The new economy TURN IT ON(Final).PDF

Creating balanced and sustainable growth for the UK

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“ “A ‘new economy’ is needed which

is not over-reliant on one sector or region but which seeks to balance

growth throughout the UK, harnesses the entrepreneurial

spirit of our businesses and puts the UK mid-market

at the heart of our growth plans

The new economy: turn it on 01

Following years of economic downturn, growth has returned, businesses are confident, and employment figures are promising. Around the UK, companies are investing, taking on new staff, finding new customers, and expanding into brand new markets, in the UK and overseas.

But this burst of success cannot allow us to become complacent. As a nation we should be wary of repeating the same economic mistakes of the past. And globally there is still a risk of further shocks to the system impacting us at home.

The unprecedented impact of the financial crisis has focused minds and as the recovery takes hold, we have a chance, and a duty, to make sure that our economy’s recovery is robust and fit for the future.

We need to build an economy that is balanced and sustainable which will create jobs across the country. A ‘new economy’ is needed which is not over-reliant on one sector or region but which seeks to balance growth throughout the UK, harnesses the entrepreneurial spirit of our businesses and puts the UK mid-market at the heart of our growth plans.

Policy-makers are well aware of these challenges and have made great strides in tackling them which they should be applauded for. Plans around a Northern Powerhouse and Midlands Engine are all welcome. But we still feel that more can be done.

Today, too many British companies still cannot fulfil their potential. Some are stifled by poor connectivity - both physical and digital. Some accelerate into successful mid-sized players, then cannot find the support they need to become world-sized companies. Still more, with the right encouragement, could unlock markets across Europe and the rest of the world.

This report is BDO’s contribution to the debate. It outlines a suite of policy proposals that will help ‘turn on a new economy’ - an economy that makes the most of Britain’s talents, skills and entrepreneurialism.

To create a truly sustainable ‘new economy’, we believe that policy-makers must focus on three areas: 01: Make the most of the UK mid-market 02: Help UK businesses grow internationally 03: Create geographic and sector powerhouses

The people who run our ambitious businesses are the ones who create prosperity for us all. Policy-makers need to make it easier for them to concentrate on running their businesses to create that value and need to ensure that it is possible to drive long-term growth anywhere in this country.

You can read more of our thoughts at www.bdo.co.uk

INTRODUCTION

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simon michaels managing partner, bdo

The new economy: turn it on02

While the UK has now gone through a couple of years of relatively solid economic performance, it is clear significant challenges remain - particularly with respect to ensuring growth is both sustainable and spread across the regions.

Too much economic growth is driven by household

spending and too little by investment

and trade. London and the South East of England continue to hold a disproportionate

amount of the UK’s wealth, income and

skills.

The Chancellor’s official predictions suggest that many of these trends are set to continue. The Office for Budget Responsibility estimates that net trade will act as a drag on growth over the next five years, as the UK continues to import far more than it exports.

On the consumer side, household debt is forecast to stand at a record level by 2020. The UK is at real risk of returning to the debt-and-spending-driven growth pattern that characterised the economy before the financial crisis. Indeed, many would say we’re already back on that old growth path.

This need not be the case, but getting onto a more sustainable economic footing will require innovative measures from policy makers - as well as some potentially painful short term medicine.

To boost trade, the Government needs to continue to support exports further afield than Europe. Although major emerging markets appear to be cooling at present, led by China, the long term trend is still for a shift in the global economic centre of gravity from the West to the East. In contrast, Cebr expects the economic malaise gripping much of Continental Europe to continue for at least the next five years. Despite this, the UK continues to export around half of the goods it produces to the EU.

On the investment front, policy-makers need to ensure businesses have access to the finance that they need to expand, particularly firms in the high-growth sectors of the future such as technology and creative industries. Many companies continue to struggle to access the bank financing they require, highlighting the need for more competition in the banking sector.

FOREWORD: SOMEONE NEEDS TO FLICK THE SWITCH


New and fast-growing lending channels, such as peer-to-peer, can also help firms raise capital. At the EU level, continued progress towards a Capital Markets Union should help direct additional funding to where it’s needed.

Spreading wealth across the regions has to be a priority. With public sector job shedding set to continue, parts of the UK which have historically been reliant on the State for employment will need to revitalise their private sector economies.

This is no small task and the divergences in entrepreneurial activity are truly staggering - for every 10,000 adults in London, there are 1,391 businesses, double the 701 seen in the North East of England.

There are no quick fixes to narrowing this regional divide. Infrastructure has to be a priority, yet delays on key rail projects including the £500m electrification of the Midland Mainline has cast doubts on

whether the whole Northern Powerhouse agenda is really more than empty rhetoric.

Further, infrastructure is only part of the solution to the UK’s regional inequalities. An extra rail line or road will not be sufficient to reverse the massive brain drain of talent to London and the South East.

Clusters of successful industries need to be supported across the UK.

The UK looks set to remain one of the fastest growing major advanced economies over the next five years but this is not a reason for complacency. The world economy remains fragile and indeed another global downturn could be just around the corner - something which would bring a halt to job creation and seriously derail the Government’s plan for deficit reduction. It’s crucial that policy-makers work toward ensuring that the economy is on a growth path which is sustainable, resilient and distributed across the UK’s regions and sectors.

“The UK is at real risk of returning to the debt-and-spending-driven growth pattern that characterised the economy before the financial crisis. Indeed, many would say we’re already back on that old growth path”.

scott corfe head of macro economics, centre

for economic and business research


Mid-market companies (those which turn over between £10-£300m) are an essential and dynamic element of the UK economy.

Many mid-market firms are in the heart of the new economy: finding niche sectors around the country in which they can excel. Innovative, ambitious and consistently developing new technologies, the UK’s mid-market businesses are engines for growth - exploiting globalisation and employing millions of people.

The financial crisis showed the fundamental value of the mid-market to the UK: these firms are large enough to take advantage of the opportunities offered by global growth, but sufficiently agile to adapt to the new economic realities. With the economy shifting once again to recognise the value of specialised, regional businesses, the mid-market is in prime position to take advantage of this.

Mid-market firms have thrived in these conditions. The 24,000 mid-market firms in the UK turn over a combined £1 trillion each year, a figure that has grown by over 50% in the last five years.

Over six million people are employed in mid-market businesses - accounting for nearly a quarter of all private sector jobs.

But, the needs of mid-market firms and the power they could add to the new economy can be overlooked by policy-makers.

The sheer scale of the largest PLCs mean that they can grab attention; and the very smallest businesses are seen - not always correctly - as the most deserving and dynamic sector. Amidst this, the mid-market companies that largely drive the UK economy remain unknown, and their issues and opportunities are not often aired.

Effectively, these firms fall into a policy and profile gap. Too small to make their voices heard amongst larger high-profile enterprises but too big to take advantage of the attention lavished on start-ups.

That is not to say that the UK government has ignored their needs. Last year, BDO called on the government to implement policies which would support the mid-market such as raising the annual investment allowance and reviewing business rates, and we are very glad to see that the government has made moves in this direction. But there is much more to be done.

01: MAKE THE MOST OF THE UK MID-MARKET

...and has seen 55% revenue growth

over the last five yearsThe UK mid-market

employs 6m people...

profitability

staffing levels

£660bn2010

4.1m2010

£3.6bn2010

£1tn2015

...of all private

sector jobs

6.1m2015

£7.7bn2015

nearly 25%...

3.7m 2.6m 1.3m

GERMANY ITALY FRANCE

compared to 2015 staffing levels:


BUSINESS FINANCE Some mid-sized businesses are struggling to find the finance they need to grow - research by BDO and the CBI has found that over half of mid-sized businesses have difficulty in accessing long-term growth capital.

Despite EU and UK government schemes aimed at making more finance available, many businesses are still finding that they do not meet banks’ criteria, or they are

long term lending trusts to encourage investment in growth

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on1:Alongside the CBI, we believe that Long Term Lending Trusts (LTLTs) should be used to encourage investment in mid-sized business.

These would offer income tax relief to savers investing in long-term debt funding for ambitious businesses (as currently exists through the successful Venture Capital Trust scheme) for at least five years. Targeting individual savers, it should offer:• A return based on yield, not capital gain• Income tax relief, with a deduction from

income tax in the year of investment• Potential inheritance tax benefits as a

further incentive

The LTLT investment would likely provide relatively high returns, whilst offering a strong degree of protection, as it would be run by an investment professional.

There would also be strict requirements on the type of business that could seek loans from the LTLT, which would cost the Government only £310 million a year to run and could unlock billions of new long-term loans.

deterred from making an application in the first place as they fall through the cracks of support offered to small, and to the largest, businesses.

Regional growth funds, COSME, HORIZON 2020 and the EU Structural and Investment funds are just some of the financing initiatives in place that medium-sized businesses could take advantage of, but many of these are under used.

STEPPING UP, Filling the Funding Gap for Tech and Media Companies visit cbi.org.uk

STEPPING UPFIXING THE FUNDING LADDER FOR

MEDIUM-SIZED BUSINESSES

In association with:


01: MAKE THE MOST OF THE UK MID-MARKET

2015 marked the 20th anniversary of the Alternative Investment Market (AIM). Home to around 1,100 companies from over 40 sectors around the world, AIM is one of the world’s most successful growth markets and a great example of securing investment in mid-sized firms.

The regulatory framework needs to support quicker access to capital. In our ‘Stepping Up’ report with the CBI, we would like to

Tax advantaged venture capital schemes like the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) encourage investment in scale-up and mid-market firms.

The Enterprise Finance Guarantee supports bank loans of up to £1.2 million to mid-sized businesses, by guaranteeing up to 80% of the outstanding amount of the loan.

straightforward growth equity market listing for the mid market

increased investment limits on tax-advantaged venture capital schemes

a refocused enterprise finance guarantee to encourage long-term

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see a simplification of the requirements for companies when they undertake a secondary issuance as part of the EU Commission’s review of the Prospectus Directive. This will make it easier for companies already listed to raise extra capital from existing investors without the need to produce a prospectus and would strike a sensible balance between investor protection and access to capital for companies.

Despite the high level of capital required by the mid-market, the investment limits are set relatively low. These schemes have been successful and the government should look to build on that success by extending the overall investment limits available.

The guarantee should be amended - progressively increasing as the term of the loan increases, with higher guarantees of capital repayments at a later date - to encourage longer-term lending and more effectively target government support.

FOCUS ON FUNDING OPTIONSThere are many funding options available to successful mid-market companies beyond bank debt, but how can this be accessed?• Understand your options from

Government incentive schemes, through to private equity investment, and the role they play at different stages of a business’s lifecycle

• Look at how tax incentives can boost your working capital

• Start a conversation - a business with a good management team, a strong business plan and good financial credentials is likely to be viewed as an attractive opportunity by finance providers

• Don’t take no for an answer - if you aren’t successful in your application for funding at the first attempt, most funders will advise you on how to adapt your approach or on which other forms of finance you could consider

lending to mid-sized businesses


TAXATIONMaking taxation as simple to as possible to administer for the UK mid-market is crucial to helping this segment flourish. To do this the Inland Revenue should become a partner to businesses, helping them manage their liabilities and dues so that businesses have certainty.

The Revenue already gives this support to large businesses, which will already have significant experience in these matters but largely ignores medium-sized businesses which would really value this support.

The UK’s largest 2,000 businesses all have a Customer Relationship Manager (CRM), a single point of contact with the Revenue.

This must be extended to mid-sized businesses so that:• Businesses have certainty about what

they owe, allowing them to plan ahead• Clear conversations between businesses

and the Revenue take place, making it less likely that either side will make genuine mistakes

• Businesses are discouraged from considering egregious tax avoidance or planning, because the Revenue is involved in discussions about the level of tax to be paid at a far earlier stage

a customer relationship manager for every mid-sized business to provide one point of contact to the Revenue5:

FOCUS ON TAX OPTIONSA typical mid-sized business may have no connection with the Revenue for five to seven years, and then suddenly receive an aggressive communication.

One recent client example is of an £80 million business which nearly took the decision to fold when it was presented with an (incorrect) assessment for £1 million.

That would have meant the loss of 300 jobs, with a very wide impact on an area’s economy. This is a rigorous and reputable business, but through lack of engagement, thought and understanding, the Revenue nearly caused it to fold.

Had it had a Customer Relationship Manager, this would have been avoided.

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02: HELP UK BUSINESSES GROW INTERNATIONALLY

In the new economy, businesses must be able to seize opportunity wherever in the world it arises, and welcome investment from all sources. The UK exported goods and services worth over £70bn last year 1 with manufacturing strength being the driving force. It is no longer simply Britain’s world-famous brands which lead the way - the value of the British brand and the new ease of trading with any corner of the globe means that companies are increasingly being ‘born global’ - trading internationally from their very first sale.

Mid-sized businesses are an exporting engine, accounting for nearly £1 in every £4 of goods exported from the UK, despite making up less than 1% of all UK firms.

The picture is not an unalloyed success. Germany’s exports are more than twice as valuable than the UK’s, and 2014 saw a slump in British trade as a strong pound and economic fears around the world made it harder for British firms to succeed abroad. Government and business must act now to turn the British brand and British expertise into British export profits.

1. ons.gov.uk/ons/dcp171778_391926.pdf

ENCOURAGING EXPORTS As economic power increasingly shifts towards rising markets, British firms need to be ready to seize new opportunities and to adapt so that the products they offer outclass those of new competitors. The British government needs to support them to do this.

The most important thing that government can do is to make sure that ambitious businesses are not stymied in their aspirations to export by outdated red tape or unnecessarily complex tax systems.

A tax system designed to help ambitious British businesses to get over the hurdle of their first sales abroad could transform our export success, prompting investment in export-ready firms, and providing the short-term cash flows required to make inroads into a new market.


The UK currently allows manufacturers to zero rate their exports. However, it is less generous with reliefs for domestic companies that supply to UK exporters.

In contrast, Ireland has a more generous relief for regular exporters, where a

Taxation should be an instrument of economic policy and used to drive and encourage internationalisation of mid-sized businesses.

As and when bi-lateral tax agreements between the UK and other countries are re-negotiated, or a review of the OECD

vat zero rating of supplies to companies that export

lower overseas tax barriers for uk exporters opening a new branch

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qualifying exporter is able to inform its suppliers of its export authorisation and those suppliers can then zero rate their supplies to the qualifying exporter. We recommend that the UK introduces a similar relief.

model double tax treaty is undertaken, the UK Government should take the opportunity to agree an exemption for UK businesses when opening a new branch or subsidiary from local taxes up to a de minimis level of economic activity of £1 million of total cumulative sales.

or subsidiary overseas



FOCUS ON: ACORN STAIRLIFTSMid-market companies like Acorn Stairlifts power Britain’s economy. The Yorkshire-based manufacturer of stairlifts has grown from a sole trader operation to one of the largest companies in its sector over the last twenty years; success that its managers put down to taking a long-term view of success.

“An Acorn Stairlift is installed somewhere in the world every nine minutes. Though our roots are firmly in Yorkshire, our international ambitions are critical to our success - nearly 60% of sales come from Europe, North America and Australia. The biggest reason behind our international success is realising that we needed to take a long term view.

“Investment in a new country might not pay off at first, but it’s worth it in the end if you open up a whole new market. Harmonised rules across Europe have also been incredibly helpful, so we can ensure that all our stairlifts meet the newest European safety standards which are accepted throughout the EU.

“Our staff are amazing, from the multi-lingual sales team who work with customers around the world to the apprentices we have taken on this year. But it’s not always easy to find the skilled people we need to keep growing. If I could wave a magic wand, colleges would do more to make sure young people are ready for work.”

EUROPEThe European single market gives British businesses instant access to 500 million customers worth £14 trillion, and it is by far our largest trading partner. The EU will become even more important to Britain’s success as emerging economies expand, as European trade deals open up the whole world to ambitious British companies and as its standards become globally recognised stamps of excellence.

As international trade, ideas and skills become an increasingly important part of corporate success, the EU’s focus on creating links will become ever more important. Any steps which close us off from the world would hurt trade, hurt businesses, and ultimately hit jobs and living standards.

But Europe is in need of reform to put business success and financial growth at the heart of its work; ultimately benefitting us all through more jobs and higher wages. The European project is in a moment of flux as the future shape of the Eurozone is set and as Britain considers its membership, and the Commission and member states must take this chance to help business to thrive.

This means the EU needs to take advantage of its unique, and incredibly valuable, ability to set rules which allow and encourage trade - and not damage it through the creation of ever increasingly complex red tape and business costs.

For all its value, there is much that the EU should not do. Where rules do not facilitate trade, or embed fundamental consumer protections, it should be up to individual member states to write the economic rule book.

In re-negotiating our position in the EU, attention needs to be given to the plethora of individually small pieces of regulation that dampen entrepreneurial spirit. And while no doubt the single market has been a success for Europe, some of the rules governing the single market are 50 years old and are no longer fit for purpose - seizing the opportunity for reform could help European trade to thrive for another half century.

UK mid-market revenue over the last five years

compared to

German revenue growth

French revenue growth

Italian revenue growth

55%growth

21% 34%17%


The single market is one of Europe’s biggest achievements. Giving businesses across the country unfettered access to one of the world’s largest blocks of consumers has provided unprecedented options for trade - and with it business growth and increased living standards.

But after 50 years the single market is still incomplete. British businesses can be hampered by non-tariff barriers, which restrict their ability to trade around the continent. The Commission and member states must remove these barriers to let free trade flourish.

Today, almost every business relies on the digital economy whether it is to reach

a digital single market to remove geographical blocks and open up new online opportunities for the UK mid-market

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on8:customers, to source suppliers or to recruit staff. But many of the rules governing digital commerce around Europe are simply out of date, and too inflexible to cope with the fundamental changes that have happened to the way that we do business. • Detailed regulation will always struggle

to keep up with the lightening pace of digital change, and attempts to do this will mean that businesses and consumers are bound by rules which quickly become irrelevant, or even counter-productive. Instead, the EU should develop high-level principles which focus on the outcomes that we all want to achieve, allowing the detailed rules to adapt to the ever-changing environment.

• E-commerce should be made easier. As a starting point, commercial and consumer protection rules should be harmonised to encourage more businesses to sell online across Europe

• Many Europeans are currently unable to use the UK’s online services in other EU countries. The EU should address this unjustified practice known as “geo-blocking”. This needs to change

• The EU should not pursue a prescriptive approach to data protection and cyber security regulation that undermines business competitiveness



Investment in Europe, especially continental Europe, remains heavily reliant on banks. Businesses looking for finance are also faced with a fragmented system based on national boundaries - even when the finance they need will fund expansion around the single market.

The requirements for fundraising can differ vastly between member states, meaning that a firm looking to expand will be influenced by the regulations they currently work to and the bodies that they are regulated by - not the market that would give them the best deal.

To solve this, the European Commission and member states should:• Unlock the movement of financial capital

around Europe by developing a more diversified financial system and offering businesses a greater choice of funding at lower costs.

• Establish a more genuine single capital market in the EU where mid-sized companies can raise the needed funds from a diverse range of sources, irrespective of their location.

EU legislators should design EU policies and laws in an evidence-based manner backed up by informed stakeholders. It is necessary to achieve the policy objectives at minimum cost to the mid-sized businesses.

a capital markets union that meets the needs of the mid-market

a regulatory competitiveness test for eu policy to ensure the burden of red tape is reduced

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that no new regulation could be introduced without an outdated one being scrapped, which would speed up the process of law and ensure that all EU rules were fit for purpose.


Global trade is the cornerstone of our open economy and the economic might and negotiating power of the EU makes it a powerful vehicle for fair and free trade.

The current trade negotiations with India, Japan and especially the Transatlantic Trade and Investment Partnership (TTIP) negotiations with the US, have the potential to act as a springboard for Britain’s trade growth.

TTIP covers around a third of global trade. It has the potential to create an open market of 829 million consumers and expand a trade relationship that is already worth €2 billion every day.

the transatlantic trade and investment partnership

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on11:However, it has been controversial in the size and scale of its ambition and, as a consequence, negotiations have stalled.

Whilst we support efforts around TTIP we should not let ‘perfect be the enemy of good’. There are many common-sense standardisation and cost-saving measures that a TTIP-lite could address. Simplifying processes - such as ensuring that products approved in the EU do not have to go through further duplicate testing in the US - would be a good step in the right direction.

We also strongly urge the UK government to support efforts which would lead TTIP to set the benchmark for a mid-market-friendly

trade agreement by crafting rules that are tailored to their needs as well as including a meaningful trade-supporting mid-market chapter.

The mid-market chapter cannot just be a declaration of intents but must include actual commitments.

The UK should lobby to ensure that the US and the EU establish effective mechanisms that facilitate greater participation of the mid-market in transatlantic trade and that ensures the right instruments are put in place to help businesses from that segment of industry to overcome market access barriers due to their size.


03: CREATE GEOGRAPHIC AND SECTOR POWERHOUSES

Britain’s pockets of expertise, based all around the country, can power growth. From the world leading bioscience industry in Cambridge to gaming innovation in Dundee, supporting powerhouses around the UK is fundamental to embedding our economic growth.

Our economy in the City of London and the South East is an example to the world and is rightly celebrated. To try and bolster the regions of the UK by denigrating the South East and the City of London would be a mistake. But support for different regions and sectors can rebalance UK economic success, making us less reliant on London and on financial services.

To help contribute towards a balanced and sustainable economy, policy makers need to develop two strands of powerhouse support:

Geographic powerhouses: First, more must be done to support the geographic powerhouses including areas which already thrive such as the Thames Valley, and areas with further potential including the North of England and the Midlands.

Sector powerhouses: Second, niche economies in towns and cities - the profitable ‘hubs’ which power growth around the country, such as the Cambridge tech and bio-science sector - must be allowed to thrive.

Spreading growth around the UK is key to unlocking our productivity puzzle. British workers’ output per hour has been static during the last two years of the recovery. Such a long period of flat productivity is unprecedented in the period since World War II and the trend is unique amongst advanced economies.

Flat productivity means flat wages and falling living standards and profits - and so business and government must tackle the problem now.

Mid-market firms illustrate the problem. Both the UK and Germany have around 24,000 mid-market firms. But, even though German firms employ fewer people (3.7 million in total compared to 6.1 million in the UK); German firms are more profitable. The Government has taken steps to address this challenge. The Northern Powerhouse and Midlands Engine programmes, for example, should provide a much-needed boost for the economy outside London, as regions win more powers over economic decision-making, and an infrastructure boost allows regional economies to fulfil their potential.

In summary, rebalancing the economy is not about holding back the areas and sectors in the economy which already thrive; rather, we need to learn the secret of these powerhouses so that more can benefit. The Treasury has set a target to raise the long term growth rate of the north of England (currently around 3.7%) to equal that of the UK as a whole (4.2%). We support this ambition and suggest the policies outlined below to help to achieve it.


Digital infrastructure is essential infrastructure. Nearly a quarter of properties are still without superfast broadband2, meaning that ambitious businesses are stymied if they try to locate outside of many city centres.

Today, a high quality broadband connection is as vital to businesses as a phone line, and probably more important than a postal service. But although Royal Mail and BT are obliged to offer letter deliveries and phone lines to every property in the UK, there is no such obligation for superfast broadband.

a superfast broadband obligation to ensure UK businesses are suitably connected to both suppliers and customers

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on12:Rolling this out would encourage businesses to base themselves in new areas of the country and link ambitious businesses based outside city centres to new customers.

The Government has committed a lot of investment in superfast broadband and this should be acknowledged. For every £1 the government invests in broadband the UK benefits by £20. However, we propose two changes to help focus that investment: Firstly, the Government needs to give its ambition for a universal service commitment for broadband teeth, meaning that homes and businesses across the country would be guaranteed to receive the services they need.

INFRASTRUCTUREBusiness in the new economy cannot thrive without infrastructure fit for the future. World class infrastructure allows businesses to be run from anywhere in the country, linked physically by road and rail and digitally via superfast broadband.

Better infrastructure is crucial to unlocking the productivity puzzle. Good links mean that information and ideas can be shared, sold and spread.

Fast, reliable broadband means that businesses can connect with customers in new ways - and open up the possibility of new markets all around the world.

Speedy road and rail links mean that people and products are moved around efficiently - not just to and from London but between other local economies.

The Government’s strategy for infrastructure (the National Infrastructure Plan 2014) is very welcome.

As the report rightly points out, infrastructure enables us to shape the economy and society we want in the future. That is why it is so vital to get infrastructure investment right for the new economy.

The EU Strategic Investment Fund has earmarked over €315 billion for infrastructure projects, with a quarter allocated to SME businesses, but what more can be done to create infrastructure fit for the future?

2. media.ofcom.org.uk/facts/

Secondly, the Government’s broadband connection vouchers scheme was very successful, with more than 40,000 SMEs in towns and cities across the UK signing up to receive grants to help them get connected.

But there are still more businesses which would benefit from better broadband links, especially in rural and suburban areas.

As the infrastructure needed for superfast broadband extends into more remote areas, the Government should restart the voucher programme, and extend eligibility to ensure that businesses outside of cities are also well supported.



Better roads and rail links will give the best return if they connect potential powerhouses - helping areas on the cusp of economic success to cement their position and help their businesses to thrive.

In tight times, government needs to get the best possible value out of any investment, and some plans will deliver far more value than others.

So, government should identify emerging geographic powerhouses and prioritise improving links between them. For instance: • As a first step, the electrification of the

TransPennine Express must be sped up. That the programme will go ahead at all is extremely welcome. But cities along the line will not see the benefits of electrification until 2022, four years later than originally planned. Leeds and Manchester are already thriving, productive and wealth-creating cities, but they could be so much more successful if they had faster links between each other and to neighbouring towns. The delay to electrification is a delay to growth which must be reconsidered.

smart infrastructure investment to create the right

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• The High Speed 2 (HS2) rail link has the potential to transform trade. Better links between eight major cities and communities along the route has the potential to pump life into regional economies. But the current plan is to begin the project by connecting London and Birmingham, two cities which already have good links and may see a marginal gain from the high speed line. Instead, the HS2 build should start in the North, linking up Leeds, Manchester with Birmingham and the East Midlands - areas which have the potential to power ahead but do not currently have the links they need to thrive.

• Heathrow is looking increasingly certain to win the fight for a third runway, confirming its place as a global transport hub. Businesses from around the world choose to base themselves in London and the Thames Valley to take advantage of the connectivity that Heathrow offers but more must be done ahead of the third runway opening to make sure that the Thames Valley reaches its full potential. The proposed Reading-Heathrow rail link must get the go-ahead to help spread prosperity throughout the south east.

FOCUS ON: REGIONAL READINESSAs a business outside of London and the South East, are you ready for the New Economy?• Is your business equipped for

the digital age? The digital age brings a number of opportunities for businesses, from connecting with consumers to streamlining processes, but with this comes increased infrastructure costs and increased risk and regulation - fraud, data security and IP security to name a few. Make sure your business is prepared for the new age by auditing existing requirements and planning for the future.

• Many businesses outside of London are wondering how they’ll be able to attract and retain the best talent? Partnering with local universities and colleges can help you cherry pick the best talent, while developing a clear business strategy, including succession planning, helps to establish a clear career pathway to retain your top talent.

• Innovation and growth will form the backbone of success for companies outside London - look no further than The Sunday Times Tech Track rankings for proof that talented businesses exist all over the UK. But are you aware of the R&D incentives to help your business continue innovate and grow?

• Harness the power of the lean in concept - engaging with your local business community, from competitors and suppliers, to advisors and local government, can strengthen your business through contacts and industry knowledge sharing. Collaboration will be paramount in the new economy.

environment for businesses to flourish


FOCUS ON: CREATING THE MIDLANDS ENGINE

For more information contact: [email protected]

75% of businesses are either enthusiastically in favour

or just in favour of the creation of a ‘Midlands Engine’

65% of businesses want the ‘Midlands Engine’

to cover both the East and West

Midlands

36% of businesses want a part business/part local authority run

committee to oversee the structure

FOCUSED AND TAILORED SUPPORTThe government’s Northern Powerhouse plans could be a game changer for the region’s economy. But a boost on this scale can only come about if all the factors that go into creating a successful economy - from trains to education and business finance to business rates - are considered in a coherent way.

It will take time, effort and focus to unlock regional economic potential. The government recognises this and so suggests that communities should adopt ‘Metro Mayors’ in exchange for greater powers.

However, there is no one-size fits all solution, and not all areas will need a Metro Mayor in order to thrive.

devolved power to enable local decision making

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on14:Instead of imposing a single solution, Westminster should devolve economic power in a flexible way.

Greater expertise in local authorities, strengthened LEPs or getting local businesses involved in planning for the future may all be models that suit different areas.

This needs good regional leadership to help areas to make the most of their potential; and focus to make sure that areas receive support tailored to their individual needs. This is starting to happen: 38 local authorities submitted plans to the government in September detailing how they could start to take decisions at a local level on how public money is spent. Dedicated ministerial support would help to keep up this momentum.

The Government’s

Northern Powerhouse may have captured the headlines

but subsequent announcements have also made clear the Government’s desire

to create a Midlands Engine where a combination of devolution of powers and

infrastructure investment will create growth.

BDO Birmingham and BDO Nottingham spoke to businesses in the area

FOCUS ON: CAMBRIDGE What has made Cambridge so successful as a hub for life sciences?• Good transport links to London• Proximity to Europe• Talent from university• Cheaper land availability for

research development• Agriculture - availability of

materials and resources for development

• VC interest - 29% of all 2014 UK bioscience investment was in Cambridge

• Pockets of highly skilled workers - including those at Addenbrookes and Chesterford Research Park are magnets for further investment such as AstraZeneca’s decision to move its R&D operations in the city

For more information contact: [email protected]

Co-ordinated transport and infrastructure investment and greater access to business funding and grants are highlighted as the two main advantages expected to come from the Midlands Engine.

32% of businesses want

a locally elected Mayor to be the

figurehead



SECTOR POWERHOUSES Britain’s world-leading financial services sector is the jewel in our economic crown.

It is rightly lauded as a wealth and job creator. In rebalancing the UK economy, the Government’s current ambition, policy-makers must ensure that they focus on developing other growth sectors around the country but never at the expense of finance. Balance is needed in our economy so that prosperity can flow around the country rather than concentrating in London and the South East.

a minister for manufacturing

to enable long-term thinking and turn it

on15:planning for manufacturers

Manufacturers are optimistic but the sector needs support if it is to continue to provide the growth we need, especially outside London.

Manufacturing is a long-term game – most businesses in the sector rely on large capital investments which pay off over years or even decades.

Businesses need stability and certainty in government policy if they are to commit to the investment that the country needs to grow.

The government should match manufacturers’ long-term outlook by looking 15-20 years ahead to plan an industrial policy, avoiding the disruptions of the political cycle.

This should include setting a stretching, formal target for manufacturing growth over the next five, ten and 20 years to provide the background to a sustainable industrial policy. The programme must be steered by a dedicated manufacturing minister, able to focus on firms’ needs in a way that will benefit us all.

There are many examples of sectors which, with the right support, could help to power the economy.

We recommend focusing on three of the brightest prospects: • Britain’s historic strengths in

manufacturing • Our new potential in technology • Housebuilding, both to provide

the homes we need and to give us construction jobs around the UK.


Employers’ NI is a barrier to businesses taking on new workers. The government has sought to tinker with National Insurance reliefs in the last few years but the impact of these measures has so far proven negligible.

To back up the government’s rhetoric on targeting a doubling in exports, a bold step is required.

A temporary reduction in Employers’ NI, for UK businesses that take on all new

Productive manufacturing needs investment, and government must encourage this in every way possible. We strongly support the steps taken in this direction by increasing the annual investment allowance to £200,000 (and a temporary increase to £500,000), but this step is not yet the game-changer we need to unleash manufacturing might.

Government should take the bold step of increasing the annual investment allowance for expenditure on plant and machinery to £5 million for five years.

The government is right to be ambitious for the UK’s digital economy. The future of advanced economies such as the UK’s lays in growing research-intensive, innovative and high value digital companies. But this will require focus on the specific needs of fast-growing, innovative companies to achieve this.

New industries and new companies need new ways of thinking about the corporate tax incentives currently offered to help companies to grow. Recent years have seen the introduction or improvement of corporate tax incentives for the innovation, development and ownership of intellectual property such as R&D tax credits, the Patent Box and creative sector reliefs.

Whilst these reliefs are commonly accessed by the technology sector, they have not been designed with the sector in mind and the official published guidance does not approach their availability from a perspective that technology businesses will commonly understand without incurring significant professional fees.

We would propose that, given the importance of the technology sector to the economy, a specific innovation credit for technology businesses is introduced which would give an R&D type credit to a wider range of technological innovation than under current rules, together with targeted guidance to assist technology businesses to more easily access and take full advantage of the existing incentives.

cut employers’ national insurance for manufacturers

tech focused

increase the annual investment allowance to help

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to enable firms to bring on new staff tax incentives

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employees involved in manufacturing production processes, would be a targeted relief aimed at those businesses that are most likely to be exporters or that supply exporters.

An influx of new employees into the sector would not only boost manufacturing firms but also equip a new cohort with the skills that they will need in the future to help Britain’s industries to thrive.

With the progressive reduction in the rates of capital allowances down to currently 8%/18% per annum on a reducing basis, many businesses are finding that the reward for investing in new capital assets, such as plant and machinery, is no longer a significant incentive.

Increasing the AIA to £5 million would provide a significant incentive for mid-market businesses to invest in the capital assets that will drive future growth, and give businesses the confidence to plan ahead.



With regions set to grow, it is vital that planning is in place to ensure that local house building needs are met.

The need for more housing is almost universally accepted, but we accept that this will be complex to achieve. Housebuilding will only be unlocked though a co-ordinated effort including central government funding; local government focus; and renewed effort from house builders and housing associations.

The length of time and difficulty of obtaining planning consent is a massive brake on the construction of new homes.

Under investment in skills is harming our regional productivity and economies. UK GDP per hour worked is 17% lower than the average for the rest of the G7 and about 30% lower than the US and Germany. Improving the skills of the UK workforce is a long-term challenge but must be addressed in an ever globalising world. In the short term, however steps can be taken to encourage foreign graduates of STEM subjects to stay and work in the UK after finishing their course.

According to research from the think tank Demos, if England as a whole caught up with the number of apprentices that exist in comparable economies, an additional £4 billion annually would be contributed to UK GDP. For every 1,000 employees in England

Given the skills shortage in the tech industry, the Government should re-instate the two year post-study work visas for post-graduates in STEM subjects.

mandatory response times to stabilise the planning system

high quality apprenticeships to bridge the skills gap, especially in manufacturing and technology sectors

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reinstatement of the two-year post-study work visa to address the tech skills shortage

The house building sector needs stability and confidence in the planning system to make medium and long-term decisions.

While a full overhaul of the current planning system is likely to be counterproductive, tweaking existing policies such as introducing a minimum mandatory response time for planning applications would help the industry build more homes to meet government targets.

This is particularly important for mid-sized house builders, allowing them to dedicate time and resource to building homes, rather than negotiating the planning process.

there are just 11 apprentices, compared with 39 in Australia, 40 in Germany and 43 in Switzerland.

An increase in the number of high quality apprenticeships on the scale needed is unlikely to be wholly publicly funded and the Government’s current plans for an Apprenticeship Levy are under consultation. However, there are a number of simple steps that can be taken to improve the awareness of apprenticeship programmes:• Reform the Ofsted assessment system

for schools to give some weight to the number and quality of apprenticeship places secured by schools for their pupils.

• Focus incentives in areas where there are acknowledged skills gaps such as technology and apprenticeships.

This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO LLP to discuss these matters in the context of your particular circumstances. BDO LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.

BDO LLP, a UK limited liability partnership registered in England and Wales under number OC305127, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. A list of members’ names is open to inspection at our registered office, 55 Baker Street, London W1U 7EU. BDO LLP is authorised and regulated by the Financial Conduct Authority to conduct investment business.

BDO is the brand name of the BDO network and for each of the BDO Member Firms.

BDO Northern Ireland, a partnership formed in and under the laws of Northern Ireland, is licensed to operate within the international BDO network of independent member firms.

© 2015 BDO LLP. All rights reserved.

www.bdo.co.uk

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FOR MORE INFORMATION:

SIMON MICHAELS

+44(0)207 893 2221 [email protected]

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