Recommendation 12

HM Government Acknowledged

This section is addressing recommendations in paragraph 65, 72, 92 and 100 on productivity enhancing opportunities and challenges after Coronavirus; addressing the investment shortfall through tax incentives and policy certainty; economic opportunities as a result of Brexit and supporting firms affected by changes in trade between the UK and EU; and Help to Grow funding moving forward. Productivity growth has slowed in the UK since the Global Financial Crisis. As the report raises, this issue was exacerbated by the COVID19 pandemic and the public health measures in response, such as businesses indebtedness and individuals withdrawing from the labour market. The government continues to monitor these. Increasing productivity is vital for accelerated and sustained economic growth and that is why government has announced a package to reform and invest in the key supply side drivers of productivity gains. Infrastructure and investment Firstly, the government has brought forward a package of measures to ensure public investment remains at historic levels and continues to deliver projects which will boost growth and productivity. The Autumn Statement protects the public capital budget at record levels, meaning government will invest over £600 billion over the next five years. The government will ensure transformative growth plans for our railways are protected by committing to HS2 to Manchester, core Northern Powerhouse and East West Rail. The government will deliver digital infrastructure investment through Project Gigabit, new nuclear power, including Sizewell C (subject to final agreement), and the roll-out of cheap, clean renewables despite the challenging fiscal circumstances. Infrastructure spreads opportunity and prosperity across communities by connecting people to new jobs through faster and more reliable routes and secures the UK’s energy independence. Public investment in high quality infrastructure is therefore crucial for raising productivity and should be protected. Additionally, private investment remains crucial for boosting productivity in the UK. The economic stability and market confidence that the Autumn Statement has provided are key for this, but so is policy continuity. That is why the government has reconfirmed a number of measures to ensure the UK’s tax and regulatory systems incentivise private investment. For example, by setting the Annual Investment Allowance (AIA) at its highest permanent level from 1 April 2023, reducing the burden of business rates by providing £13.6 billion of support over the next five years and keeping the UK’s headline Corporation Tax rate internationally competitive at 25% and protecting 70% of actively trading companies at 19% with the Small Profit Rate. Innovation Science and innovation are some of the UK’s greatest strengths and the government has bought forward measures to enable our innovative firms to invest. Government spending on R&D plays a crucial role in further stimulating private sector investment. Public spending on R&D will increase to £20 billion a year by 2024–25, a cash increase of around a third compared to 2021–22. This is the largest increase in R&D spend ever over a Spending Review period. The government will support the UK’s most innovative companies and leverage in private sector investment through confirming the continuation of the Innovate UK programmes and increasing funding for the UK’s 9 Catapults by 35% compared to the last 5-year funding cycle. These will continue to support innovation and commercialisation by providing access to world-leading facilities, skills, and equipment across the UK. As part of the ongoing review of R&D tax reliefs, the government is reforming the reliefs to ensure taxpayers’ money is spent as effectively as possible. There is significant potential for error and fraud in the small and medium-sized enterprises (SME) scheme, with the generosity of the relief making it a target for fraud. By contrast, the separate R&D expenditure credit is better value but has a rate that is less internationally competitive. The government is therefore rebalancing the rates of the reliefs. As set out in the Autumn Statement, the government is committed to ensuring cutting- edge, innovative firms have access to finance to invest. As previously announced, the government is increasing the generosity and availability of the Seed Enterprise Investment Scheme and Company Share Option Plan. The government remains supportive of the Enterprise Investment Scheme and Venture Capital Trusts and sees the value of extending them in the future. Taken in combination these access to finance, investment incentives and business support measures provide firms with the certainty and support they need to increase their level of investment, including in productivity maximising technology. The government has noted the committee’s evidence on the design of the super-deduction. Help to Grow The government is committed to helping small businesses across