Finance · 12 October 2018

Could free government cash bring small businesses out of productivity crisis?

productivity allowance
The productivity allowance would let business owners cut their overall tax bill to invest in leading technologies

The government is being urged to bring in a new “Productivity Allowance” to help drag the UK out of a “lost decade” of economic woes.

The move, which would see the creation of a new tax allowance for productivity-raising technologies, is part of a new Institute of Directors (IoD) report – Lifting the Long Tail: The productivity challenge through the eyes of small businesses.

The IoD said the new Enhanced Capital Allowance would provide a “clear signpost and greater incentive” for small business leaders to invest in defined best practice technologies, such as data analytics and cloud computing, by allowing them to cut their overall tax bill by more than what is already available under existing schemes.

“Solving the productivity puzzle has been a defining challenge for the UK over the past decade. The success of our post-Brexit economy hinges on our ability to unlock the vast untapped potential among UK small businesses,” said Ted Parikh, senior economist at the Institute of Directors.

“Directors of smaller firms need the support and encouragement to spend more time working ‘on’ and not just ‘in’ their organisation, and to confidently adopt new management techniques and technology.”

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Joined-up support

Other measures in the report include creating a more formalised national business support framework. This would better integrate LEPs and Growth Hubs with social enterprises and universities to facilitate idea-sharing and best practice.

The Apprenticeship Levy should also be broadened out into a wider training levy, the report claimed, while there should be greater knowledge transfer between higher education institutions and small businesses.

The report is based on a survey of over 700 business leaders. It found that only 6% of SMEs currently consider LEPs/growth hubs as a go-to for management and technology advice.

It also revealed that digital/technology investment incentives were viewed by small firms as the best initiative to boost their productivity, followed by mentoring programmes and management training support.

The IoD said that driving a mindset of continuous improvement was also key, as over one in four small firms take an introspective look at their business only once every six months or less frequently.

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