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If the UK were as productive in business as it is at winning the Tour de France, our economy would be in a much better shape.

Geraint Thomas claiming the yellow jersey last Sunday means that UK riders have won six times since 2008.

Yet a decade on from the financial crisis, UK business is proving less adept at trouncing our international rivals. On business productivity, we are still far behind our competitors – and are losing sight of the leading pack.

This is not a new problem, and the causes are as much debated as the solutions. But one thing is clear: businesses’ investment in their own performance has been consistently low since the 1990s.

In fact, businesses here spend less on new equipment, factories, and skills than any other country in the G7, despite this being one of the most dependable ways to boost productivity and drive economic growth. At a time when the outlook for the economy is sluggish, interest rates are on the rise and uncertainty still looms large, we must ask: why are firms in the UK failing to invest?

The Confederation of British Industry (CBI) has just published a report that shines some light on the answer – and many of the widely cited reasons don’t stack up.

Growth in business investment would have been stronger in the absence of Brexit – 4.6 per cent faster, in fact – but this doesn’t explain our historic underperformance, which goes back much further than the last two years.

The declining UK manufacturing base and measurement issues also can’t explain the gap from the pack.

So, what can be done to get the UK back out front?

Firms must pull themselves out of the saddle by adopting readily available technologies and management best practice. And the government can create a policy environment where businesses have the confidence to invest, much like the work of our cycling team’s domestiques.

Our tax system is one of the few levers the government has which is proven to directly affect business investment decisions.

We know that tax incentives for investment work – when they are used well. Capital allowances, R&D tax credits, and the patent box all incentivise capital spending in the UK. We have heard from businesses across the UK about where exactly these measures have an impact.

Take QinetiQ, one of the UK’s leading science and engineering companies. R&D tax credits have already enabled France’s largest wind farm to be installed, using new stealth technology developed here in the UK. This same relief, as well as the UK’s patent box, is enabling £1bn to be spent per year in Britain by a leading pharmaceuticals firm.

And one telecoms business told us that the government’s investment incentives regime is instrumental in helping it keep jobs in science and technology here in Britain.

Yet measures such as these could work harder. While the UK has the lowest corporate tax rate across the G20, the our capital allowances regime only allows businesses to recover 46 per cent of the cost of an asset, compared to an average of 64 per cent across the rest of the G7.

At a time of uncertainty about the UK’s future trading relationship with the rest of the world, maintaining our competitiveness as a great place to invest has never been more important.

So what needs to change?

First, we must acknowledge that it is not simply a question of lowering tax rates, but rather of the need for a stable, transparent, and simple tax system.

Related: Business confidence hits lowest level since the financial crisis

Second, we need to fill the gaps in our current framework, to accommodate changing technologies and a changing workforce. The lack of a strong incentive for businesses to invest in commercial buildings and technology diffusion, and, crucially, the absence of an incentive for companies to invest in firm-specific skills and training are all areas where the UK could move up a gear.

And in addition, the UK should build on its successes, by further increasing confidence in our R&D tax reliefs.

We hope to hear more on these areas when it comes to the government’s Budget in the autumn. Tax and business investment are one of the key ways for the UK to increase its competitiveness, and drive productivity at a national level.

And the prize? Not the yellow jersey of Chris Froome or Geraint Thomas, but a strong economy to the benefit of generations to come.

Source: City A.M.

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