GrowthBusiness brings you news, comment and analysis on how the Budget affects businesses.
Further reading on the Budget 2012:
- Patent box ‘will keep businesses in UK’
- Corporation tax drop accelerated
- 50p tax rate scrapped
- National Loan Guarantee Scheme
We’ll be posting live updates on this page during George Osborne’s speech, attempting to read between the lines to figure out what the headline announcements actually mean for your company. We’ll also have reactions and commentary from business owners and expert economists.
5.52pm: A sober thought to leave you with, from PwC chief economist John Hawkesworth: ‘We should remember that there is still a lot of fiscal pain to come. The OBR estimates that, by 2016/17, the overall size of the economy (GDP) will be around 11 per cent smaller than if it had followed its pre-financial crisis trend. Since GDP in 2016/17 is estimated at around £1.94 trillion, this equates to a shortfall in national income of around £210 billion in that year, which is when the Chancellor aims to eliminate the structural budget deficit.’ That works out as a fiscal gap of around £146 billion, or 7.5 per cent of GDP, he calculates – in other words, most of the cuts that will be needed are still to come.
5.33pm: GrowthBusiness is preparing to close its Budget briefcase for the day, but before we go, here are selected business reactions to the Budget.
5.24pm: Richard Woolich, tax partner at legal firm DLA Piper, agrees that the Budget has enhanced the UK’s competitiveness but warns, ‘The introduction of the GAAR may detract from this by introducing uncertainty into the system and stopping not just aggressive avoidance, but sensible and prudent structuring.’
5.12pm: Comment from Keith Lassman, head of VCTs at City law firm Howard Kennedy: ‘The VCT and EIS changes in the Budget further evidence the government’s commitment to the industry, acknowledging the contribution they are making to cash-starved growing UK businesses which are simply unable to access bank finance.’
4.57pm: A consensus is emerging that this Budget was generally good for business. There were significant steps towards enhancing the UK’s competitiveness, from corporation tax cuts to extra support for digital industries and patents. GrowthBusiness will continue to monitor your reactions: email us to have your say.
4.23pm: Losers from the Budget? Sandwich chains, supermarkets and property owners, according to PwC’s tax partner Stephen Coleclough. He comments: ‘The Budget has targeted VAT on various products from warmed-up sandwiches to large caravans. Now, sandwiches which are not hot, but warmer than the ‘ambient air temperature’ will attract VAT. But the issue is by no means cut and dried. Bizarrely, products with freshly baked bread aren’t caught in the net. Batten down the hatches for the first court case on the legal definition of “freshly-baked”.’
4.05pm: Check out our sister website SmallBusiness.co.uk for more on the announcement that tax admin is being simplified for small businesses.
4.01pm: Don’t forget to look at our detailed coverage of the corporation tax drop and patent box plans. We also have a full round-up of the Budget from Lesley Stalker, tax partner at Robert James Partnership.
3.54pm: ‘This is a Budget for tomorrow, not for today’, according to accountancy body the ICAEW – probably the most double-edged response to the Chancellor’s speech so far. ‘This Budget sends a signal that the UK is not only open for business but will actively encourage investment. However, it will have little immediate impact in accelerating the UK’s slow economic recovery. It is a budget for tomorrow, not for today. Ultimately, businesses still need confidence to invest in the UK’s economic future,’ says Michael Izza, chief executive of the organisation.
2.53pm: PwC’s head of tax Kevin Nicolson remarks, ‘Overall this Budget has some good headline measures that will support business and growth. But there’s definitely unfinished business on the detail of the tax system.’ He would have liked to see more on how the Chancellor intends to streamline and simplify UK tax, which is ‘not the work of an afternoon’ and requires a more long-term focus.
2.47pm: A reaction from Danielle Stewart, partner at Baker Tilly, who tells GrowthBusiness: ‘It’s nearly all good news as far as companies are concerned.’
2.35pm: In the Budget small print, a welcome increase in R&D tax relief from 200 to 225 per cent for SMEs.
2.16pm: More on the cut in top rate tax from 50p to 45p.
2.14pm: A reminder about the changes to Venture Capital Trusts (VCTs) and the Enterprise Investment Scheme (EIS) that take effect from next month. For both schemes, the qualifying company limits will be increased to 250 employees and gross assets of £15 million, and the annual investment limit per company will be upped to £5 million. Some restrictions will be lifted, including the £1 million limit on investment by a VCT in a single company, but a new ‘disqualifying purpose test’ will be brought in to rule out schemes set up to access the tax relief without a genuine commitment to growing companies. Finally, the Seed Enterprise Investment Scheme is to be launched to offer enhanced relief to investors in the smallest companies.
2.05pm: But here’s a contrasting view from Dominic Baliszewski of Broadbandchoices.co.uk, who thinks ultra-fast isn’t fast enough. ‘If the UK is to “future-proof” its broadband infrastructure, we should be aspiring to hyper-fast connection speeds of 1GB which would carry us through the next ten to fifteen years, rather than the next five.’ He adds, ‘The announcement of funding for high end TV, animation and video gaming industries is pointless without robust internet services behind them.’
1.58pm: Julia Stent, director of telecoms at uSwitch.com, has a word about the Chancellor’s evident ambition for the UK to lead the world in broadband speed. ‘Whilst funding earmarked for ultra-fast broadband in 10 UK cities is both ambitious and heartening, and will undoubtedly benefit technology companies, the primary concern should be the provision of a quality service to rural areas before pursuing the title of fastest broadband in the world.’
1.49pm: Scrutinising the full text of the Budget, it seems the government may lift restrictions that prevent academics employed by start-ups from accessing the EMI scheme, as well as doubling the individual grant limit to £250,000 (more details on how EMI works here).
1.41pm: Saurav Chopra, CEO of deals website Huddlebuy.co.uk, isn’t impressed. ‘Corporation tax cuts do nothing to help the millions of smaller companies that are struggling to survive. How is this going to help them invest more money back into their businesses and jobs?’ Saurav’s right here; the corporation tax cuts only help those with profits of more than £300,000.
1.35pm: The prize for first Budget reaction to hit the GrowthBusiness inbox goes to Mark Pearson, founder of MyVoucherCodes, who likes the Chancellor’s proposal to grant loans to young people with business ideas. ‘This could be the watershed moment the UK economy has been crying out for,’ he says. ‘Cameron has said that he wants the next Facebook to come from the UK, and it’s finally looking like they’re doing something about actually helping this to happen. Our economy’s future relies on the bright ideas of the young people of today, and it’s fantastic news that they’re actually going to be given a helping hand.’
1.30pm: A Churchillian closure for the Budget: ‘This country borrowed its way into trouble, and we’re going to earn our way out.’
1.28pm: The personal allowance will be raised to £10,000 over time, helping ‘hard-working families’. From next April, it will increase by £1,100 to £9,205. Everyone earning less than £100,000 will benefit, says Osborne. Big cheers for that.
1.23pm: From April next year, the top rate will be 45p. The theory is that a 50p top rate raises only £100 million more than 45p. The 50p rate ‘damages our economy and raises next to nothing’. Osborne claims he has raised taxes on the wealthy through other measures, such as the adjustment to stamp duty – changes that will raise five times the amount lost through the cut in the top rate to 45p.
1.20pm: A dramatic pause as the Chancellor moves on to the 50p tax rate, ‘the highest in the G20’. HMRC has found that £16 billion of income was deliberately shifted into the previous tax year to avoid the top rate. The increase from 40p to 50p raised just a third of the £3 billion expected.
1.18pm: Those who avoid stamp duty on expensive properties by putting them in a ‘corporate envelope’ will be targeted by a series of tough new rules. There’ll be a new stamp duty land tax rate of 7 per cent on properties worth more than £2 million.
1.16pm: The Chancellor is starting to get quite worked up about ‘morally repugnant’ tax avoidance. The general anti-avoidance rule (GAAR) is announced as expected, but there are no further details yet.
1.14pm: Time for the sin taxes. Alcohol has escaped, but smoking hasn’t.
1.11pm: Corporation tax will be cut by 1 per cent more than planned, to 24 per cent this year, and will fall to 22 per cent by April 2014. That makes quite a difference to the UK’s competitiveness.
1.08pm: Start-ups will be helped to recruit and retain talent by doubling the Enterprise Management Incentive (EMI) limit to £250,000 – encouraging employee ownership.
1.06pm: Taxpayers will be sent an annual statement to explain how their tax is spent. I wonder if that will make people feel better or worse about it?
1.05pm: Somehow, Osborne has made the simplification to the tax regime for pensioners sound extremely complicated.
1.04pm: Tax simplification is up next: for small businesses, tax could be based on cash flow for companies with turnover of up to £77,000, up to 3 million firms. The much-vaunted plan to harmonise income tax and national insurance is going ahead, with a detailed consultation to be published next month.
1.02pm: Interesting ideas on giving young people loans to start businesses, but still very much at the ideas stage.
1.01pm: Sunday trading rules will be relaxed for eight Sundays only, over the Olympics. A disappointment for those who hoped for permanent changes here.
1.00pm: Osborne wants to make it easier to get planning permission, part of making the UK more competitive.
12.58pm: There’s the obligatory mention of super-fast broadband… sorry, it’s ‘ultra-fast broadband’ now. £50 million will be available for smaller cities to speed up broadband.
12.57pm: There’ll be bits and pieces of help for the pharmaceutical, aerospace and digital content sectors. The video games, animation and high-end TV production industries will get support. ‘We want to keep Wallace and Gromit exactly where they are.’
12.54pm: ‘Renewable energy will play a crucial part in Britain’s energy mix’, but ‘environmentally sustainable has to be fiscally sustainable as well’. There will be tax changes to make sure the maximum amount of oil and gas is squeezed out of the North Sea.
12.52pm: Aldermore will be happy to get a shout-out in Osborne’s speech as one of the supporters of the national loan guarantee scheme, along with Lloyds, Barclays and RBS.
12.51pm: As part of making the UK more internationally competitive, the Chancellor wants to enhance air, road and rail transport. ‘For years, transport investment in the North of England was neglected; not under this government.’
12.50pm: UK export finance is being expanded, with new plans to help SMEs expand overseas. Will be interesting to hear more detail on this.
12.48pm: The £1 billion fund to invest directly in mid-caps has attracted 24 proposals; Osborne has shortlisted seven of them. He’s expanding the Enterprise Finance Guarantee scheme and reminds us that the national loan guarantee scheme started operating yesterday.
12.40pm: Government borrowing this year is expected to be £126 billion, lower than forecast in the autumn, hitting £21 billion by 2015/6 – ‘our deficit reduction plan is on course and we will not waver from it’. This will be a fiscally neutral budget with no giveaways, as expected.
12.38pm: The inflation target will remain at 2 per cent. Inflation is coming down and expected to be 2.8 per cent this year, 1.9 per cent this year.
12.37pm: The Office for Budget Responsibility (OBR) has downgraded growth forecasts for Europe and the world, but expects the UK to avoid a technical recession, with positive growth in Q1 of this year. Growth forecasts for the UK slightly revised up to 0.8 per cent this year, 2 per cent next year and 2.7 per cent in 2014.
12.33pm: Osborne reaffirms his aspiration to make the UK one of the most competitive countries for business in the world.
12.32pm: ‘This Budget unashamedly backs business and it is on the side of aspiration,’ says the Chancellor.
12.30pm: The usual point-scoring of Prime Minister’s Questions should be drawing to a close any minute now…
12.20pm: We’ll also stay tuned for any further developments on the seed EIS initiative announced last autumn, or any other measures announced to attract equity finance to growing businesses – such as allowing investors to hold AIM shares in ISAs.
12.09pm: Another measure that has been announced in advance is the national loan guarantee scheme, which will help some businesses reduce their bank borrowing costs by 1 per cent. It’s available to companies with annual sales of up to £50 million, so this is not the lifeline that small, fast-growing businesses have been hoping for. However, it should provide welcome relief to more established companies.
12.04pm: Businesses aren’t expecting any big giveaways from today’s Budget. After all, George Osborne has to balance the books, with public sector borrowing still rising. A widely forecasted cut in the 50p rate of income tax may encourage more business owners to take money out of their companies in this form – good news for those doing well enough to pay themselves more than £150,000. And if you believe the rumours, the higher rate of corporation tax may be cut by more than the anticipated 1 per cent (no help expected on the lower rate though). But to balance this, there’ll be a crackdown on tax avoidance, with the General Anti-Avoidance Rule (GAAR) described by George Bull, head of tax at Baker Tilly, as being like ‘a big stick with nails in it’. In other words, it’s a weapon that businesses fear may be excessively powerful, giving the Treasury freedom to make up the rules as it goes along. We’ll have to see whether the Chancellor has any words of reassurance on this.
Come back here for more updates throughout the day. George Osborne’s speech is expected to begin at 12.30pm, after Prime Minister’s Questions.