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New government’s challenges not to be underestimated, says ICAEW

Author: ICAEW Insights

Published: 06 Sep 2022

Protecting jobs, delivering a bold skills and productivity strategy and long-term plans for tax and public spending are highlighted as urgent priorities for Truss and her new Chancellor.

ICAEW Chief Executive Michael Izza has warned Prime Minister Liz Truss and her newly-appointed Chancellor of the Exchequer, Kwasi Kwarteng, that restoring growth in the economy and levelling up the UK must be a priority for a remainder of this Parliament, against a backdrop of deteriorating economic conditions.

In letters to Truss and Kwarteng, Izza warns that the challenges facing the new government are not to be underestimated, with surging inflation, rising energy costs and persistent supply-side constraints all contributing to harsh economic conditions. 

ICAEW’s recent Business Confidence Monitor – one of the UK’s largest private-sector business surveys and a lead indicator for GDP growth – points to a perilous turning point for the economy as headwinds mount. All sectors, regions and types of business are affected, with companies everywhere facing a real ‘cost-of-doing-business crisis’.

Feedback from ICAEW members at the frontline of business – between them advising more than three million enterprises across every level, sector and region of the UK economy – has highlighted key priorities for the new government to support the British economy and public, and deliver long-term economically and environmentally sustainable growth, the letter says.

It calls on the Chancellor to protect jobs and livelihoods this winter, deliver a bold skills and productivity strategy and set out a long-term plan for tax and public spending.

Protect jobs and livelihoods 

Izza says that the past six months has seen energy being used as a political weapon by the Russian government following its illegal invasion of Ukraine and financial support to support both households and small businesses is now necessary.

“If it is your priority to get help to those in most need, we think that this can be achieved more quickly and more accurately by the expansion of existing direct fiscal support schemes rather than broader tax cuts,” Izza says. 

Accelerating energy efficiency improvements throughout the country would not only build resilience in the UK’s energy sector, but also help to reduce the vulnerability of households and businesses to future shocks. “Ministers could usefully build on the recent Help to Grow initiatives with a campaign – including financial incentives where appropriate – to improve awareness and capability among SMEs looking to reduce their energy usage,” Izza says.

Bold skills and productivity strategy 

A shortage of business skills has undermined business confidence, investment and productivity across the UK, ICAEW believes, and it is calling on the Department for Business, Energy and Industrial Strategy to be given increased responsibility for post-16 education to ensure it is aligned with the needs of business and the economy. 

“HM Treasury should work closely with business to complete its review of capital allowances, so that companies have the incentives and the certainty they need to invest in developing world-leading net zero technologies, in large-scale infrastructure projects, in upskilling their staff, and in productivity-boosting equipment and technologies,” the letter says. 

Meanwhile, delivering reliable and affordable fast broadband access in all parts of the UK is essential to address regional inequality in education and skills, enabling digital-friendly, skill-specific and ‘bite-sized’ approaches to training.

Set out a long-term plan for tax and public spending

With recession looming and cash flow difficulties ramping up, certainty around tax and of the new government’s spending plans are urgently needed to make it easier for business to budget, bearing in mind the challenging outlook,

In particular, the letter stresses the need for clarity on employer National Insurance and Corporation Tax. “It is important that tax changes and spending commitments are sustainable into the medium term,” Izza warns. 

“An early fiscal statement would be welcomed if it set out a clear path for taxes and spending across the rest of this Parliament (and beyond) both driving growth in the economy and putting the public finances on a sound footing.”

Meanwhile, ICAEW stresses the need for progress on audit and corporate governance reform, described as “too long overdue” and needed to restore public and investor confidence. “The establishment of the new regulator, the Audit, Reporting and Governance Authority (ARGA), needs to be taken forward at the earliest opportunity,” Izza says. 

The letter also highlights the opportunities for the UK to lead the world in implementing corporate sustainability reporting, vital to the transition to a net-zero economy, and in assuring Britain’s place as the most attractive in which to invest and do business.

“ICAEW and our members across the UK stand ready to help the government as it works to protect and support businesses and households this winter – and to secure an early and full economic recovery,” the letter says. 

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