With this in mind, it is perhaps understandable that both the government and media are fixated on the politics surrounding Brexit. However, there should be more focus on the domestic agenda to ensure that UK businesses will thrive post-Brexit whatever deal may come.
The UK’s ‘overlooked and undervalued’ mid-sized businesses need greater recognition. These high-growth, entrepreneurial and ambitious businesses (which we call the UK economic engine) punch well above their weight. They account for only 0.5% of all UK businesses (29,000) yet over one third of UK revenue (£1.3trn) and almost 1 in 3 private sector jobs.
Despite the impact they have on the economy, these economic engine companies fall into a policy gap. Too big to benefit from the raft of policies aimed at smaller businesses and yet too small to have the ear of government like major corporations, the needs of mid-sized businesses often go unheard.
Not only should the needs of the UK’s economic engine be prioritised, it is crucial to create an economy balanced by region and sector so that we are less reliant on the South East and financial services for UK growth.
Regardless of the challenges that Brexit will bring, the government should also ensure open and simple access to world markets and global talent.
With those objectives in mind, we believe the following five-point plan will help create an UK economy fit for the future.
Firstly, we would like to see simpler (and not necessarily lower) taxes. There has been no radical changes to the tax system since Nigel Lawson was chancellor in the 1980s. Instead, the tax code has grown and got more complex, now containing over nine times the number of words that make up the Complete Works of Shakespeare and over double that of the US tax code. Instead of reaching for subsidy, a radical simplification sends a signal to the world that the UK is open for business.
Secondly, we’d like to see a slightly different approach to infrastructure investment. Rather than a focus on the three big H’s (Heathrow, Hinkley Point and HS2), we would like to see smaller infrastructure investments. Whilst less attractive to monument-building politicians, they have a greater impact on the economy. BDO’s New Economy report includes research from the government estimating that HS2 will provide £2.20 of economic benefit for every £1 spent; by comparison, road maintenance schemes provide an average return of £13 for every £1 spent, according to the Department for Transport. Pot Hole Phil had the right idea in his recent Budget, but we must go further.
Thirdly, we must address the perennial UK skills gap. Our clients and contacts in a range of sectors and UK regions are consistently telling us that recruitment of skills is a challenge for them. We have some ideas around parity of esteem for high-level apprenticeships and including them in school league tables. The government should also prioritise targets around quality of training rather than simply the number of people who enrol in apprenticeship schemes.
Solving the UK’s ‘Productivity Puzzle’ is a key government priority but there is more that can still be done. A significant amount of UK business assets are tied up in intellectual property yet there is no simple way of valuing these assets. If these assets were valued properly (in the same was as say buildings and factory machinery) then it would lower the cost of access to capital.
And finally, the Government has taken massive strides on providing new streams of patient capital but we think it should consider other options too. The UK is great at start-ups but less so on scale-ups. The total number of scale up businesses increased by nearly 12% between 2015 and 2016. We have some radical ideas for allowing pension funds to invest in these businesses, similar to the French model that has seen great success.
Yes, Brexit will be a challenge but we can also use it as an opportunity to radically change our economy and unleash the talent and entrepreneurial spirit of our brilliant businesses.
Jo Gilbey is a tax partner at BDO LLP
The New Economy Report can be downloaded here.