Greater Birmingham Chambers of Commerce
The result of the 2019 General Election has delivered a Conservative majority government after the party won 364 of the 650 parliamentary seats. The Conservatives increased their number of seats substantially, giving them a majority of 78 which is the biggest Conservative majority since 1987.*
With this in mind, we have taken a closer look at the Conservative government’s policies on key business and economy related areas.
The Conservative Party have said that they will start the process of pushing the prime minister’s Withdrawal Agreement through Parliament before the Christmas break so that the UK can leave the EU by the January deadline. The Conservatives Brexit policy involves leaving the customs union and the single market so that the UK can set its own tariff rates and negotiate its own free trade agreements with non-EU countries. The Conservatives have said that they will not extend the transition period beyond December 2020 which means the UK will leave the EU on World Trade Organisation terms if it is unable to reach a free trade agreement with the EU by the December deadline.
The Conservatives have made a number of changes to their fiscal rules including the commitment to balance the budget in 3 years’ time (excluding public sector net investment). The party has dropped their target of keeping public borrowing below 2% of national income and set a limit on borrowing for investment at 3% of GDP. The manifesto states that the government will only borrow to invest and not to fund day-to-day spending. The UK’s debt servicing costs currently stand at 4.6% and the Conservatives have said that they will reassess their current plans if this exceeds 6% of government revenue.
The Conservative manifesto states that there will be no rises in the rates of income tax, National Insurance or VAT and the threshold for National Insurance will rise to £9,500 from 2020. The party has also shelved plans to reduce corporation tax from the current rate of 19% to 17% next year and will launch a fundamental review into business rates. As a first step, the Conservatives plan to increase the business rate discount available to retail businesses with a rateable value of less than £51,000 from 33% to 50% in 2020/21. The R&D tax credit rate, which provides tax relief to companies as an incentive for investing in innovation, will also increase from the current rate of 12% to 13%. Employers will also see an increase in the employment allowance from £3000 to £4000.
The Conservatives plan to invest £100bn in additional infrastructure spending on roads and rail. They have pledged to invest in the Midlands Rail Hub which will involve a £2bn package of improvements to support rail connections between Birmingham and other major cities across the Midlands. The party will also invest £5bn in rolling out gigabit broadband across the country by 2025, with this funding being prioritised for the 20% hardest to reach areas of the country,
Skills & Employment
The Conservatives have pledged to create a new National Skills Fund at a cost of £3bn over the next Parliament. Very few details have been released about the fund with a consultation set to take place on the final design of the fund. The funding will be allocated to both individuals and SMEs for the purpose of education and training. The Conservatives also intend to raise the National Living Wage to two thirds of median wages by 2024 which would see an increase from the current rate of £8.21 to £10.50 an hour for individuals over the age of 21.
The Conservatives have said that they will end freedom of movement in January 2021 and replace it with an Australian-style points-based immigration system. The prime minister says that this new system will give the government control over who is coming in and out of the country. The manifesto states that fewer low skilled migrants will be allowed into the country and the overall numbers will be reduced. EU Citizens and non-EU citizens will be treated equally under the new immigration system and most people will require a clear job offer before they can come.
After achieving such a decisive majority, the Conservative Party will be able to push ahead with implementing the prime minister’s deal and end the current Brexit impasse. Whilst a majority government should provide some much needed stability, businesses still face a great deal of uncertainty with the UK’s future trading arrangements with the EU still to be decided. The Conservatives have said that they will not extend the transition period beyond December 2020 which means that businesses could still face a chaotic and disorderly no deal Brexit at the end of next year.
Beyond Brexit, businesses will welcome the party’s pledge to increase investment in infrastructure and roll out high speed broadband. However, the review into business rates will not reassure businesses who would like to see more concrete action to reform this outdated tax. The new system must be thought through carefully and address the significant burden particularly on anchor institutions. As a Chamber we will work closely with the British Chambers of Commerce to hold the Government to account and press this administration to genuinely create a platform that will strengthen the foundations of the domestic economy.
*Correct at the time of writing