available by 2022
New devolution deals with the West of England, East Anglia, and Greater Lincolnshire

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WPI – Mobile infrastructure

Graham Pontin as the Company Director and Senior Economist at GPontin Ltd and as a Associate of WPI was asked to support the development of innovative research for a client.

Where once the PC was the focus of internet activity, with low portability and slow access speeds, this is no longer the case. The internet in the last five years has truly gone mobile. With many activities that would have required a physical wired connection just a few years ago now carried out on the move, the development of 4G networks has shown what mobile data can do.

Using internet in the mobile world has also changed how consumers engage. Business Insider recently reported that, with more and more dedicated apps becoming available and consumers’ increasing willingness to go straight to the services they want, there are real questions over the long-term viability of the traditional search engine and web page model.

Mobile has also opened up a range of opportunities never before thought of. Combined with smart devices in the home such as smart TV’s, heating systems and white goods, consumers can now control their home from work, the cinema or shopping mall.

If you wish to commission GPontin Ltd to support your research please contact Gpontin on [email protected]

To visit WPI’s website please go to http://wpi-strategy.com/

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WPI – Northern Powerhouse

Graham Pontin as the Company Director and Senior Economist at GPontin Ltd and as a Associate of WPI was asked to support the development of innovative research for a client.

The Northern Powerhouse is at the heart of the Government’s ambitions to create a lower welfare, lower tax and higher wage economy, with growth spread sustainably across the whole of the UK.

If the Government is to achieve this, along with its ambitious aims in eliminating the deficit, tackling low skills, halving the disability employment gap and, ultimately, boosting living standards for all, firm policy proposals to make the Northern Powerhouse a reality will be needed.

If you wish to commission GPontin Ltd to support your research please contact Gpontin on [email protected]

To visit WPI’s website please go to http://wpi-strategy.com/

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Comprehensive Spending Review – summary

Today the Chancellor outlined in the Autumn Statement and Comprehensive Spending Review (CSR) projections for government expenditure in the next five years.

The biggest surprise announcement was that the proposed changes to the tax credit regime which were rejected by the House of Lords were scrapped in their entirety. Whilst this will be of great relief to many individuals the statement generally continued the recent trend of a reduction in governments share of activity within the economy.

It is important to understand the context and scale of the challenge the UK continues to face. The CSR document reveals that GDP growth is expected to be broadly consistent across the forecast period (up to 2020-2021) at around 2.4%.

Within the main components of GDP business investment is considered to increase significantly in the next few years, but items such as household consumption are expected to slowly cool over the period. There is also an interesting period in 2018 when general government investment shrinks by 1.6% on the previous year.
These figures are presented against a backdrop of the unemployment rate of just over 5% and inflation returning to the target rate of 2.0% by 2019. Public sector net borrowing in 2015-16 is expected to be 73.5bn falling to £4.6bn in 20187-19 before entering surplus. This results in government debt falling to 71.3% by 2020-21.

To put this in context central government gross debt interest will be £56.6bn in 2020-21 and therefore is bigger than all departmental Capital Budgets (Capital DEL) combined. This demonstrates not only the scale and cost of public sector debt but also highlights the importance of the government being able to finance such debt at a low cost.

A selection of announcements from the Autumn Statement (click here) are listed below:

International and defence

Funding of the Strategic Defence and Security Review in full.
Protects police spending in real terms over the Spending Review period.
Commits to meeting the NATO investment pledge to spend 2% of GDP on defence.
An additional £3.5bn to a Joint Security Fund to 2021 to increase spending on the military and intelligence agencies.
Invests £1.9bn in cyber security and £3.4bn in new counter terrorism activity.
Continue to spend 0.7% of national income on overseas aid.
Invest £290m in the BBC World Service.
Creates a new £1.3bn Prosperity Fund to assist the growth of emerging and developing economies.

Devolution

Significantly reduce the central government grant to local authorities.
Introduce a new council tax precept for social care.
Undertake the full devolution of business rates.
A real-terms increases to Northern Ireland Executive capital budgets.
A real-terms increases to Scottish Government capital budgets.
Consult on updating the Transparency Code to require all local authorities to record details.of their land and property assets in a consistent way.
Work towards further devolution deals with other major city regions.
Deliver a £12bn Local Growth Fund between 2015-16 and 2020-21.
Creating 26 new Enterprise Zones, including expanding 8 Zones on the current programme.
Spend £13bn on transport in the North over this Parliament.
Develop a longterm transport strategy for the region through the creation of a new Midlands Connect Strategic Board.

Health

The ringfence on public health spending will be maintained in 2016-17 and 2017-18.
Provide the NHS in England £10bn per year more in real terms by 2020-21 than in 2014-15.
Invest up to £300m a year by 2020 to fund new diagnostic equipment and additional staff capacity for cancer treatment.
Invest an additional £600m in mental health services.
Invest £10m in expanding the Healthcare Innovation Test Bed programme.
The creation of a social care precept to give local authorities who are responsible for social care the ability to raise new funding. This will work by giving local authorities the flexibility to raise council tax in their area by up to 2% above the existing threshold.

Pensions

Increase the basic State Pension to £119.30 a week.
The government will publish today its guidance for pooling Local Government Pension Scheme Fund assets into up to 6 British Wealth Funds, containing at least £25bn of Scheme assets each. This would enable them to improve investment into projects such as infrastructure.

Education

Protect schools funding in England in real terms over the Spending Review period.
The development of new loans for further and higher education, with almost £1bn expected to be lent by 2020-21.
The Spending Review reforms the funding system for health students by replacing grants with student loans and abolishing the cap on the number of student places for nursing, midwifery and allied health subjects.
Provide investment of over £1.3bn up to 2019-20 to attract new teachers into the profession, particularly into Science, Technology, Engineering and Mathematics (STEM) subjects.
The apprenticeship levy on larger employers will be introduced in April 2017 at a rate of 0.5% of an employer’s paybill. Each employer will receive an allowance of £15,000 to offset against their levy payment.
The government will establish a new employer-led body to set apprenticeship standards and ensure quality.
The government will create 5 National Colleges and will support a new network of Institutes of Technology across the country.
The government will lift the age cap on new loans to postgraduates from 2016-17 so they are available to all those under 60.

Energy

Over the CSR period the government intends on reducing the projected cost of green policies on the average annual household energy bill by £30 from 2017.
The extension of the Warm Home Discount to 2020-21 at current levels of £320m a year, rising with inflation.

Science

Protect the £4.7bn science budget in real terms.
A new Global Challenges research fund of £1.5bn over the next 5 years.
The government will subject to legislation introduce a new body – Research UK – which will work across the seven Research Councils.
Over £130m capital will be invested in Department for Environment, Food and Rural Affairs’ (DEFRA) science facilities.
The British Business Bank (BIB) will retain the £400m of additional funding for Enterprise Capital Funds that was announced at Autumn Statement 2014

Technology

Invest £1.8bn to digitally transform government services.
Invest nearly £1bn in the next generation of 4G communications network for the Emergency Services.
Invest £1.3bn to transform HMRC into one of the most digitally advanced tax administrations in the world, with access to digital tax accounts for all small businesses and individuals by 2016-17.
Consult on options to simplify the payment of taxes.
A new target to reduce the costs to business of tax administration by £400m.

Housing

The CSR caps the amount of rent that Housing Benefit will cover in the social sector to the relevant Local Housing Allowance.
limit Housing Benefit and Pension Credit payments to 4 weeks for claimants who are outside Great Britain, from April 2016.
Deliver 400,000 affordable housing starts by 2020-21.
200,000 Starter Homes which will be sold at a 20% discount compared to market value to young first time buyers, with a £2.3bn fund.
135,000 Help to Buy: Shared Ownership homes.
10,000 homes that will allow a tenant to save for a deposit while they rent.
At least 8,000 specialist homes for older people and people with disabilities.
Further reforms to the planning system, including establishing a new delivery test on local authorities, to ensure delivery against the number of homes set out in Local Plans.
Release public sector land with capacity for 160,000 homes.
Amending planning policy to support small sites, extending the £1bn Builders’ Finance Fund to 2020-21.
£2.3bn in loans to help regenerate large council estates and invest in infrastructure needed for major housing developments.
Invest £310m to deliver the first new garden city in nearly 100 years, at Ebbsfleet.
Extend the Help to Buy: Equity Loan scheme to 2021.
Higher rates of Stamp Duty Land Tax will be charged on purchases of additional residential properties with effect from 1 April 2016. The higher rates will be 3 percentage points above the current rates.

Procurement

Help forces to improve police efficiency by taking steps to drive down the cost of police procurement by up to £350m and encouraging greater collaboration.

Welfare

A real terms increase in spending on Access to Work, providing specialist IT equipment, or support workers.

Motoring

Introduce measures to end the right to cash compensation for minor whiplash injuries, and will consult on the details in the New Year.

Equality and childcare

A new £15m annual fund equivalent to the VAT raised each year on sanitary products will support women’s charities.
Doubling the free childcare entitlement from 15 hours to 30 hours a week for working families with three and four year olds from September 2017, there is, however, an upper income limit per parent of £100,000 and a minimum weekly income level per parent equivalent to 16 hours.
From 2017-18 will invest £300m to increase the average hourly rate childcare providers receive.
Provide at least £50m of capital funding to create additional places in nurseries.
Maintain in cash terms the Department for Education’s central children’s services budget.
Funding for universal infant free school meals will also be maintained.
The government will introduce the first ever national funding formula for schools, high needs and early years, so that funding is transparently and fairly linked to children’s needs. The government will launch a detailed consultation in 2016 and implement the new formulae from 2017-18.

Infrastructure

The government will publish a National Infrastructure Delivery Plan next spring, setting out in detail how it will deliver key projects and programmes over the next 5 years.
The government has increased its overall capital departmental investment plans by £12bn between 2016-17 and 2020-21.
The government will increase funding for the Renewable Heat Incentive to £1.15bn by 2020-21.
A second Roads Investment Strategy will be published before the end of this Parliament.
£250m to tackle the potholes.
Freeze regulated rail fares at no more than inflation (RPI) for the entire Parliament.
A £475m fund to which local areas can bid for money to pay for large local transport projects.
The government will commit up to 10% of shale gas tax revenues to a Shale Wealth Fund.
£250m for an ambitious nuclear research and development programme.
Allow Network Rail to sell assets and re-invest proceeds in rail infrastructure.
Privatise the Green Investment Bank with a sale expected to be concluded during 2016-17.

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IPPR – new report: European jobs and skills

Today IPPR released its latest overview of its European jobs and skills market report which was done in collaboration with The JPMorgan Chase New Skills at Work programme.

The report found that Europe continues to face significant challenges when tackling unemployment underemployment and inactivity. The effect of the recession is still being felt in many economies across Europe, with the erosion of many economies skills base which is vital for medium to long run economic growth.

Within this the report also highlights the contrast between different groups of individuals. For example:

The young needed enhanced support to transfer from an educational position to one of employment
More attention
Improving vocational training
Existing workers also need greater support to continually upgrade their skills
Supporting female participation in the labour market.

The key challenges they identified are:

Tackling the unemployment rate
Fighting youth unemployment
Boosting the activity rate
Strengthening education outcomes
Growing productivity
Increasing vocational education and training opportunities

Link to report:

To read the report in full please click here

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MLD Support – Economic model

About MLD Support

MLD Support Association UK was set up to bring hope to families in the fight to eradicate Metachromatic Leukodystrophy (MLD).

Their main aim is to support families and sufferers of MLD by way of shared information from people in similar circumstances who have already experienced the effects of the condition and/or any treatments available. Their secondary aim to support research into therapeutic treatments for the condition through research grants to bona fide institutes engaged in such projects.

MLD is an acronym for Metachromatic Leukodystrophy. MLD is a genetic disorder which at the moment has no cure. MLD is directly caused by a deficiency of the enzyme Arylsulfatase A and is usually characterized by enzyme activity which is less than 10% of human controls. Without this enzyme, sulfatides build up in many tissues of the body, eventually destroying the myelin sheath of the nervous system. The myelin sheath is a fatty covering that protects nerve fibres. Without it, the nerves in the brain (central nervous system — CNS) and the peripheral nerves (peripheral nervous system — PNS) which control, among other things the muscles related to mobility, cease to function properly.

Building an economic model

I was asked by MLD to create an economic model which calculated and could provide evidence as to the potential cost and wider economic implications of the illness.

The mode it was envisaged would help to:

To support the work of MLD by creating a robust model they can quote to clients, families, policy makers and the public
To raise awareness of the impact of MLD
Create a cost benefit analysis model for MLD
Understand these costs relative to the cost of testing
Account for the likelihood of MLD occurring
Outline and use robust data sources
Outline future challenges for MLD

To do this I not only had to consider the variables involved in treating such and illness, but also the probability of infection within the population and the various types and life expectancies of the illness. Broadly speaking MLD occurs in three forms:

Late Infantile MLD

In the late infantile form, which is the most common form of MLD (50-60%), affected children begin having difficulty walking after the first year of life, usually at 15–24 months. Symptoms include muscle wasting and weakness, muscle rigidity, developmental delays, progressive loss of vision leading to blindness, convulsions, impaired swallowing, paralysis, and dementia. Children may become comatose. Untreated, most children with this form of MLD die by age 5, often much sooner.

Juvenile MLD

Children with the juvenile form of MLD (onset between 3 and 10 years of age) usually begin with impaired school performance, mental deterioration, and dementia and then develop symptoms similar to the late infantile form but with slower progression. Age of death is variable, but normally within 10 to 15 years of symptom onset although some juveniles can live for several decades or longer after onset.

Adult-Onset MLD

The adult form of MLD commonly begins after age 16 and, in the initial stages, is often mis-diagnosed as a psychiatric disorder because of personality changes. Initially, the symptoms are cognitive rather than physical, then leading to progressive dementia and, ultimately, physical disability as well. Adult-onset MLD progresses more slowly than the late infantile and juvenile forms, with a protracted course of a decade or more.

The initial model

Within the initial model created for the charity were the following aspects:

Cost of carer per hour
Average number of hours care
Lost earnings
Probability of illness and average lifespan
Investigation costs
Medication costs
Consultation costs
Hospitalisation costs
Special educational needs cost
Additional travel costs
Model across all three types of illness

Further developments

Further developments that could be made in the future were also identified and are as follows:

Analysis of benefits/government support
Reduction in illness rates due to sufficient testing
Economic savings from sufficient testing
Testing vs non testing scenario
Psychological cost to patient
The cost of raising awareness
Future medical costs

www.mldsupportuk.org.uk

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Business Innovate – The Budget 2015; surprises and innovation

The final Budget before the election was always going to struggle to provide sizable giveaways with such tight public finances, but even so there were some interesting surprises.

The most innovative of these was the announcement of a Help to Buy: ISA, where for every £200 a first time buyer saves, the government will provide a £50 bonus up to a maximum bonus of £3,000 on £12,000 of savings. Many first time buyers are sure to welcome such a scheme.

Alongside this, was the designating of the first 20 Housing Zones outside London, and continuing to work with the other 8 shortlisted areas. The problem, however, remains that supply and demand simply are too unbalanced.

There were also a few measures that should help to boost employment opportunities for the young with the abolition of Employer NICs for under 21 year olds from April 2015 and continued support for apprentices. This alongside a rise in the personal allowance to £10,800 in 2016-17 should help to continue to reduce the tax burden on those entering employment for the first time.

There were also few interesting measures that are sure to receive less headlines but will help to transform and reduce the cost of administering government services. The Budget announced:

That following a successful trial, the government will implement ‘GOV.UK Verify’ which is a new way for people to prove their identity online when using government services.
The government will transform the tax system over the next Parliament by introducing digital tax accounts, removing the need for annual tax returns.

Such measures, have the potential if they are further linked in the future providing a truly seamless point of access for government services.

Finally, a number of specific investments were announced that the government hope will continue to improve the UK’s international standing as a leader in research, development and innovation. Such as:

£1 million to the Centre for Process Innovation to support innovation and knowledge transfer in the North East’s chemicals sector.
£14 million to invest in an Advanced Wellbeing Research Centre (AWRC).
A package of measures to improve the accessibility of R&D tax credits for smaller businesses.
A further £100 million in cutting-edge research projects through the current UK Research Partnership Investment Fund round.
£400 million for the next round of funding for cutting-edge scientific infrastructure.

Go to: http://businessinnovate.co.uk/

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Business Innovate – Autumn Statement: innovative steps that make difference

The 2014 Autumn Statement left little room for manoeuvre, the deficit is not as low as the government would like and the temptation for giveaways is significant. What can be said though is that whilst the deficit challenge remains, the focus on innovation and reform rather than grand gestures is a welcome relief.

I use to illustrate this point two particular measures announced in the Autumn Statement. The first is that of apprenticeships. The education system and tax system in reality does not encourage the knowledge and skills transfer that is possible between businesses and youngsters entering the labour market. Yet there has traditionally been a mix of mismatched and poor incentives to encourage limited business and individuals to undertake such schemes. This has now potentially changed.

The Autumn Statement announced that it was abolishing employer National Insurance contributions for apprentices aged under 25 on earnings up to the upper earnings limit. This in the grand scheme of spending is not a significant sum but the message and incentive is right. It encourages that transfer from education to work and helps to build a relationship between business and future potential employees and output. Such innovative thinking is long overdue with business craving practical skills to improve productivity.

The second measure that stands out is the reform of stamp duty. This tax has long created distortions in the housing market. It is well overdue for reform but the changes announced today should be part of a continued effort to reform the housing market to ensure that future generations are able to own their own home, which is of a reasonable quality, at an affordable rate. In this respect stamp duty is an issue because it creates artificial holes in pricing where buyers have to spend significantly more to reach the ‘next level’ of the ladder. It is no longer just the first time buyers that don’t have the capital but also the second movers. This is why such reform is so important and innovative. I would, however, also stress that this is only part of the solution. It is a demand side response where as in actual fact the UK suffers a supply side problem. This is why the measures to increase the degree of house building are welcomed but do not equate to anything near the 260,000 homes a year required to meet population growth.

So whilst the majority of this statement contains small changes there is some significant progress. It should, however, never be underestimated that the measures announced are actually the first steps to what are long needed reform.

Autumn Statement: Summary of other main points

TAX

Stamp Duty rates overhauled. Top rate now 12% on properties worth more than £1.5m effective from midnight Wednesday. There will be no duty on properties worth up to £125,000 then 2% rate on the portion up to £250,000 then 5% up to £925,000, then 10% up to £1.5m.

Higher rate income tax threshold to rise to £42,385 next year.

Income tax-free personal allowance to rise to £10,600 rather than the planned £10,500 next year, giving wage boost of £825 a year.

ISAs can be inherited tax free.

Fuel duty remains frozen.

People who die under 75 to be able to pass on annuities, tax free.

CORPORATE TAX

A so-called ‘Google Tax’ will introduce a levy of 25% on profits shifted abroad by multi-national firms. The Diverted Profits Tax aims to raise more than £1bn over five years.

Banks to pay almost £4bn more in tax over next five years, with profits which can be offset by losses for tax purposes to be limited to 50%.

Inflation-linked increase in business rates capped at 2% and discount for shops, pubs and cafes increased by 50% to £1,500.

SAVINGS

Limit on saving in New ISAs to rise to £15,240

DEVOLUTION & ‘NORTHERN POWERHOUSE’

Business rates for Wales to be devolved to Welsh Government.

Plans law to devolve corporation tax to Northern Ireland if the Northern Ireland executive shows it can manage the financial implications.

Investment of £250m in new advanced material science institute in Manchester with branches in Leeds, Sheffield and Liverpool. Tendering for new franchises for Northern Rail and Trans-Pennine Express to ensure modern trains.

EDUCATION

Government-backed student loans of up to £10,000 are to be made available for postgraduates.

TRAVEL

Air Passenger Duty for under-12s abolished from May 2015. Scrapped from 2016 for under-16s.

SAVINGS

A further £10bn of Whitehall efficiencies is planned while £5bn more is sought from crackdown on tax evasion and avoidance.

Public service pension reforms will be completed, saving £1.3bn annually.

SPENDING

NHS gets additional £2bn every year for frontline services. A £1.2bn investment in GP services will be paid for from foreign exchange fines.

Government spending £10bn less than forecast this year but warns the coming years will require “very substantial savings in public spending.”

PUBLIC FINANCES

Office for Budget Responsibility (OBR): Forecast 2014 GDP growth upgraded to 3% from 2.7%. 2015 forecast raised to 2.4%.

“Deficit is falling this year and every year.” Deficit now cut in half. OBR forecasts borrowing to fall from £97.5bn in 2013/14 to £91.3bn in 2014/15 (£5bn above annual target). Budget surplus of £23bn predicted for 2019/20.

Osborne says deficit reduction better than some predicted as welfare spending is lower and interest paid on national debt is considerably lower.

OBR predicts wage growth above inflation for the next five years.

Go to: http://businessinnovate.co.uk/

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Business Innovate – Budget 2014 – Innovation, before big announcements

Whilst the 2014 Budget was unlikely to be one of significant spending given the fiscal constraints that continue to challenge government, it did provide a backdrop of significant innovation in several policy areas which has not been seen for a number of years.

The most significant of these innovations was in the area of pensions and savings. The UK has for a long time struggled to encourage individuals to think of their long term needs, with policies built up over a number of years being bolted on to an ever more complex system.

The 2014 Budget looks to be taking some significant shifts in these areas. On pensions the Chancellor announced that from April 2015, the government will change the tax rules to allow people to access their defined contribution pension savings as they wish from the point of retirement. If a significant number of individuals choose such action this would be a significant step away from the current system of having to purchase an annuity and could lead to some interesting market innovations in terms of providing incomes for retirement.

Another area of innovation surrounded encouraging saving, with the launch of the New ISA (NISA). This NISA will not only see its limit raised to £15,000 but will also allow individuals to transfer the amount they invest in cash and shares, removing the set restriction for each area. Another possibly more important innovation is that ISA eligibility will be extended to peer-to-peer loans, and all restrictions around the maturity dates of securities held within ISAs will be removed. Again this could provide a number of new investment opportunities that provide better rates and direct savings into small businesses through platforms in the peer to peer lending market.

As well as encouraging individuals to save the Budget 2014 announced the doubling of the annual investment allowance (AIA) to £500,000 from April 2014 until the end of 2015. This will be a significant benefit to businesses wishing to invest and will mean that the scheme will cover 4.9 million firms (99.8% of businesses), providing 100% up-front relief on their qualifying investment in plant and machinery.

Further to this the government also announced it will raise the rate of the R&D tax credit payable to loss making small and medium sized companies from 11% to 14.5% from April 2014, providing valuable support as the economy continues to improve.

Looking forward, there is another interesting announcement for small business in the budget that the British Business Bank will issue a request for proposals to implement an innovative wholesale guarantees programme alongside the Budget. Such a scheme could provide significant support for businesses and provide targeted assistance in the future, and so Business Innovate looks forward to engaging with government on this further in the future.

Whilst supporting small business is welcome, opening up opportunities is important as it allows companies to support themselves. The Budget announced an overhaul of UK Export Finance’s (UKEF) direct lending programme, doubling it to £3 billion and cutting interest rates to the lowest permitted levels. This scheme will mean that UK business will have access to one of the most competitive support schemes available for wining contracts in new markets, helping them to improve and expand overseas.

Go to: http://businessinnovate.co.uk/

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ACE – State Investment Bank

This paper is the final paper in ACE’s infrastructure investment series and explores in more detail the rational and practicalities of establishing a State Investment Bank.

Key areas explored in the paper:

A State Investment Bank could play an important role in long term economic policy
A State Investment Bank would help to stimulate housing supply
Given the importance of SME finance, it should remain separated from the task of investing in infrastructure.
State aid approval is required for a State Investment Bank
A State Investment Bank is not a one stop shop to fix for endemic investment problems
A State Investment Bank needs to make profit and invest returns.
Building a skills base for a State Investment Bank is vital
The change in financial regulatory landscape needs to be factored into a State Investment Banks design
The scale of capitalisation for a State Investment Bank is important
The banking levy could provide a significant degree of the capital for a State Investment Bank
A State Investment Bank requires a solid plan as to its capitalisation proces
Could the government scale down Royal Bank of Scotland (RBS) into a State Invsestment Bank?
A clear roadmap would be needed to scale up the GIB to a full State Investment Bank.

Company website:
http://www.acenet.co.uk/

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