Business must be encouraged to be less risk averse

WITH the UK economy flatlining and public services under strain, most economists now agree that Rachel Reeves will have to raise taxes in her next Budget and the only question is how much, and who pays.

- DYLAN JONES EVANS

But while the Treasury prepares to squeeze more from pensioners, working households and businesses, there’s a glaring, untapped resource hiding in plain sight.

According to the latest data from the Office for National Statistics, UK non-financial companies are sitting on around £800bn in cash reserves, an astonishing amount of money that, if even partially unlocked, could provide the private-sector-led investment boost our economy urgently needs.

But so far, that cash remains stubbornly on the balance sheets and the question for the UK Government is what will it take to release it? The answer lies not in more borrowing or complex new schemes, but in smart, targeted policies that encourage firms to act now.

Over the past decade, many UK businesses, especially larger firms, have chosen caution over ambition as uncertainty over Brexit, tax policy, energy costs and political instability have fostered a corporate culture of hoarding cash and delaying decisions.

So, if the Chancellor wants firms to invest, she must change that narrative, which means offering a compelling reason to move from risk aversion to risk-taking and ensuring the rewards of doing so outweigh the perceived dangers.

The most obvious tool available is tax policy and one of the few genuinely growth-friendly moves made in recent budgets was the introduction of full expensing for capital investment.

But this needs to go further and increasing full expensing to 130% as happened between 2021 and 2023 would act as a powerful short-term stimulus by incentivising firms to invest more aggressively, especially if it were focused on sectors with high economic spillovers such as green tech, manufacturing and R&D intensive industries.