Editor Alun Thorne speaks to West Midlands businesses about how trading prospects have changed in light of the Chancellor’s Autumn Statement which followed gloomy figures on the future of the country’s economy.
The jury remains out on whether the measures introduced by the Chancellor will be enough to get the economy moving again after he delivered his make or break Autumn Statement to the House of Commons.
With the shadow of a double dip recession looming, George Osborne outlined a series of measures to boost business while also extending the pay freeze for a further two years in the public sector.
The headline pledges from the Chancellor included a credit easing scheme where £40 billion will be available as part of the National Loan Guarantee Scheme, £20 billion of which will be made available in coming weeks, and will bring down the interest rate payable on loans to small businesses.
Meanwhile, a £1 billion investment into the Business Finance Partnership is designed to specifically help medium-sized businesses, by investing in funds that lend to them. A further £1 billion has also been pledged for the Regional Growth Fund.
The Chancellor also announced further tax incentives for enterprise zones and a reform to the R&D tax credit system as well as a £1 billion youth contract set to subsidise work placements for thousands of young unemployed people.
The Government is also set to introduce an Enterprise Investment Scheme where investors will be given 50 per cent income tax relief on investments of up to £100,000 in new enterprises.
Other initiatives that the Chancellor hopes will boost the economy include a huge focus on new infrastructure projects, a mortgage indemnity scheme that could help up to 100,000 new homeowners secure loans on properties, the scrapping of planned three per cent increase in fuel duty next year and the capping of rail fare rises to six per cent rather than eight per cent.
He also proposed a series of measures to cut back on employment red tape including consultation on “protected conversations”, and an overhaul of employment tribunals. This will include compensated no fault dismissal for businesses with less than 10 employees, as well as an overhaul of redundancy rules.
West Midland business leaders welcomed proposals to support businesses by focusing on existing budgets and prioritising real growth measures.
Michael Ward, president of Birmingham Chamber of Commerce, said: “In the circumstances we are pleased with the new measures announced which will support private sector growth through investment in improving infrastructure, access to finance and business support.
“Against the backdrop of political instability and impotency across the EU and US, the chancellor’s deficit reduction strategy has earned the UK real credibility in the financial markets.
“This has been hard-earned, and we wholeheartedly support the Government’s reiteration of its commitment to deficit reduction.”
Mr Osborne has accepted that his hopes of stabilising the UK’s economy are somewhat reliant on the eurozone remaining out of recession.
Indeed, he was in Brussels for talks with European counterparts less than 24 hours after finishing his statement.
Lord Kumar Bhattacharyya, founder of Warwick Manufacturing Group, said the Chancellor had been “a victim of circumstances” but criticised him for having no Plan B.
He said: “Britain is an exporting country but with all the problems in Europe many of our markets have virtually dried up.
“The Government should have anticipated this – to have just a single plan is dangerous.
“And while credit easing is good for small companies, and is at least the right direction to go in, if they cannot invest because their markets are under pressure then there is a problem.”
John Rider, West Midlands chairman of the Institute of Directors, said: “I would cautiously welcome many of the recent initiatives including the underwriting of small firm loans, infrastructure projects to create jobs and efforts to deal with youth unemployment.
“My doubts surround delivery and the delays we are already seeing on politicians’ promises.
“The first stage of Regional Growth Fund money is yet to be paid over, compensation to those uninsured who lost out in the riots has not started yet, enterprise zones will not kick in until 2013, and the youth unemployment plan seems short on detail as to who will qualify as well as being on hold until at least April 2012.
“We need more detail quickly but it strikes me that the Government is in grave danger of falling into Blairite ‘spin’ mode. What is required is action now.”
Louise Bennett, chief executive of the Coventry and Warwickshire Chamber of Commerce, felt the content of the Autumn Statement promised much for business.
But she believes the detail of Chancellor George Osborne’s statement will decide how much firms on the ground actually benefit.
Mike Dell, president of Black Country Chamber of Commerce, added: “All in all, the Autumn Statement has not been as bad as originally envisioned; there is no doubt that we will have to work hard to avoid another recession, but if the measures for growth are implemented properly, local businesses should benefit.”
EEF, the manufacturers’ organisation Midlands region director, Richard Halstead, said: “With global growth plummeting and uncertainty mounting, the task of generating more balanced growth based on investment and trade was always going to be difficult.
“The statement was a targeted attack on barriers to growth with some helpful measures. But these are not normal times. With confidence so low, there are question marks over whether enough funding has been prioritised in the right areas to secure the substantial rise in business investment government is forecasting for next year.
“In the coming weeks and months the Government must address two key priorities: the urgent need to increase competition in the banking sector and boost business investment by introducing a temporary rise in capital allowances.”
Mike Steventon, senior partner of KPMG in Birmingham, said: “The Chancellor announced a series of broad incentives to make the UK a nation of entrepreneurs by seeking to pull down the key barriers to SME growth through providing easier access to debt, increased access to seed funding as well as relaxing employment law and health and safety burden.”
Prof John Bryson, enterprise and economic geography expert at the University of Birmingham, believes the proof of the pudding will be in the eating as regards whether the measures will lead to improvements in the economy.
He said: “The proposed multi-billion pound bid to enhance growth in the UK economy is a welcome development, but it is still a drop in the ocean compared to some of our major competitors.
“It is also perhaps a drop that is too late and too dispersed.
“Dispersion perhaps reflects political expediency rather than targeted spending that would have the most impact on generating growth.
“Too little, spent in too many places has the potential to make a limited contribution to national economic growth. This is a geographical lesson that politicians should take into consideration.”
An area where the Chancellor received general support was in reforming the R&D credit system.
“Reform of the R&D tax credit system propels the UK into a new league of global competitiveness sending a strong signal to international investors,” said Paul Everitt, chief executive of the Society of Motor Manufacturers and Traders.
“The UK is already a centre for innovation with advanced engineering and low carbon expertise attracting major corporations to invest in the UK; this reform will enhance the UK’s investment appeal, create high value jobs and drive economic growth.”
David Hillan, tax partner at Grant Thornton in Birmingham, added: “Broadly these changes will make the incentives more generous.
“The Government is already committed to providing 225 per cent relief to SMEs from April 1, 2012, and now they plan to bring in an ‘above the line credit’ for large corporates who are making tax losses.”
On the credit easing scheme, Johnathan Dudley, Midlands managing partner of Crowe Clark Whitehill, said: “I believe the most critical element holding back industry continues to be lack of funding. So the Government’s loan underwriting scheme for small firms is welcome.
“At the moment it is very hard for them to get overdrafts as banks re-build their reserves. Companies are forced down the invoice discount route where funding is restricted by credit limits allocated to customers. Credit underwriting should be a big help for those looking to grow. But the Government needs to get it in place fast.”
Dr Francis Greene, associate professor at Warwick Business School, added: “I would be very surprised if it makes that much difference to small business mainly because there is not a lot of appetite for loans at this moment in time
“A simple reduction of one per cent on interest rates – if that transpires – is likely to make a marginal difference in the investment strategies of small business.
“The bigger issue for small firms is the state of the economy, as shown by survey after survey.”
On enterprise zones, Graeme Crawford, head of Ernst & Young’s Midlands tax practice, said that the Government had further enhanced the potential for zones despite some misgivings.
He said: “In the case of six of the enterprise zones that have recently been identified, tax depreciation of 100 per cent of the expenditure on plant and machinery will now be available rather than the normal rate of 18 per cent or eight per cent in some cases.
“This enhancement is despite the fact that some commentators consider that enterprise zones only move investment from one locality to another one nearby. If the Government is convinced that these zones are a good idea they could have gone further. The last time they were introduced 30 years ago they included tax relief on the cost of buildings.
“We are still a long way from that sort of major incentive.”
Simon Lloyd, head of industrial and logistics at DTZ, added: “News that capital allowances will be made available in six of England’s enterprise zones, including the Black Country, is positive news and should act as a catalyst for investment in these regions.
“The Black Country Enterprise Zone has already attracted Jaguar Land Rover and this additional boost should assist in developing the region into a manufacturing centre of excellence.
“The decision makes complete sense and will ensure that businesses within enterprise zones are leaner and fitter for the road to recovery.”