Chancellor Rishi Sunak has called for a new culture of enterprise, with an economic vision for private businesses and individuals to thrive.
He was speaking at the 2022 Mais lecture, an annual event for the banking and finance community. Past speakers include Mark Carney, Tony Blair, Gordon Brown, Mervyn King and George Osborne.
“I firmly believe in lower taxes,” Sunak said. But in reference to the demands of the UK’s ageing population, he cautioned: “Cutting tax sustainably requires hard work, prioritisation, and the willingness to make difficult and often unpopular arguments elsewhere. And it is hard to cut taxes at a time when demands on the state are growing.”
Sunak went on to say that he would deliver a lower tax economy in a responsible way, tackling the UK’s long-term challenges. In setting out the government’s role in delivering growth, he said “We will use the tax and regulatory levers at our disposal to foster the new culture of enterprise that will create our future economy.”
This, he said, would be achieved through capital, people and ideas. “Three priorities to deliver higher productivity, tied with one golden thread: that what government does is far less important than creating the conditions for private businesses and individuals to thrive.”
Sunak highlighted that private sector capital investment had been falling for decades. “Even in the decade before the global financial crisis, capital deepening grew UK productivity by just 0.4ppt per year, less than half the OECD average,” he said. Capital investment by UK businesses averages 10% of GDP, lower than the current OECD average of 14%.
Despite the UK’s competitive headline corporation tax rates, the overall tax treatment provided for capital investment is much less generous than the OECD average. “As I develop a business tax strategy for the years ahead, it seems likely to me that a priority will be to cut taxes on business investment.”
Sunak went on to address his second priority of increasing the technical skill level of people who are already in work. “We lag behind international peers in adult technical skills: just 18% of 25 to 64-year-olds hold vocational qualifications, a third lower than the OECD average.”
Alongside addressing the complexity of the current system of qualifications, on tax, Sunak said: “As I develop the tax strategy for the years ahead, we should examine whether the current system – including the operation of the Apprenticeship Levy – is doing enough to incentivise businesses to invest in the right kinds of training.”
On the last topic – ideas – Sunak asked what could be done to support greater private sector investment in R&D: “One obvious answer is to look at our tax regime.”
He highlighted that business spending on R&D amounts to just four times the value of R&D tax relief, compared to the OECD average of 15 times. “As I deliver the tax strategy for the years ahead, it would be sensible to make sure our tax regime for innovation is globally competitive and so properly incentivises higher business investment in R&D.”
Productivity, public investment in R&D and skills training also feature in the government’s Levelling Up White Paper. Levelling up was also mentioned a number of times in Sunak’s lecture.
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