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Should there be a tax break for SMEs investing in productivity technology?

Leaders across the business sector are asking the Government to introduce a ‘Productivity Allowance’ in a bid to push the UK forward. The suggestion is featured in a report from the Institute of Directors (IoD) called Lifting the Long Tail: The productivity challenge through the eyes of small businesses.

The idea is a new tax allowance for businesses investing in productivity and technology. Other measures are also suggested in the report, such as developing a formal business support framework that works nationally, increasing the Apprenticeship Levy and creating a wider training Levy. The report also talks about improving the knowledge transfer between businesses and academia.

Government’s Industrial Strategy

The report’s proposals are outlined in the foreword by the Chief Economist for the Bank of England, Andrew Haldane. He calls them: “useful food for thought for Government, as it begins to put in place the nest stages of its important and ambitious Industrial Strategy.”

Through the strategy the Government wants to boost productivity by supporting businesses. It pledges to create jobs and increase employee earning power by investing in infrastructure, industry and skills. This includes boosting the foundations of productivity – defined as the things that support an innovative, skilled and balanced economy. The five foundations, taken directly from the Government’s strategy, are:

  • Ideas: encouraging the UK to be the world’s most innovative economy
  • People: ensuring good jobs and greater earning power for all
  • Infrastructure: driving a major upgrade to the UK’s infrastructure
  • Business environment: guaranteeing the best place to start and grow a business
  • Places: creating prosperous communities across the UK

Solving the puzzle

The author of the IoD report is Senior Economist Tej Parikh. He says: “Solving the productivity puzzle has been a defining challenge for the UK over the past decade. The success of our post-Brexit economy hinges on our ability to unlock the vast untapped potential among UK small businesses.”

It’s important to recognise that there is no single way to achieve this. The debate has always talked about broad trends. Instead, as the IoD are urging the Government, the discussion needs to move into the real world of the office floor.

Mr Parikh adds: “To lift itself, the long tail will first need to twitch into action. This means shifting mind-sets and a series of small steps. Directors of smaller firms need the support and encouragement to spend more time working ‘on’ and not just ‘in’ their organisation, and to confidently adopt new management techniques and technology. We also need to retool our currently patchy national architecture for business advice, and there is no time to waste.”

Urgency needed

There’s a new sense of urgency for ideas, technologies and solutions to boost the small business community. Unsurprisingly, this is being driven by the uncertainty surrounding the Brexit agreements, and the date to leave the EU moving closer.

James Turner, Managing Director of Turner Little Limited says: “With just six months to go, it’s time to move small businesses on. While the Government is correct to prioritise closing the gap between high and low performing businesses, changes must happen soon.

“In the UK we are lucky to have a layer of innovators that are pushing through new frontiers. But this must translate down throughout the entire business community to boost the economy. Raising business productivity is one of the country’s most urgent economic challenges.

“This is particularly the case as we see automation transform many sectors. The Government must find innovative ways to support businesses of all sizes. Support is needed with funding, but also to improve management capability and expertise, to adopt the newest technologies and to spread information across the economy. By focusing on what can be done at company level, the IoD’s report is giving the Government new ideas on how to improve performance, and therefore productivity.”

About Turner Little

Founded in 1998 in Yorkshire, UK, Turner Little is a specialist UK and offshore company formation, banking and corporate services provider. Our services include company formation, UK and offshore banking, asset protection, credit correction/repair, trademarking and trusts. Other services include Internet services, mail forwarding, wills and probate. Turner Little’s vision is to offer the best possible service, together with market leading products.

Turner Little and its affiliates do not provide tax, legal or accounting advice. Material on this page has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.