Overall, this was a confidently and competently delivered Budget. Business will, on the whole, be pleased to see the stability offered by the Chancellor’s speech with a firm commitment to return the national accounts to a stronger position and the avoidance of any overly grand political giveaways this close to a general election. Undoubtedly it was a Budget for voters rather than for business, though there were a number of positive measures that the business community in Greater Manchester will welcome.
Greater investment into UKTI’s export services to China are positive, though we would have been pleased to see a much broader-based support to exporting businesses, both new and existing. New and emerging markets are important but we neglect our traditional trading partners at our peril.
The commitment to a headline corporation tax of 20% gives the UK a clear advantage in international competitiveness and the broad-based review of the business rates system is welcome news indeed. Continued focus on business taxes is important and we would be pleased to see greater focus on input taxes as well as output taxes such as corporation tax. The lack of a commitment to a high-level of annual investment allowance was disappointing and we will continue to place pressure on the government in advance of Autumn Statement 2015 to ensure that this important initiative is delivered in full.
The simplification of reporting on tax for small businesses and new entrepreneurs by the abolition of the annual tax return will be welcomed but the experiences of government delivering new IT systems in this space is not good. Government must resolutely focus on the successful delivery of new schemes, not just their announcement.
The Northern Powerhouse was mentioned once again and the 100% retention of business rates growth in Greater Manchester is another important step in securing greater autonomy for the city regions of the UK. We had hoped for greater certainty of the delivery of HS3 and the wider One North proposals though we place firm hopes on the establishment of Transport in the North to be announced later this week and the move to a delivery plan for these schemes over the coming months.
The introduction of an Apprenticeship Voucher will aim to place employers in greater control of the government funding for apprenticeship training. This should help to give employers a more powerful voice in determining the quality and value of training that their staff receive.
Overall, the Chancellor has achieved a successful middle ground balancing the need for prudent fiscal management whilst delivering some positive messages and providing a vision of stability. Regardless of the outcome of the general election, we call on whichever parties form the next government to remain focused on retaining that stability and delivering continued investment into the business community and the economy as a whole.
To access a full summary of the key announcements for the business community download our Budget 2015 summary table below.
The economy of the north, and particularly that of the northern cities, has seen greater national attention over the past few months than in recent times. Following on from the creation of the country’s first Combined Authority, the Localism Act, the development of City Deals and greater devolution culminating in the creation of a “metro mayor” for Greater Manchester and the announcement of the Northern Powerhouse, focus is now firmly on the growth of the regions and especially that of our won city and its near-neighbours.
The announcement of a mayor for Greater Manchester has been met with a variety of public and business opinion, particularly around its imposition without a local referendum but, for good or ill, the future governance landscape for Greater Manchester is now known. Our attention now turns, therefore, from one of putting the case for a variety of different governance models to one of supporting the implementation of the metro mayor and ensuring that the voice of business is clearly heard within the new structure.
For those of you who remain confused by the announcements, here is an overview of the current situation and the government’s proposals, agreed in the Greater Manchester Agreement, signed by George Osborne and the Greater Manchester Combined Authority (GMCA).
The devolution agreement outlines the powers and budgets that central government will pass to Greater Manchester and the reforms and measures that Greater Manchester must implement, most important of which is a reformed governance system. This is because central government believes it cannot give substantially increased powers to local authorities (and in particular, a combined authority) without strengthening the democratic mandate of that body.
When formed in April 2011, the GMCA was given powers over economic development and regeneration, transport, housing and planning, education and skills, and the environment. These powers were increased in the City Deal of March 2012 and included a £30m per year earn-back fund for infrastructure projects, the creation of a local investment framework, a housing investment board, an apprenticeship and skills hub and a low carbon hub. The GMCA governance is delivered by each of the 10 local authorities appointing an elected official (in most cases this is the leader or mayor of the local authority) with each having equal voting rights. Most decisions require a simple majority, though some require seven votes in favour.
The new proposals (announced in November 2014) expect to create a new position of a directly-elected mayor for the strategic governance of the whole city-region, i.e. the area covered by all 10 local authorities in exchange for additional powers and budgets. The powers that the new post-holder would have will be similar to those currently held by the Mayor of London (though are greater in some areas and less in others), though the governance model is very different from that of London. Whereas the Mayor of London sits alongside a directly-elected assembly (whose role is to scrutinise the work of the Mayor’s office) but separate to the existing structures of London boroughs (local authorities), in Greater Manchester the mayor will become the eleventh member of the Combined Authority, with scrutiny arrangements yet to be confirmed. How the desired concept of a “first amongst equals” will operate is not yet clear, as a directly-elected mandate for the mayor may, in practice, turn out to be more powerful than that of the other appointed members of the GMCA.
In exchange for GMCA agreeing to the new post of a mayor for Greater Manchester, powers and budgets will be devolved from central government either to the GMCA or to the mayor directly. In summary, the Combined Authority would receive business support budgets (including Growth Accelerator, Manufacturing Advice Service and UKTI Export Advice; control of the Apprenticeship Grant for Employers with the opportunity to reshape further education provision; the opportunity to joint-commission the Work Programme; control of the Working Well pilot; and the opportunity to work to integrate health and social care budgets.
The new position of Mayor of Greater Manchester would gain responsibility for a devolved transport budget; responsibility for franchised bus services, integrated smart ticketing and local rail stations; a new £300m Housing Investment Fund; a reformed earn-back deal; and powers over strategic planning, including a statutory spatial framework for the city region (though this would require a unanimous vote of the eleven members of the GMCA). The mayor would become the chair of the GMCA and would also assume the role and powers currently held by the GM Police and Crime Commissioner whose role would then be abolished. The mayor would be free to exercise these powers autonomously, though within the scrutiny arrangements, though the GMCA could, by a two-thirds majority, reject any of the mayor’s proposals which must all be submitted to the GMCA.
It is expected that the new position of Mayor of Greater Manchester will begin in 2017 as primary legislation must be brought before Parliament, and this is extremely unlikely to happen before the general election. In the meantime, the government will move legislation to allow the creation of an eleventh member of the GMCA who will be appointed the interim mayor, a position that will shortly be advertised with an expectation that the full-time, paid position will be filled by 26 June by a person with “… a strong track record at a senior level of local government, [who] must have led 'transformational change' in economic development and public service reform, and have experience negotiating with ministers and national business leaders, among other strict criteria”. During this interim period, the GMCA will assume the powers over business support, skills and health and social care immediately, as well as the powers over the housing investment fund and the reformed earn-back deal that will pass to the mayor after their election. All other powers will be withheld until the directly-elected mayor is in place.
The Chamber of Commerce is working closely with the GMCA to ensure that the views of business are considered throughout this process and the Chamber will keep members informed of progress through its usual channels.
The leader of the Labour Party, Ed Miliband, has today announce his desire to "significantly increase" the national minimum wage if elected at the general election in 2015. Last September, the party commissioned Alan Buckle, former deputy chairman of KPMG, to investigate how to restore the value of the national minimum wage which has fallen behind inflation since the recession in 2008. It is due to increase by 19p an hour to £6.50 in October, giving a 3% pay increase to around four million workers, the first real-terms increase in six years.
Many economists are scathing about the impact of a minimum wage as it creates an arbitrary wage floor, pricing people whose potential output is less than the minimum wage out of the labour market and distorting real wages by creating a cliff-edge effect at its particular level. Earlier this year, the Chancellor of the Exchequer, George Osborne, suggested that the economy was growing strongly enough to be able to support a rise in the minimum wage to £7 per hour, a much larger increase than the Low Pay Commission decided to implement.
The debate around minimum wages, whether to have them and, if so, at what level they should be set, tends to polarise between the left and the right. The former believes they have an important social effect in ensuring that people can afford to live a comfortable life when in work and should not rely on state benefits to top-up their income, and the latter says that the economic distortionary effects create huge problems, primarily in driving up the input costs of businesses and in increasing unemployment, particularly amongst the young, the low-skilled, and those furthest from the labour market.
As always, the truth lies more between these two polar opposites. The positive and negative effects are rarely considered side-by-side and the potential side-effects of any policy are often not weighed carefully, with the outcome failing to deal with some of the unintended outcomes that all policy proposals generate. For what it's worth, here are my thoughts.
First, let's deal with the social issue. The left argue that a higher minimum wage, perhaps at the level of the living wage, will lift people out of poverty, reduce their reliance on state top-up benefits, giving them more money to spend in the economy and reducing state spending: fundamentally a win-win situation. It is hard to argue against the case that work should pay, but this will produce some side-effects. For those who are in work but have low skills or low output, an increase in the minimum wage can cause employers to pay more in salary than an employee actually produces. If an employees output potential (i.e. the amount of money that they can generate for the company) is £6.50 per hour, a minimum wage set above this level (never mind the employers' NI, pension contributions, etc) means the employer is losing money by hiring them. Of course, in reality the equation is not so simple and costs are usually spread across a number of people rather than output per head directly, but this clearly can have some severe effects: the employee may be made redundant, and/or the job they previously did may be automated or off-shored to a cheaper jurisdiction.
However, if we are to begin to make work pay - a clear ambition of both the coalition government and the Labour party - then something needs to be done. The coalition is tackling this primarily by benefits reform, ensuring those who aren't in work cannot receive more in benefits than if they were working. Labour is committed, too, to reform of the benefits system but desires to see employers paying their staff more so they can enjoy a dignified life. Again, the answer is probably somewhere in between. Society needs to come to a clear answer on who subsidises "unprofitable" labour. If John's potential output is £5 per hour and society deems he needs £7 per hour to live a suitable quality of life, who should make up the difference? You can probably argue a case for employer and state here, but this needs to be answered, and we could do with seeing more research and thinking from the main political parties on this issue, because this is an important point.
Secondly, the unemployment issue. Many fear that an increased minimum wage will lead to higher unemployment as non-economically productive employees are laid-off if salaries rise too high. The evidence from a number of advanced economies with minimum wage legislation is unclear at best but, as with everything in economics, the one thing we can be certain of is there will be an effect: what's up for debate is its type and scale. Many people on the national minimum wage (around 4% of the UK workforce) are in jobs that cannot easily be mechanised or outsourced, e.g. cleaners, receptionists, bar and restaurant staff, etc. It is possible that a large number of employers would swallow the rise and pass the costs on to their consumers, increasing prices and potentially reducing competitiveness across borders, though for the roles outlined above this may not be problematic.
For me, my bigger concern is for the unemployed. The more and more expensive it becomes to hire a new employee, the less likely they are to be employed, particularly if low-skilled or with little work experience. Committing more money to someone you currently work with, and have experience of, is an easier thing to do than with an unknown person. There are substantial risks for businesses hiring new staff - these are often underplayed by politicians - and the higher the financial costs, the riskier it becomes. This is why small incentives such as £2,000 "handouts" to employers to hire young people are so ineffective: put alongside the other risks, the money is not enough to have a significant effect.
Any rise in the minimum wage should be delivered alongside a significantly improved offer to the unemployed, the young, the low-skilled and the disenfranchised. These are the people most likely to suffer any ill-effects of an increase in the wage floor. More must be done to raise their abilities so that they can compete with the better-skilled for employment. It is only fair that if government is to raise the barrier to entry in the workforce, it must help those who are furthest away from it. Only by doing this can a "make work pay for all" policy support everyone and not leave people behind.
So, put together, what does all this mean? Socially, there's a strong argument for ensuring work pays, but instead of debating the issue of levels and broad policy direction, we need to focus on my earlier point of who "makes up the difference"? Economically, we've got to avoid disincentivising employers from hiring the young and low-skilled. A recent survey of over 7,000 businesses who are members of Chambers of Commerce was overwhelmingly in support of an inflationary rise in the minimum wage; around one-in-five were supportive of a higher rise. The evidence is that business is much more pragmatic than many large business representative organisation would have you believe, and many of them are in the press today saying exactly what you would expect them to about Labour's proposal.
We're proud here at Greater Manchester Chamber of Commerce to be more pragmatic, acknowledging our key role in bringing together not just the business and the economic, but the social too. We, and all businesses, have a wider place in society than being just income generators. Making work pay is a truly laudable aim, and ensuring that all people who engage in the workforce can have a dignified standard of living is vital. But policies around minimum wage levels will have an effect and, as long as those effects are understood as best as we can, and handled non-politically, I believe that business can, and will, support them. But the case needs to be better made, and the tensions between left and right need to be ironed out. The right path is in the middle, and we should all work together to help us find it.
Devo-max or devo-zero?
Fiscal devolution may not be a phrase that immediately catches your imagination, but bear with me: this is important. It’s a topic that’s gained more traction recently in British politics, with parties starting to vie with each other for giving more money and powers to local authorities. The coalition government passed the Localism Act 2011, allowing for certain powers to be transferred from ministers in Whitehall to local authorities but these have to be fought for: local authorities have to for them on a case-by-case basis. Greater Manchester Combined Authority won additional powers such as the earn-back model, giving it the ability to borrow to invest in its transport system and make repayments increased business rates revenue generated by the investment.
Why is this important now, you may ask? We’re currently seeing a strong campaign from north of the border for Scottish independence, seeking autonomy for Scotland. The major British parties are all against this, fighting for the Union whilst promising further significant devolution of powers to the Scottish parliament. There is a fundamental issue here: the devolved regions already have significantly more freedom to set their own local policies than areas of England do. Both Wales and Scotland are in the process of gaining more powers and these have been granted on the understanding that the devolved regions know best how to run their local economies. So, if it’s good for them, why not for England and, particularly, its cities?
A recent report by Core Cities confirms that cities are the powerhouses of the UK economy and are crucial for our future economic growth. Our political parties seem to understand this, but there remains little excitement for genuine devolution. Ed Miliband recently announced that a future Labour government would seek to make available a further £2 billion per year for devolution to city-regions that can show significant public and private sector collaboration but, again, this has to be bid for. His party correctly argued at the time of the Localism Act that devolving power to local authorities without devolving finance is meaningless, but this policy still leaves the money in the hands of Whitehall, releasing it only when it thinks best.
This is no way to allow our cities to power ahead. Central government must get out of the way and allow our cities to determine their own future. London is doing better in terms of autonomy, but even there more can be done, and the Chamber fully supports the results of the London Finance Commission in allowing it to keep more of the tax it raises itself, but this must be spread to other areas. Government, and particularly HM Treasury, is reticent about disconnecting its levers of power, but it must allow our cities to stand on their own two feet. A good start would be to allow them to keep tax raised in their areas for their own purpose and set out plans to allow them to raise their own money for investment in the future. Mr Miliband’s plans for Whitehall ministers for the regions are not good enough: each city should instead become its own Whitehall. Central government must learn to trust – like all the best businesses do – and empower its front line to deliver.
It sometimes feels like this is an issue that, like a boomerang, keeps coming back. There is good news on this front, though. George Osborne announced in December’s autumn statement that there is to be a full review into the Business Rates system. As part of the accredited British Chambers of Commerce network, we are leading on a project to present a white paper on reform of the system to the political parties at the autumn conferences and we’re keen to have your views. We’ll also be responding to the formal consultation that’s currently live on the same subject so, if you’ve any views on how the system should work, do send them to me at firstname.lastname@example.org.
There was some interesting data buried in the detail in the recent Labour Force Survey: finance and insurance is no longer the best paying sector in the UK. Excluding bonus payments, manufacturing now pays more, with construction not far behind. This is a key message which needs driving home in our schools to our young people. Long-term, well paid careers are available outside the square mile. Here’s an opportunity to not only build your own rooftop, but shout from it, too.
We have a bumper retail edition for you in this month's 53 Degrees with a Behind the Scenes at Manchester Arndale and a more detailed look at how Manchester city centre has thrived through the recession with its Business Improvement District. The death of the high street is not guaranteed, but its nature has changed. The question is how we embed success in all of our key centres, not just some.