With Brexit negotiations beginning, businesses and accounting bodies have urged the government to prioritise creating a strong post-Brexit economy
With the dust barely settling on the shock general election results, the strain on Whitehall shows no signs of letting up this week as the government begins Brexit negotiations and prepares for the Queen’s Speech.
Businesses and accounting bodies have expressed concern that the economy has recently taken a backseat in the government’s agenda, following the two major parties conducting election campaigns largely ignoring the concerns of businesses, further compounded by rising concerns about creating a strong post-Brexit economy.
Michael Izza, ICAEW’s chief executive, said: “The voice of business needs more prominence within government’s plans to rejuvenate the economy.”
According to research by the ICAEW, the previous financial year produced the smallest budget deficit in cash and GDP for almost 10 years. While this is in congruence with austerity, the ICAEW contends that the slowing GDP growth may cause overall damage to Britain’s economy.
Economic forecast for Q2 2017 shows slow growth
ICAEW published their economic forecast for Q2 2017, revealing a somewhat dismal picture with some scatterings of optimism.
GDP growth has slowed significantly, at only 0.2% for the first quarter of 2017. However, ICAEW predicts that this is temporary and will pick up in the latter half of the year, up to 1.7%, due to a greater role played by exports.
Income losses for households are expected, with wage growth remaining at 2% and inflation expected to stay around 3% according to the Bank of England.
Labour market data shows that spare capacity remains historically low and the rate of private sector employment growth is forecast to be just 0.7% for the year. ICAEW commented: “Given the continued growth in working-age population, this rate of job creation will be just enough to stabilise the unemployment rate close to the current level”.
Investments are predicted to have a modest fall for the remainder of 2017, and with the uncertain political landscape it is probable that firms will continue to limit their capital spending. However, firms’ financial positions and profits generally remain stable, and borrowing costs are expected to remain low.
Izza said: “We cannot underestimate the impact that the current outlook for the UK has on business confidence”, pointing to the election and Brexit negotiations as factors causing uncertainty and preventing “making long term changes to our tax and regulatory systems.”
He warned: “In the current climate, businesses tend to see the potential risks rather than the rewards of investing.
“I would like to see the new Government put business and the economy at the top of its agenda, doing more to create a climate of optimism and certainty which will help build confidence. It also needs to send a clear signal to the rest of the world that Britain continues to be a good place to do business, to invest and to trade. Not to do so could put at risk the economic progress we have made over the last two parliaments.”
Economy must be top of the agenda in Brexit negotiations
In an open letter, some of Britain’s biggest business groups – including the British Chambers of Commerce, Confederation of British Industry and the Institute of Directors – have urged the government to prioritise the economy in Brexit talks.
For the transitional period during which the UK prepares to leave the EU they called for continued access to the single market and customs union, maintenance of an “open, frictionless border between Ireland and Northern Ireland” (a priority for the DUP), and to prioritise assuring the rights of EU citizens in the UK and vice versa.
With regards to the final Brexit agreement, priorities of businesses largely revolved around ease of trade – such as by securing tariff-free goods trade, minimum customs formalities at borders and mutually equivalent regulations and standards. They also outlined the desire for a “flexible system for the movement of labour and skills” which “enjoys public support”, although a universally appealing arrangement is likely to prove difficult. Lastly, they articulated support for continued UK participation in “pan-European programmes, initiatives and agencies” that “add real economic value”.
With Brexit talks on the horizon, ICAEW has recently also taken a look at how much the “divorce bill” or net exit charge of leaving the EU will be.
Join us exactly one year on from the EU referendum on 23 June at 10.30am for an Accountancy Age webinar in which we discuss what the General Election results mean for the accountancy industry.
Our panel of experts will explore the key issues, from Making Tax Digital to Brexit to corporation tax, pensions, income tax reform and more.
Join the discussion to hear our panellists’ predictions, expectations and concerns for the coming weeks, months, and beyond.