Business chiefs seek most corporate-friendly Budget in history to save stricken economy

Economists warned of a risk of "scarring" after official data revealed the biggest quarterly fall in productivity on record

Construction
If fewer construction workers are needed to build offices, there could be a role for the Government to support them building schools and hospitals, one economist said Credit:  Geoff Pugh

Business leaders have urged the Chancellor to slash taxes or face long-term economic damage after productivity suffered a record quarterly fall and Britain plunged into a historic recession.

Chief executives and lobby groups have said that Rishi Sunak's autumn Budget must be the most corporate-friendly in history to stave off total disaster.

They highlighted grim data showing that productivity dropped in every sector of the economy between April and June. The largest fall was in construction, where the output per hour worked plunged  11.4pc from the previous quarter, and the smallest in manufacturing which posted a 0.3pc drop. 

Overall output per hour fell 2.5pc between April and June, the most since records began, according to the Office for National Statistics (ONS).

National insurance cuts, support for retail rents, deregulation and a huge investment in innovation will be vital if a meltdown is to be avoided, experts said.

Mike Cherry, chairman of the Federation of Small Businesses, urged an end to unnecessary red tape and heavy spending on infrastructure such as broadband.

He said: “We need the most pro-business, pro-self-employed Budget ever this autumn, one that lowers the costs of innovating and bringing great goods and services to market and eschews tax rises.”

ONS data this week showed that the number of people in work tumbled by the most for a decade in the second quarter as lockdown destroyed hundreds of thousands of jobs. Even steeper cuts are expected when thew taxpayer-funded furlough scheme ends in October.

Economists have warned that even though GDP started to recover in May and June, the risk of economic scarring remains high as legions of workers become unemployed and lose their skills.

Tej Parikh, chief economist of the Institute of Directors (IoD), said: “Job losses have been mounting and may only increase as we reach the end of the furlough scheme. The pile of debt businesses have had to take on could also cause a lasting hangover.”

The IoD and the British Chambers of Commerce urged the Chancellor to cut employers’ national insurance contributions to reduce job losses. 

Paul Johnson, director of the Institute for Fiscal Studies, said the fall in output per worker was likely to have been caused by lower demand and the impact of working from home.

He added that the hit to productivity should be less longstanding than the unemployment crisis.

Mr Johnson said: “If the number of jobs goes down, and it’s the least productive jobs that go, often – though we didn’t get this last time – you get an upturn in productivity numbers because it’s the less productive workers who lose their jobs.”

He said that there could be a role for the Government in employing laid-off construction workers to build schools and hospitals, given demand for new office blocks is expected to fall as more staff work from home.

Meanwhile, the British Retail Consortium (BRC) is seeking a so-called property bounceback grant through which the Treasury would cover half of unpaid rents across retail, leisure and hospitality for six months at a cost of £1.8bn.

Engineering companies are also concerned, with high-end firms fearing they will suffer due to a plunge in global air travel.

Paul Everitt, chief executive of the aerospace trade organisation ADS, said: “We are worried. There’s a significant risk we will lose key capabilities and capacity in the UK aerospace industry. 

“We need increased research and development expenditure. We need to bring forward public procurement projects  to provide a bridge of demand through this period. 

“And we need a long-term capital investment fund – a mix of public, private and industry equity – to provide the longer-term finance that the UK supply chain needs in order to meet the technology changes and the faster development of digital manufacturing.”

Some business leaders were more positive.

John Roberts, the boss of online white-goods seller AO.com, said: “This isn't a normal recession, there's still lots of opportunity out there and the recovery is underway. Take it from someone who started their online business in the dotcom crash.”

Similarly, Kenny Wilson, the chief executive of Dr Martens, claimed the retailer would continue to invest in the business despite the economic downturn.

He said: “The economic hit [to sales] was not as big as we expected, we’ve been adding people."

Julian Jessop, a fellow at the Institute for Economic Affairs, said the fall in productivity was to be expected given that during a recession firms tend to focus on preserving jobs so they can avoid the cost of firing and then rehiring workers.

Firms must also find new suppliers and customers, he said, which can distract managers from improving productivity.