Budget 2021: Expert commentary

Hello and welcome to Alliance MBS' coverage of one of the most important Budget's in recent history. Our experts give their analysis of the Budget and what it means for the UK economy. 

“Despite this growth in new ventures, almost a fifth of self-employed workers have missed out on government support, including the Self-Employment Income Support scheme and Bounce Back loans. Compounding this, recent ONS data shows that the under 25s have suffered the largest number of job losses during the pandemic, with many relatively low skilled jobs disappearing which self-employed people would otherwise use to supplement their income, such as for young actors and musicians. The decision to extend the Self-Employment Income Support scheme to September will be welcomed by many – particularly now it has broadened to cover 600,000 new people that were previously unable to apply.

“The end of lockdown might not bring immediate normality. Many SMEs are lacking the cash to invest in new projects or activities, or even to pay bills, which explains the government’s focus on easing the debt burden on SMEs, and reinstating costs such as business rates and taxes gradually. It should help companies to start generating cash again, and avoid an explosion of debt.

“For the hard-hit retail sector, the government extended the current business rates holiday, but a more impactful change would have been to make them payable for the property owner rather than the business leasing the premises. An online sales tax wasn’t mentioned, but it would also help to even up the competition between online and physical retailers.

“It’s vital the government continues to boost SMEs to drive economic growth. Nearly two thirds of the UK’s turnover in the private sector is generated by SMEs, and they are particularly good at opening up new markets and adapting to new circumstances – which is especially important in the aftermath of Brexit. The biggest barrier to emerging start-ups is funding, so it’s a surprise the government did not focus on shoring up the EIS scheme, which offers significant tax breaks for investors. Having said this, the £375m Future Fund: Breakthrough initiative, which will target hi-tech, hard-to-fund businesses that require at least £20 million in funding, and several funds that aim to boost carbon reduction and clean energy research and development, are welcome developments for UK business growth."

 

It provides an excellent platform for business schools to make a real difference and an immediate impact on the greatest recovery in modern history. SMEs have suffered greatly during the Covid-19 pandemic. One study, with a survey of more than 5,800 small businesses during the first wave of the pandemic, found that many small businesses are financially fragile and had already gone through mass layoffs and closures.

In the UK, most of the SMEs have survived thanks to the protection offered by the furlough scheme, which will end eventually. What will happen once the scheme ends? Actually, for some, it can be disastrous without further help. The help that SMEs are getting at the moment is the “fish” help, what they really need soon and urgently is the help for them to learn “fishing” so that they can become more independent and productive. For UK business schools, the scheme offers a great opportunity for them to incorporate it into their social responsibility agenda.

My earlier blog on why business schools should embrace social responsibility argued that business schools have a unique strength in advancing the social responsibility agenda due to our diverse expertise, our commitment to developing future business leaders, and our historical record in driving societal changes and business/social innovation. In that blog, I also called for business schools to get ready for post-pandemic recovery. Our recent AMBS social responsibility strategic review has identified helping local SMEs with post-pandemic recovery as a strategic priority. This demonstrates how much our colleagues care about this issue. Accordingly, we are developing our own Greater Manchester SME Great Recovery Forum that perfectly matches the ethos of the “Help to Grow” scheme.

I do sincerely hope that this scheme can deliver its intended impact. However, we need to be wary of many issues along the way.

For example, first, SMEs need to appreciate the needs themselves and sign up for the scheme. This is not straightforward. Management training (free or not) could be seen as a luxury that they can’t afford due to time limits and potential immediate loss of productivity.

Second, SMEs permeate so many sectors in the UK economy. Different sectors have their own unique challenges. It is of utmost importance to try the best to match the business school’s academic expertise with the specific demands by SMEs in different sectors.

Third, business schools need to level up their expertise, knowledge, and skills to develop more appropriate content instead of relying on the “old” staff.

Fourth, business schools need to take this opportunity very seriously and should absolutely invest to deliver the best products (programmes), as they would normally do for their customised corporate executive education programmes. UK SMEs deserve the best management training in this very challenging and difficult time.

Fifth, business schools also need to take note and adopt a learning-orientation. This is unchartered territory for us all. We are in this together. Nobody has any panacea for the post-Covid recovery. Business schools can learn a great deal from delivering this scheme and need to be prepared to update their curriculum content along the way.

Finally, but not least, business schools should take the lead, through this “Help to Grow” scheme and the “green recovery”, by educating our SMEs with the latest thinking and practice of sustainability, CSR, ESG, EDI, and so on."

The move of civil servants to Darlington will help officials understand more about the places they are trying to help as well as directly increasing jobs in that location. This, in turn, will have multiplier effect on the local area, creating more jobs to serve workers and more business opportunities with a chance to procure goods and services locally.

“The HM Treasury’s Green Book methodology, alongside political prioritisation of projects in and around London, had reinforced existing success in wealthy, already highly productive parts of the UK. That could be about to change. Since then the Treasury has reviewed and updated the Green Book and set up a network to share best practice. In this year’s Spring Budget, there has been confirmation of the intra-city investment-ready transport plans that will deliver on tackling congestion and driving productivity. This will provide £8.6 million to Greater Manchester; £5.6 million to Liverpool City Region; £5.2 million to Sheffield City Region; £3.5 million to Tees Valley; £4.1 million to West of England, £8.9 million to West Midlands and £7.4 million to West Yorkshire. It’s projects like these that will play a part in helping to shift the dial.

“Meaningful levelling up will require more targeted support to strengthen community resilience. When the Coalition Government came to power in 2010 and embarked on austerity economics to bring down the deficit the biggest hit was to local authority funding and reduced services, which in turn has been shown to hit more deprived communities harder. The anticipation was that the Big Society would fill the gap and the Coalition sought to facilitate this by encouraging the development of Big Society Capital and the Access Foundation, as well as schemes like Social Investment Tax Relief. As MP Danny Kruger stated in his report ‘Levelling Up Our Communities’, this has been successful in the places that had existing capacity to apply for funding, but it reinforces success in places already doing well and continues to widen social inequalities. The £150m community ownership fund will open in the summer and allow community groups to bid up to £250,000 matched funding to help them buy local assets to run as community-owned businesses. The  £220m community renewal fund is the start of the UK Shared Prosperity fund (replacing EU Structural Funds) and funding will be competitive with the Government initially identifying 100 priority places based on an index for economic resilience to receive capacity funding to help them co-ordinate their applications.”

It was designed to incentivise people to find jobs at a time when the perception was that there were plenty of jobs available, even if those jobs were often low paid and insecure. Whatever the rights and wrongs of that approach, the situation has now completely changed – as we now have a major scarcity of jobs on our hands.”

“Forcing people with developed skills into any job is also not the way to get the economy back on its feet; people need opportunities to upgrade their skills and, if necessary retrain, rather than be forced into work that will actually make them dependant on Universal Credit in the long-term. In addition to maintaining the uplift and going further in raising benefit levels, a key issue is to remove the requirement to search for and take any job that comes up. This was suspended in the first lockdown but has since been reinstated. Rights to retrain are more helpful for recovery than obligations to search for jobs for 35 hours a week and to take any job offered.”

Statutory Sick Pay

“The uplift to Universal Credit served to close the approximately £20 gap between the basic Universal Credit allowance and statutory sick pay (SSP). However, the main problem lies in very low levels of both benefits, with sick pay actually the lowest among 28 EU countries, except Malta, as a percentage of average earnings. The budget is a missed opportunity to do something about this inadequate benefit. This low sick pay level also lies behind the failure of the track and trace model; even those eligible for SSP – and there are many who are not – cannot afford to be off sick. This has been recognised in part by the £500 sum available for those self-isolating on low incomes but the Budget is a major opportunity to raise this inadequate benefit.”

“While the government has finally seen sense in supporting parents of children self-isolating by making them also eligible for the £500 support, there are still major problems in accessing it. That said, facilitating self-isolation is vital in enabling the final stage of relaxing lockdown. Ideally, there should also be a total ban on those self-isolating being at risk of redundancy; to bring this in quickly it could be possible to make it a requirement for any firm receiving government support. In general, redundancy rights need strengthening, particularly where there are risks of discrimination; there are major concerns that women, particularly mothers, are facing being locked out of employment and there is limited debate let alone scrutiny over how people may be selected for redundancy.”

Unemployment levels

“Support for high street businesses is also welcome – but a question remains over whether the funds available per business are sufficient to make a difference between closure and survival. To slow the rise in unemployment, the extension of furlough will bring a sigh of relief but it would be helpful if there were incentives for employers to introduce short term work and job sharing, not just full furlough.

“Young people have been acutely impacted effects of Covid-19 and it would be good to see them eligible for support, such as the kickstart scheme after a shorter period of unemployment; the decision to treat furlough as a form of unemployment in that respect is welcome. Proposals to extend and develop both apprenticeships and kickstart schemes are welcome but are dependent on actions by employers. In that respect, the doubling of the incentive for employers to take on apprentices is welcome.”

Supporting the care sector

“Again, the Budget is a missed opportunity to resolve one of our major public expenditure problems: social care.”

“Any recovery programme needs to go beyond supporting physical infrastructure and to include supporting the care sector. A key issue that needs addressing is the state of local authority budgets. Without action to reduce expected deficits, next year will see major reductions in social care budgets, further punishing a sector that has greatly suffered due to Covid-19 and making problems of bed blocking within the NHS even more difficult to resolve.”

“Austerity policies mean that all other services in local authorities have already been cut so that the only areas left are social care for both children and adults; this is not compatible with any promise of building back better and will be more a case of reducing rather than extending support for the most vulnerable people and the most underpaid staff. Many social care staff, particularly those providing domiciliary care, are on zero-hours contracts and are paid at – or close to – the minimum wage. But issues like whether they are paid for travel time remain, meaning many find themselves paid below the minimum wage.”

 

Today’s Budget statement by the Chancellor of the Exchequer aims to set out a fiscal roadmap towards economic recovery. Understandably the budget plan is dominated by the need to protect and support businesses, jobs and livelihoods as we emerge from the COVID-19 crisis.

As much as the rescue of jobs and businesses across the nation is the first order of business, broad-based productivity growth is ultimately the key to creating the foundations for a sustained growth path ahead.

Main points

• While helpful in the short-term, the proposed measures in the Budget lack the scale of ambition required to address the UK’s long-term shortfall in productivity growth and the call for strengthening the foundations for a more robust and resilient economy. We need to scale up efforts to address the decades-long underinvestment in human, organization and knowledge capital, tackle some of the largest disparities in growth potential across regions, and strengthen the institutions and policies that safeguard a long-term commitment to improving productivity and well-being.

• We need a broad and long-term National Growth and Recovery Plan to create more productive and rewarding jobs. This plan needs to address the funding, policies and institutions needed to make and implement the investments. Regions and devolved nations should provide input in developing those plans and help them come to fruition within the context of the needs in different places.

• A National Growth and Recovery Plan with productive jobs at the centre should be able to pay for itself. If the rise in output per hour over the next five years could be boosted by 1 percent point from 0.5 to 1.5 percent per year, it would create an additional £22 billion in terms of GDP or about £7,500 per household annually. It’s the best and most straightforward way to get the economy back on track and create a virtuous cycle of growth and inclusion that be sustained over time.

Policy Details

While lacking ambition, the Budget plan does provide various positive openings that could be supportive of a productivity-driven recovery:

• An extension of the Coronavirus Job Support Scheme to the end of September will not only protect jobs and incomes, but also help business to get over the significant productivity challenges in the year ahead. Any short-term productivity increase from the return of demand coming out of lockdown is likely to be short-lived. The usual cleansing effect of less productive companies exiting and providing room to new and more productive companies may not materialise. Companies that go under because of liquidity or solvency issues are not necessarily the ones who are the least productive. Therefore it is important to unwind COVID-19 support schemes for workers and firms gradually to avoid volatile and mostly negative productivity effects.

• The extension of the Apprenticeship hiring incentive in England to September 2021 and the increase of grants to £3,000, £7 million for new flexi-job apprenticeships that will enable apprentices to work for a number of different employers in the same sector, and an additional £126 million for 40,000 more traineeships across all sectors. Its success will critically depend on linking these initiatives to regional and local collaborations between business, schools and colleges, and government.

• A “Help to Grow” plan to provide small businesses with MBA-style management training programmes can help tackle deficiencies in management practices which have been identified as a major cause of productivity shortfalls at the lower end of the productivity distribution. The programme also comes with facilities for discounted digital software and expert technology advice. This programme needs to be rolled out in close partnership with educational institutions at regional level.

• The funding of a National Infrastructure Bank by an initial £12 billion in capital investment is a good start of a longer-term commitment to resolving critical bottlenecks. But this will not by itself eliminate the capital gaps we face. More clarity is needed on the design of this new institution, in particular the balancing of private and public investments, and the choice between grand projects and smaller shovel-ready projects. The latter are more likely to quickly resolve existing regional bottlenecks in infrastructure and unlock potential productivity gains.

• The introduction of green savings bonds, while mostly focused on investment in offshore wind (£20 million) and low storage carbon (£68 million), also makes available a modest £4 million to boost production of green energy crops. This could be the beginning of a bigger programme facilitating the greening of products and services across the economy.

Twitter: @TPIproductivity, @bart_ark

9am, 3 March - Dr Kieron Flanagan on science, technology and innovation policy:

5pm, 2 March - Professor Konstantinos Stathopoulos on public investment, corporate tax and ESG:

“The pandemic has highlighted the need for public investment to protect the general public and ensure social cohesion, but this requires significant resources.

“The road to recovery from the pandemic could be long, and we still haven’t seen the true impact it will have on employment and corporate survival. We need an ambitious public investment plan that will target growth, not just deal with the immediate aftermath of the pandemic. In this sense, the new US administration’s investment plans lead the way.

“Hiking corporate tax rates when there is so much variability in effective corporate tax rates could lead to an increase in a sense of unfairness, especially among SMEs and particular sectors that cannot avoid tax.

“Investors and the government should have been more proactive in dealing with tax evasion and avoidance in the good years. Despite the pronounced interest in the ESG agenda during the pandemic, as well as the fact that fair taxation falls within the social aspect of ESG, there is very little discussion on this issue as we head towards the AGM season.”

Any additional funding from the government needs to centre on how we think about funding society’s resilience to events like Covid-19. Cost-savings should factor in community investment opportunities by focusing on public sector financing, resilience at a local level and funding in the voluntary sector.

Firstly, public sector financing will determine how risk and resilience is prioritised. Covid-19 has highlighted opportunities to collaborate to enhance resilience, but the transition to different ways of working requires upfront investment to restructure and create these resilience capabilities.

Secondly, we need to invest in our communities in ways that enable local governments to coordinate and integrate them into planning as local resilience capabilities. For example, we need to invest in better digital infrastructure, training, and collaboration protocols so that volunteers can be more closely involved in local resilience planning. We need to identify the critical needs in our communities and work quickly to address those.

Finally, our communities have been central to the response to Covid-19, and that’s thanks to volunteers. Building stronger relationships between the voluntary sector and public sector partners to maintain momentum behind the collaborations that were set up during Covid-19 will help. But the elephant in the room is that volunteers and the voluntary sector are not free – they require funding. That funding is needed so they are trained, equipped, and on standby to provide support where and when it is needed. The government needs to factor this into its plans."

“A Budget that would boost employment at a time when unemployment levels are increasing sharply, as well as help the currently much loved NHS out of a hole now, should focus on funding urgently needed physical infrastructure projects. First, the hospital building maintenance backlog has grown to over £7billion. Second, investment in diagnostic and treatment capabilities is needed to keep up with advances in genome-enabled personalised medicine, for example for cancer treatment. Third, the quality of IT equipment in the NHS is still highly variable and not fit for purpose in a post-pandemic digital age: many patient-facing staff report having to share and work with some really outdated computer hardware.

“More broadly, this Budget needs to reach the people who have been hardest hit by COVID-19, including households under the greatest financial strain as a result of the emergency measures.  Actions that will positively affect population health are really important given widening inequalities. We know that unemployment affects activities that sustain quality of life and mental well-being. It sends people into poverty. Trade Union Congress (TUC) analysis suggests that in the last quarter of 2020, BAME unemployment was running at 9.5% vs white unemployment which was at 4.5%. This compares with the same quarter in 2019, when BAME unemployment was 5.8% in comparison with white unemployment at 3.4%.  The gap is widening.

“Income inequality is bad for the country’s health, literally. One of the many factors associated with our high death rate from COVID-19 is that we are one of the countries (along with US) with high-income inequalities, particularly in comparison with others in Europe.  Research has shown for a while that high-income inequality, in itself, is associated with a country’s relatively poorer health outcomes. So, tax and benefit measures in the Budget and in longer-term policy planning that alleviate huge income differentials is crucial. The so-called ‘levelling up’ agenda, will be critical.

“Looking forward, it would be helpful if the government were to signal now that in the next Spending Review, due in the autumn, there will be long term additional investment in health and care, and in public health, to tackle the backlog in treatment delayed due to the pandemic, to fix social care and to provide the buffering in our welfare system necessary to prevent a recurrence of the same level of casualties as we have endured over the past 12 months.”