The CBI billed it as a “major speech”, which is a judgment best left to others, but, yes, Tony Danker, the director general of the CBI, made a couple of excellent points on Monday as he addressed the current obsession in UK boardrooms: where is the national plan for growth?
First, it’s time for the UK to stop congratulating itself of having built so many offshore windfarms, and understand that “a subsidy arms race”, as Danker put it, is under way in green investment. The dramatic phrase may sound like a plea for corporate handouts (and, up to a point, it is) but it is also a widely held assessment of President Joe Biden’s misleadingly named Inflation Reduction Act. A $369bn (£298bn) package to direct subsidies towards green technologies is enormous and has the potential to change the investment landscape and increase the gravitational pull of the US. It is a hard piece of legislation to ignore.
The EU is alarmed – at Davos last week, the Czech trade minister called it the equivalent to “doping in sport” – and one can understand why. Even Northvolt, the Swedish electric battery maker that is a European champion in the technology, is debating openly whether to open its next gigafactory in the US rather than Germany to take advantage of the subsidies.
Little ol’ UK clearly cannot compete on largesse (especially when some prospects are as unpromising as Britishvolt, a company without a developed product or customers) but nor is it credible to do nothing. “We’re behind the Germans on heat pumps, the French on electric vehicle charging infrastructure and the US on operational carbon capture and storage projects, despite the UK’s North Sea advantage,” said Danker.
It’s a fair point. Success in offshore windfarms was built on incentive arrangements that morphed into the contracts-for-difference regime and it feels unlikely that hydrogen or sustainable aviation fuels, to use two of his examples, will become turbo-charged without a similar mechanism. The current approach does indeed smack of hoping for the best.
Second, the government isn’t even following Sunak’s own philosophy when it comes to tax strategy for stimulating business investment, where the UK has sat near the bottom of OECD league tables for about a decade. As chancellor, Sunak gave a lecture only 11 months ago that hinted strongly that the two-year post-lockdown “super-deductions” setup – the tax breaks that allowed companies to offset 130% of investment spending on plant and machinery against profits – would get a successor regime.
“We need our future tax policy to be targeted and strategic,” declared Sunak, as he argued that simply cutting headline corporation tax had not led to a step-change in investment by companies. It was on that basis that CBI leaders, who probably now feel like mugs, last year backed a rise in corporation tax from 19% to 25%: they thought something would flow in the other direction. As it is, super-deductions will end in March with nothing else in place.
Not everybody, it should be said, is convinced that super-deductions stimulated extra business spending – or spending that would not have taken place anyway. These things are hard to measure, even if the likes of BT – a big advocate, unsurprisingly – demonstrably tried to pick up the pace on its fast-fibre installation programme. Equally, though, there is obviously a cliff-edge danger in yanking a scheme overnight.
Danker reckons the UK could slip from having the fifth most competitive tax system in the OECD for capital investment to 30th place out of 38. “Our investment plan just became anti-investment,” he argued. A repeat of the lavish generosity of 130% isn’t realistic but, yes, 50% initially, as the CBI suggests, would be a signal that the government accepts the case that growth requires a shot of adrenaline from investment.
Some of Danker’s other pleas – on immigration, for example, to address skills shortages – will probably be ignored, whatever their merits. But the rest of the content deserves a response. The CBI isn’t always the authentic voice of business but, on this occasion, it is on the money: the appeal for a joined-up strategy for growth is almost universal. Corporate heads understand the shortage of money; the grumble is the lack of ideas.
