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New government must nurture buoyant business community
Action is required to turn confidence into investment and secure sustainable growth. 

By Laura Turner

11 May 2015

While the new Conservative government has inherited a confident business community, accountants and business advisers BDO LLP warn “underlying fragility is a cause for concern”.
 
BDO’s Optimism Index, which predicts business growth six months ahead, held firm this month at 104.7 pointing to strong confidence among UK firms. This suggests businesses have been unperturbed by Thursday’s election and are resilient in the face of Eurozone uncertainty.
 
There may be good news to come as BDO’s Output Index rose to 104.3 this month from 103.7, indicating that growth could speed up in the latter half of 2015 following a weaker start to the year.
 
However, BDO warns sustained growth depends on companies converting their confidence into the capital expenditure needed to boost productivity. Investment in skills and equipment, it suggests, could help to tackle Britain’s stagnant productivity levels, boosting business output and, ultimately, growth.
 
“Ahead of the 2010 election our data showed high levels of UK business confidence, much like this time around,” says BDO LLP partner, Peter Hemington. “However, this fell away not long after the new government formed. To avoid this happening again, the new Conservative government needs to put firm actions in place to help UK businesses thrive.
 
“It is encouraging to see that businesses are feeling optimistic about the coming months in the hands of a new government, but the confidence that counts is the confidence that converts to businesses actually investing,” he continues. “The new government must help UK businesses with this by putting tangible measures in place that will encourage businesses to invest in training or research, technology and equipment to help improve productivity.
 
“The new government also has the opportunity to boost future economic growth by investing judiciously in our country's infrastructure, I hope that they will take it.”
 
BDO recommends the new government acts quickly to put in place policies encouraging businesses to invest. It would like to see the government permanently increase the annual investment allowance (AIA) to £5m, giving a valid incentive for businesses to invest in the capital assets that will drive future growth, and give businesses the confidence to plan ahead. It also suggests the new Government should consider a VAT zero rating of supplies to companies that export. The UK currently allows manufacturers to zero rate their exports, but not their suppliers.


 
 
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