UK the Best Place for Business

Liberal Democrat Policy

We need to start by looking at where we are now – Successive governments have failed businesses in three key areas:

  • An over reliance on the City of London, financial services and public expenditure was allowed to develop, crowding out investment capital for other businesses
  • The education system has failed to equip young people with the skills they need to succeed in the world of work
  • Businesses have been burdened with complexity through excessive regulation and one of the most complicated tax codes in the world

Liberal Democrats want to rebuild the economy very differently. Set out below are the actions that the Liberal Democrats will take to restore stability to the economy, ensure that businesses have fair access to capital, close the skills gap, simplify the business environment and provide positive support to business.

Reduce the budget deficit and bring stability to the public finances

Stable public finances underpin a stable economy, ensuring that interest rates remain low and provide confidence over the future burden of taxation.

First and foremost, a credible plan to tackle the public deficit is essential. We are clear that the emphasis must fall on controlling public spending, not higher taxes. We have identified over £15bn a year of savings by, for example, capping public sector pay rises, abolishing the Child Trust Fund, and scrapping unnecessary defence projects including the like-for-like replacement of Trident.

Our decision of when to start cutting the budget deficit will be based on economic indicators, not political dogma. We must not send the tentative recovery into reverse. We will look at five tests – the rate of growth, the level of unemployment, credit conditions, the extent of spare capacity in the economy and the cost of Government borrowing.

We have already gone further than any other party and we are clear about the need to do more. We have postponed long held ideas that are not currently affordable and we are clear that to eliminate the deficit, we are going to have to look in detail at everything the government does. The Liberal Democrats will not take risks with the public finances. We are the guarantors of fiscal responsibility.

Ensure affordable access to credit for businesses

We have lost our local financial infrastructure and relationship banking has all but disappeared. During times of cheap easy credit this perhaps did not seem to matter. However, as our banks reawakened to the concept of risk it became clear that they have lost the capacity to make the judgements required when lending to business.

Our first priority is to get the banks lending at the volumes required to sustain growth and at affordable rates, particularly the semi-nationalised banks which should be working for the benefit of UK plc. This should not be difficult – we own the banks and there are legally binding lending agreements in place – but the current government lacks the political will to make it happen.

In the longer term, a stable and competitive banking system will only be restored by splitting low-risk retail banking from high-risk investment banking. This will ensure that the UK once again has a banking industry that is focused on lending to businesses to support economic growth and will mean that never again can the entire economy be put at risk by the actions of a few.

  • We will further diversify the banking sector by supporting the Post Office as it develops a PostBank and giving financial regulators a clear objective of maintaining a diversity of providers in the financial services industry.

Create new mechanisms to provide equity finance to smaller businesses

In recent years bank debt has been the instrument of choice to finance investment. Going forward a better balance of debt and equity will need to be employed. Whilst the UK’s London based markets serve big businesses well, they have failed to provide cost effective access to equity for smaller businesses. We will therefore support the creation of new mechanisms to access equity by connecting investors with businesses in their own region:

  • Local Enterprise Funds – tax efficient investment vehicles to provide seed capital to start-up/early stage businesses as they commercialise their ideas
  • Regional Stock Exchanges – regional platforms matching local investors with growing SMEs. They will provide SMEs with cost effective access to equity through a simple operating model that meets the needs of smaller companies

Local Enterprise Funds and Regional Stock Exchanges will significantly increase the supply of equity finance available throughout the UK to fund investment in the development of innovative new ideas, and provide vital stepping stones for smaller businesses as they grow.

Develop the skills needed by business

Employers are clear that the education system is failing to provide many young people with basic skills like Maths and English and that there is a mismatch between the subjects taught and the needs of business. In particular we need much more focus on the STEM subjects (Science, Technology, Engineering and Maths). The Liberal Democrats have three priorities:

Firstly, address the underlying weaknesses in our education system:

  • Invest an additional £2.5bn in schools targeted at those children who need the most help (a ‘pupil premium’). Currently, half of pupils do not achieve five good GCSEs including English and Maths
  • Expand the TeachFirst programme to get more top graduates in our classrooms, particularly in shortage subjects like maths and physics
  • Scrap fees for adult learners to provide those who were failed by the education system the opportunity to return to college as adults so that they can get the skills they need
  • Scrap university tuition fees (over a six year period based on a costed plan) so that access to higher education is based on ability not bank balance
  • Reform the existing bursary system for university students so that bursaries are awarded on the basis of studying strategic subjects (such as sciences and mathematics) as well as financial hardship

Secondly, ensure a better balance between academic and vocational education:

  • We will enable young people to study at a college from age 14 if their school does not offer the course they want to take, opening up opportunities for more vocational subjects like engineering
  • We will introduce a new General Diploma that places vocational qualifications on an equal footing with academic subjects whilst ensuring basic levels of literacy and numeracy

Thirdly, take urgent action in the first year of government to address the high level of youth unemployment that has arisen from the recession. We have announced a £3.1bn economic and jobs stimulus package that includes:

  • funding 15,000 additional Foundation Degrees. These practical courses combine study with work-place learning, giving students a real opportunity to learn the skills to help them get a job future
  • paid internship opportunities for 800,000 young people in our first year in government
  • full funding of adult apprenticeships in our first year in government

Simplify regulations

We will strengthen the rules around Regulatory Impact Assessments for new regulations, so that they become an integral part of the decision making process rather than a form filling exercise. Impact Assessments will be subjected to independent audit to ensure that proper consideration has been given and that the benefits of regulation outweigh the costs. Follow up post-implementation reviews will also be carried out to check for unintended consequences.
We will incorporate a sunset clause into each new business regulation so that it is time limited. It will therefore have to come back to Parliament for renewal to ensure it continues to be relevant and appropriate. Where possible we will encourage a ‘one in one out’ approach to new regulations.

We will end ‘gold plating’ of regulations originating from Europe, ensuring that they are not extended beyond their original intention. We will also ensure that Britain continues to be at the heart of Europe so that this country’s voice is heard as new rules are debated.

We will change the manner in which regulation is enforced so that the rules are clearly set but with businesses given more flexibility in their detailed implementation. Enforcement will focus on assisting compliance rather than on a ‘tick box’ approach. We will also focus resources on the areas of greatest risk. Regulation should be about tackling those who break the rules, not repeatedly checking on those who stick to them.

Simplify taxation

A competitive tax system is not just about the rate of tax but also about the stability of the tax system and how easy it is to administer. Under Labour, the UK tax code has more than doubled from 4,998 pages in 1997 to 11,520 pages in 2009. Our aim is to simplify the corporate tax system by removing avoidance schemes, in order to reduce the headline rate of corporation tax. The complexity of the current tax system is amply demonstrated by the gap between the headline rate of tax and actual tax paid. We will also review the IR35 legislation and seek to replace it with simpler measures that prevent tax avoidance but do not place undue administrative burdens or uncertainty on the self-employed or restrict labour market flexibility.

We opposed the Government’s proposed increase in National Insurance. It is a tax on jobs and is counterproductive to creating the employment and enterprise that we need in order for the economy to recover. In office, we will seek to reverse this increase but it would be irresponsible to promise this without first identifying matching spending cuts or alternative sources of revenue.

The role of government

The theme of simplification also extends to how the Liberal Democrats view the role of government in supporting business:

  • Regional Development Agencies (RDAs) undertake a number of valuable programmes but have lost focus as their remit has become ever wider and more complex. We will reform RDAs to focus solely on economic development, removing duplication with other parts of government and making them locally accountable
  • A clear identity focussed upon real strengths is essential to stand out on the world stage. We would improve the effectiveness of UKTI by commercialising its activities and removing current duplication with RDAs
  • We will set a clear, coherent industrial policy that provides the clarity and confidence needed to support investment. This extends to direct government support where necessary to create new markets. A good example of this is our plan to invest £400 million in upgrading UK ports to support offshore wind technology and set out a clear renewables routemap covering energy generation to 2050. This is a clear message of commitment to investors, backed up by pump-priming public money.

All of the proposals set out above are designed to create an environment in which enterprise is free to flourish. This reflects our view that government should act as a strategic business enabler rather than as a participant in its own right. A consistent business friendly attitude from government, supported by a stable economic platform and targeted help can ensure that we achieve a rebalanced sustainable economy, with jobs that last, across all parts of the UK.

John Thurso, Liberal Democrat Shadow Business Secretary

Liberal Democrat Manifesto

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