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Tax and regulation reform must be central to spending review

Streamlining the business tax system and simplifying the regulatory regime must form the core of the government's comprehensive spending review, a business group has argued.

The Forum of Private Business (FPB) said that reforming business tax and cutting red tape would help smaller firms grow and rebalance the economy.

Phil Orford, the FPB's chief executive, said: "Put simply, the UK's economy should be run more like a small business, making the most out of the country's valuable resources and ensuring that all departments work together to create and promote a real culture of enterprise.

"Historically, the public sector has accounted for just under 40 per cent of economic activity in the UK. Reducing it back to that level will inevitably mean significant cuts and there will no doubt be some pain to come.

"However, there are also opportunities that could bring significant benefits for small firms. Our members frequently complain of duplication, confusion caused by different public bodies and excessive bureaucracy. We have a rare chance to remove these barriers to business growth in this comprehensive spending review."

The FPB's submission to the government in advance of the spending review covered a number of areas.

On the question of taxation, the FPB urged simplification across the board. The government, it said, should consider a national insurance holiday for all non-employers and not just, as is currently the case, for the first ten people employed by new businesses.

Overall, the burden of tax on smaller employers needs to be reduced so that they can develop their businesses.

Regulation is another key area that should be addressed in the FPB's view. More must be done to limit EU social regulation, particularly legislation which has an impact on small firms' abilities to trade profitably.

The mediation body, Acas, should be given powers to throw out unreasonable claims by employees against employers before they reach the tribunal stage, and there needs to be a rebalancing of the rights of employers and individual employees.

When it comes to the procurement process for public sector contracts, projects should be awarded on the basis of the quality of the tender, the ability to undertake the work and proof of the quality of previous work, the FPB continued.

Given that rebalancing the economy is a priority, the FPB wants spending on UK Trade and Industry (UKTI) ring-fenced and the Exports Credits Guarantee Department (ECGD) to offer businesses extra financial protection.

More support should be given the construction industry and low carbon economy in the form of a VAT cut for businesses that opt to install energy efficient or energy creation systems.

As well as reducing the number of business support quangoes on green issues, the government should look at scrapping the Carbon Reduction Commitment (CRC) and other overly complex schemes, the FPB added.

And more effort should be made to open up universities to commerce and the commercialisation of research.

To boost employment prospects, the cost of administering employment law must be cut significantly, the FPB said, and the redundancy process streamlined so that businesses in distress can act quickly and minimise job losses.

On skills and training, the FPB wants to limit state subsidised training for businesses with over 250 people.

Funding should be allocated to smaller employers for training they feel that their staff need, and internal training should be encouraged.

The role of the new Local Enterprise Partnerships (LEPs) must be clarified, and they should be allowed to borrow against council rates rather than business rates since the former are less volatile.

With so many smaller firms struggling to access finance, the FPB put the case for a more flexible Enterprise Finance Guarantee scheme which should be used for growth finance.

Banks ought to be given formal targets to respond to lending requests, and part-funded public sector equity funds should be more flexible in their targeted sectors.

To help boost business investment, research and development tax credits should be replaced with better annual investment allowances, the FPB concluded.