Wednesday 23 November 2022

The importance of investment incentives to drive growth

Business investment chartThe OECD thinks the UK economy will contract next year by more than any other G7 nation. Even Germany, whose manufacturing-intensive economy is battered by the energy crisis, is not predicted to fare as badly.

So how do we get back to economic growth?

The UK has experienced consistently low productivity growth for over a decade. One way of stimulating productivity is to invest in assets that enable more effective work, allowing us to get more out of the hours put in. But the latest Office for National Statistics (ONS) data indicates that overall investment by businesses remains 8% below its pre-pandemic level (see the top chart).

And figures for total investment (that is, government and business combined) into different categories of asset present a concerning picture for the technology sector. Investment in intellectual property (including software and databases) has climbed fairly steadily since the ONS data-set starts in 1997 (orange line, bottom chart). But investment in ICT equipment, which includes computers and other hardware, remains below its pre-financial crisis level (green line, bottom chart).

asset investment chartThe super-deduction tax relief, which covers certain qualifying ICT equipment, does at least appear to have helped investment in these assets recover above pre-pandemic levels. However, the ONS reports "there has been little reference to this temporary tax relief in respondent comments to our Quarterly Acquisitions and Disposals of Capital Assets Survey (QCAS)", indicating perhaps that not all businesses are aware of the relief.

And more troubling is that the relief is set to expire in March 2023. Yet there was little reference to investment incentives in last week's Autumn Statement.

The government was then primarily concerned with steadying the ship. But the next priority must be a plan for growth that includes investment incentives, access to skilled workers and plans for training, education and workforce wellbeing.

At TechMarketView this coming year, we will be shining a spotlight on technology solutions that improve productivity. Read about our 2023 research theme - and why we think it is so worthy of focus - here.

Posted by Tania Wilson at '14:31' - Tagged: productivity   macro   pursuingproductivity  

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