Business leaders call for tax break for SMEs that invest in productivity tech

Tax break for entrepreneurs investing in tech seen as most helpful, according to Institute of Directors report

Business leaders have called on the government to introduce a tax break for SMEs investing in productivity technology.

The Institute of Directors says a new Enhanced Capital Allowance would incentivise entrepreneurs invest in tech to boost their businesses, such as data analytics and cloud computing.

The need for an SME technology investment incentive was the strongest call-to-action to come out of the IoD report Lifting the Long Tail, which examines why UK productivity is so sluggish.

Too often, said report author Tej Parikh, senior economist at the IoD, entrepreneurs look to cut costs to maintain the current level of activity rather than expand the business.

Parikh said: “Directors of smaller firms need the support and encouragement to spend more time working ‘on’ and not just ‘in’ their organisation, and to confidently adopt new management techniques and technology.”

The IoD has also called for the Apprenticeship Levy to broaden into a wider training levy, enabling SMEs to put staff through management, leadership and digital skills training across the board.

The current disconnect between higher education institutions and small business also needs to be addressed, said business leaders. Britain’s world-class universities need to be working with entrepreneurs to raise the capacity of SMEs, funnelling graduates in technology, data analysis and research towards small business.

Parikh said: “Solving the productivity puzzle has been a defining challenge for the UK over the past decade. The success of our post-Brexit economy hinges on our ability to unlock the vast untapped potential among small businesses.

“For too long, the debate has revolved around broad prescriptions and sweeping trends, but there is no silver bullet. We must now move the discussion out of the ivory tower and onto the office floor.”

Bank of England chief economist Andrew Haldane described the report as, “useful food for thought for government, as it begins to put in place the next steps of its important and ambitious industrial strategy”.