Urgent Action Needed on Jobs

Urgent Action Needed on Jobs

The CBI today (Monday) unveiled its ten-point plan to keep business working, safeguard jobs and position the economy for recovery.

Ahead of the Pre-Budget Report, the UK’s leading business organisation is calling on the government to take immediate action to help struggling businesses to improve their cash flow, or risk healthy firms going under and unnecessarily prolonging the recession.

With credit markets still paralysed, and consumer and business confidence at a low following the banking crisis, the CBI has identified actions the government should take now to give business and the economy an immediate boost.

In a letter to the Prime Minister, the CBI calls for measures to ease cash flow to business and a fiscal boost in the Pre-Budget Report, aimed at helping firms retain their staff through the downturn.

Richard Lambert, CBI Director-General, said:

“We need to keep business working to safeguard jobs and we need to act now.

“The biggest threat hanging over businesses is cash flow. If they cannot get their hands on the cash and credit they need to go about their day-to-day business, there is a real risk we could see healthy firms going under.

“The next six months will be critical. If we are to stand a fighting chance of preventing this recession from becoming longer and more painful, we need to act now to get the credit markets working properly.

“The most effective way of supporting economic activity and keeping people in jobs would be a temporary reduction in employer National Insurance contributions.

“But given the poor state of public finances, any fiscal stimulus package will need to go hand-in-hand with a credible framework for getting back on track. This would prevent future generations being burdened with huge levels of debt.

“There are also some other relatively quick and painless things the government can do that will provide an immediate boost to business, such as scrapping empty property rates, a temporary freeze on business rates and bringing forward some elements of planned capital spending.

“Taken together these measures would help smooth out the bumps on the road to recovery. They would also have a real and immediate impact on confidence, cash flow and the cost of employing people.”

The CBI’s ten-point plan

1. Improving the flow of capital to business. UK authorities need to do all they can to help ‘unblock’ the financial markets and improve the flow of funds to businesses to prevent otherwise healthy firms going into administration. The Bank of England should consider whether it should create a scheme to improve liquidity in the commercial paper market similar to the US model.

2. Countering the withdrawal of trade credit insurance. Some firms are finding trade credit insurance cover being suddenly withdrawn as insurers are less prepared to insure small suppliers against the risk of a larger customer going bust. The government and/or Bank of England should consider as a matter of urgency whether the public sector should act as “insurer of the last resort” on temporary basis.

3. Preventing questions about ‘going concern’ status from reinforcing the downturn. Steps must be taken urgently to prevent the question of ‘going concern uncertainty’ getting out of hand. The FRC must develop further guidance for directors to convey general economic uncertainties in such a way as to avoid triggering heavy ‘going concern’ modifications to auditors’ reports.

4. Modest business tax cuts to ease cash flow problems:

  • scrapping empty property rates. With firms demolishing property as they cannot afford to pay the rate, the Government should act swiftly to restore the regime to its pre-April 2008 position, and in the meantime implement an immediate 50% reduction as allowed for within current legislation.
  • a temporary freeze on business rates. The usual practice of raising business rates in line with September’s RPI of 5% would be completely inappropriate in the current climate.
  • delaying proposals for business rate supplements (other than for Crossrail), or at the very least making them subject to a business vote on every proposal, to avoid firms being required to pay extra taxes of up to £0.8bn a year.

5. Measures to support small and medium-sized firms including:

  • A special low rate of employer NICs for qualifying SMEs, to apply for a time-limited period. Alternatively, SMEs could be given the option to delay paying their employer NICs bill for a year.
  • Postponing the next rise in the small companies’ rate of corporation tax by another percentage point to 22% in April 2009, at an exchequer cost of some £0.5bn.

6. A time-limited fiscal stimulus focused on employment through a temporary reduction in employer National Insurance Contributions. For maximum impact we recommend a 1.8 percentage point cut to 11%, at an exchequer cost of £9bn. This would bring the employer rate into line with the employee rate.

7. Accelerating planned public capital spending programmes. Where cost effective and practicable to do so, budgeted capital spending should be brought forward, including the “Building Schools for the Future” rebuilding/refurbishment programme and planned expenditure on social housing. The creation of a new post of Chief Construction Officer would drive action across the government sector.

8. Supporting corporate pension provision by giving companies longer to smooth the costs of making good their pension deficits.

9. Improving the nation’s skills. SMEs should be given incentives to take on apprentices through targeted financial assistance, and fund the full economic costs of large firms ‘over-training’ to the benefit of their sector.

10. Supporting UK exports by offering time-limited support for both existing customers and the wider export community as companies face difficulties in accessing bank finance.

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