The new Conservative Government has inherited a confident business community but, according to the latest Business Trends Report produced by accountants and business advisory concern BDO LLP, underlying fragility remains a “cause for concern”.
BDO’s Optimism Index, which predicts business growth six months ahead, has held firm this month at 104.7, in turn pointing to strong confidence among UK businesses. This suggests company’s have been unruffled by last Thursday’s General Election result and remain resilient in the face of continued Eurozone uncertainty.
There may be more good news to come, too, as BDO’s Output Index rose to 104.3 this month from 103.7, indicating that growth could well speed up in the latter half of 2015 following a weaker start to the year.
However, sustained growth depends entirely on companies converting their confidence into the capital expenditure needed to boost productivity. Investment in skills and equipment could help to tackle Britain’s stagnant productivity levels, subsequently boosting business output and, ultimately, growth.
BDO feels that the new Conservative Government “must act quickly” to put in place policies that encourage businesses to invest. Specifically, BDO would like to see the Government permanently increase the annual investment allowance to £5 million, affording a real incentive for businesses to invest in the capital assets that will drive future growth and the confidence for them to plan ahead.
The new Government should also “consider a VAT zero rating of supplies” to those companies who export. The UK currently allows manufacturers to zero rate their exports but not their suppliers.
Government must “put firm actions in place”
Commenting on the Business Trends Report’s findings, Peter Hemington (partner at BDO LLP) stated: “Ahead of the 2010 General Election, our data showed high levels of UK business confidence. Much like this time around, in fact. However, that confidence fell away not long after the new Government was formed. To avoid this happening again, the Conservative Government needs to put firm actions in place that will help UK businesses thrive.”
Hemington continued: “It’s encouraging to see that businesses are feeling optimistic about the coming months in the hands of a new Government, but the confidence that counts is the confidence that converts to businesses actually investing. The new Government must help UK businesses with this by putting tangible measures in place that will encourage companies to invest in training or research, technology and equipment to help improve productivity.”
Hemington added: “The Government also has the opportunity to boost future economic growth by investing judiciously in our country’s infrastructure. I hope that opportunity will be taken.”
In parallel, the CBI has commented on Prime Minister David Cameron’s appointment of Sajid Javid as Secretary of State for Business, Innovation and Skills.
John Cridland, the CBI’s director general, said: “We congratulate Sajid on his appointment. He was an excellent minister at the Treasury and will be a strong voice for the business community.”
Cridland went on to state: “We want to encourage more companies, and in particular Britain’s ‘forgotten army’ of medium-sized businesses, to boost exports and investment, drive growth and create jobs up and down the country. We look forward to working with Sajid to achieve this aim.”
As an immediate step, the CBI would like to see the Government set out a clear business plan for its first 100 days, including ways of driving down the deficit and finding new methods for delivering public services.
“We also need policies to bolster our supply chains,” said Cridland, “and to help make the UK the destination of choice for the manufacturing of high-value products.”