Chancellor’s policy changes ‘will generate £9 billion burden’ for firms, suggests CBI

The Confederation of British Industry (CBI) has warned that the Chancellor’s upcoming policy changes could potentially create a £9 billion-a-year ‘burden’ for businesses.

The business group has calculated that schemes such as the Apprenticeship Levy, National Living Wage (NLW) and the ‘outdated’ business rates system will potentially amount to a £29 billion cost for businesses over the course of the Parliament.

The CBI’s Budget submission urges Chancellor George Osborne not to add to businesses’ ‘cumulative burden’, calling for targeted steps to support firms and their ambitions for growth.

The introduction of the Apprenticeship Levy in April 2017 could bring an estimated £11.6 billion in costs over the following five years, whilst the NLW is expected to cost businesses £12.6 billion.

The CBI has set out a series of recommendations to assist businesses, which includes an overhaul of the UK’s business rates system, outlining a clear direction on energy policy, cutting recruitment costs and supporting investment and innovation.

The group has suggested that the business rates system should be uprated in line with Consumer Price Inflation (CPI), instead of the Retail Price Index (RPI).

Carolyn Fairbairn, CBI Director-General, stated: ‘A spate of recent Government policies, including the NLW and the Apprenticeship Levy, will cost the economy around £9 billion a year by 2020. The UK needs to be able to grow its way out of the deficit, but the danger of this rising policy burden is that it holds back businesses, particularly smaller firms.

‘In this Budget, business will want to see the Government updating the UK’s business rates system, supporting investment through the capital allowance system and equipping our world-class innovators with the tools they need to compete globally.’

Additionally, Ms Fairbairn argued that taxes introduced within last year’s Summer Budget and Autumn Statement had weighed heavily on the UK’s economy.

The Chancellor will present the 2016 Budget on Wednesday 16 March. Our website will contain a summary of the key Budget announcements – please visit regularly for more information.

Surprise increase in UK inflation

The UK’s inflation rate rose to a figure of 0.2% during December, according to new data from the Office for National Statistics (ONS).

This unexpected increase, measured by the Consumer Prices Index (CPI), marks the first rise above 0.1% since January 2015.

Transport costs, including air fares, were key factors contributing to the rise, with the cost of air fares increasing by 46% in December.

Petrol prices also fell less in December than when compared to the same period in the previous year, helping to contribute to the overall rise in inflation.

A fall in food, tobacco and alcohol costs helped to offset the increase in transport costs to a degree.

Monthly inflation rates have lingered between -0.1% and 0.1% for the past 11 months, partly as a result of the lower cost of oil and competition between the major supermarkets.

Meanwhile, the Retail Prices Index, which takes housing costs into account, rose to 1.2% in December, up from November’s figure of 1.1%.

The latest figures have reinforced the opinion of many economists that the Bank of England’s Monetary Policy Committee is unlikely to increase interest rates in the coming months.

Inflation turns positive but report suggests that wages could take years to rise

Following October’s negative figure, the UK’s inflation rate as measured by the Consumer Prices Index (CPI) turned positive in November, the Office for National Statistics (ONS) has reported.

The CPI rate is 0.1%, up from a figure of -0.1% for October. Transport costs, alcohol and tobacco prices were the main contributors to the rise, partially offset by a fall in clothing prices, according to the ONS.

Inflation as measured by the Retail Prices Index (RPI) – which includes mortgage interest payments and council tax – was at 1.1% for November, up from 0.7% the previous month.

Monthly CPI inflation has been between -0.1% and 0.1% for the whole of 2015, which has led to the Bank of England’s Monetary Policy Committee holding UK interest rates at 0.5%. The committee again voted to keep the rate unchanged last week.

Chris Williamson, chief economist at data firm Markit, said: ‘UK inflation remained largely absent in November, and looks set to remain weaker for longer than forecasters have recently been expecting. Falling prices for oil and other commodities are helping drive down companies’ costs.

‘Weak wage pressures and fierce competition in the retail sector are also helping keep a lid on prices. Hence clothing prices showing a record fall between October and November.’

Meanwhile, a report by the Resolution Foundation has suggested that pay growth in 2016 could be as little as 1%. After six years of stagnation, real pay increased in 2015, but that was primarily due to low inflation.

Laura Gardiner, senior policy analyst at the think tank, argued that pay growth next year would depend on whether the rising productivity could counterbalance rising inflation.

She said: ‘Strong output growth and prolonged low inflation could result in the highest level of real wage growth in over a decade. But equally, a failure to build on the early signs of a productivity recovery, combined with a swifter-than-expected return to target inflation, could send real wage growth tumbling to less than 1%’.

If pay growth did stay at 1% next year, it could mean that average pay levels do not return to pre-financial crash levels until at least 2020.

UK inflation rate returns to zero

The latest figures from the Office for National Statistics (ONS) show that the UK’s inflation rate fell back to 0% in August, having been at 0.1% in July.

A sharp fall in oil prices leading to cheaper fuel, as well as low food costs following supermarket price wars, have contributed to the drop in the Consumer Prices Index (CPI) measure of inflation.

According to the ONS figures, the Retail Prices Index (RPI) measure of inflation rose to 1.1%, up from 1.0% in July. Meanwhile, the rate of core inflation – which removes the impact of changes in the price of energy, food, alcohol and tobacco – fell to 1.0% in August from the July rate of 1.2%.

British Chambers of Commerce economist David Kern said that the continuing low inflation rate strengthened the argument for the Bank of England keeping interest rates down. He said: ‘Low inflation supports living standards by boosting disposable income and will help to sustain the economic recovery.

‘However, last week’s poor trade and manufacturing figures show that the recovery is still fragile, particularly in the face of major global uncertainties.’

The Bank of England’s main interest rate has been at 0.5% since March 2009 – and with inflation still so far below the Bank’s target of 2%, there seems little immediate prospect of a rate rise.

Despite this, many analysts expect the Bank of England to start to raise interest rates in the first quarter of 2016.

Report calls for CPI inflation to be replaced

08 Jan 2015

The Consumer Prices Index (CPI) should be abandoned as the UK’s main measure of inflation, according to a new report.

Paul Johnson, director of the Institute for Fiscal Studies (IFS), was commissioned to review inflation data for the UK Statistics Authority.

Mr Johnson has suggested that there is a ‘strong case’ for CPI to be replaced by CPIH as the main measure of inflation, which would take into account housing and living costs faced by homeowners in the UK.

Mr Johnson commented on the fact that there are currently four separate indices of inflation in the UK (CPI, CPIH, RPI and RPIJ), a situation which he said is ‘causing confusion’.

The report also recommends that the Retail Prices Index (RPI) should be abandoned as soon as possible, arguing that taxes, benefits and regulated prices should not be linked to the RPI. However, the RPI is still applied in some key areas, including rail fares, index-linked Government bonds and some pensions.

CPI inflation currently stands at 1%, the lowest level in 12 years, fuelled in part by significant reductions in oil and food prices.

The UK Statistics Authority is set to launch a consultation on the findings of the report.