Early industry reaction to the Emergency Budget
22 June 2010
The CBI director-general, Richard Lambert: The Chancellor has achieved his twin objectives of setting out a credible plan for the public finances and producing a convincing growth strategy for the longer-term.
Mr Osborne is close to achieving his 80:20 ratio of spending cuts to tax increases, which is so important to sustaining long-term growth. He has struck a sensible balance on Capital Gains Tax, limiting the impact of the increase on entrepreneurial activity and long-term savers.
The 5-year route map for Corporation Tax provides much-needed consistency and certainty. Taken together with proposals on foreign profits and intellectual property, these will help prevent and could even reverse the flow of companies overseas.
There was clear recognition in the Budget of the role that business needs to play in getting the economy back into shape, and generating the jobs and wealth needed to sustain economic recovery.
The Chancellor has sensibly taken measures to secure public support by offering extra help to cushion the impact on low-income families.
This Budget is the UK's first important step on the long journey back to economic health. The autumn spending review, and the re-engineering of public services, will be equally challenging.
EEF chief executive, Terry Scuoler: Today's Budget may have given manufacturers much-needed clarity on how the government will go about reducing the deficit, but the short-term pressure to start tackling the deficit means the Chancellor has only done part of the job of rebalancing the economy.
While businesses will welcome long-term reform and predictability of Corporation Tax and, have been spared the worst impact of changes to Capital Gains Tax, predictability has come at the cost of competitiveness.
In recent weeks, manufacturers had been encouraged by strong commitments from the Prime Minister and the Chancellor on the role of manufacturing in a better balanced economy. They will now be left wondering where the necessary growth and investment will come from, given the cuts to investment allowances and capital budgets.
EEF chief economist, Lee Hopley: The UK’s tax system needs reform to keep it modern and internationally competitive. Manufacturers will see the plan as a useful first step towards improving competitiveness and predictability after the drift in tax policy and strategy during the past few years. Hopefully this more deliberative process should stop the legislative churn that has added to complexity.
EEF senior economist, Jeegar Jakkad: Closing the gap between income and CGT rates is right because the wider the gap between the two, the greater the incentive for tax evasion. Minimising that gap should make the tax system fairer and more efficient. Increasing the lifetime cap for the Entrepreneurs’ Relief will provide a significant boost for entrepreneurs and investors, while maintaining the annual exemption will be vital for employees.
Reducing the corporation tax rate over time was in principle the right course of action. But financing it, in part, by cuts to investment allowances will be a heavy price to pay, especially for smaller companies. It might be a positive signal for large companies, but not for their suppliers.
EEF energy adviser, Roger Salomone: The consolidation of disparate sources of support for the low carbon economy into a single institution is a step in the right direction towards more effective and strategic use of limited public funds. The acid test, however, will be the new bank’s ability to attract private finance.
EEF head of climate & environment, Gareth Stace: Industry will be heartened that government has listened to widespread concerns on inequities in investment in low carbon energy. The aggressive timetable to deliver reform next year matches the vital need to promote investment in our energy infrastructure.”
Small business support group the Forum of Private Business has also welcomed a number of key victories for SMEs in today’s Budget. The Forum believes the 1% cut in small companies’ tax, together with the new £5 million threshold for entrepreneurs’ relief on capital gains tax (CGT), are positive measures which contributed to a small business-friendly Budget overall.
The Forum also believes measures to extend the Enterprise Finance Guarantee scheme, abolish back-dated business rates and continue tax breaks for holiday lettings further demonstrate the new Government’s appreciation of small business-related issues.
Further pledges to review all employment law, outlined in the full Budget document, have also been warmly welcomed by the Forum. The proposals, forcing each Government department to review the employment regulations laws for which they are responsible, come following the Forum’s calls for a review of all workplace legislation.
Forum chief executive Phil Orford: I think many small business owners will be pleasantly surprised by today’s Budget. Not only did the Chancellor make all the right noises about supporting enterprise and smaller businesses, he backed it up with concrete, tangible policies.
Obviously, the VAT rise will have an impact on many smaller businesses, either directly or indirectly. However, the money to pay off the deficit has to come from somewhere and I expect most Forum members would rather stomach a VAT increase than a rise in other taxes, or even greater cuts in public spending.
The 1% reduction in small companies’ tax is obviously more than welcome – it’s something we and the SME community have long called for. It also represents a 2% cut in real terms as the previous government had planned to increase small companies’ tax by a further percentage point.
The rise in CGT had proved controversial with business owners ever since the idea was first put forward, but the 28% rate is a gentler increase than many people were expecting. More importantly, the rise in the entrepreneurs’ relief threshold to £5 million is more than we could have hoped for and it should ensure that most small business owners aren’t penalised too heavily when they come to sell their companies.
The pledge for a wholesale review of employment law – quietly announced in the full Budget document – is also a highly welcome one.
Our members frequently cite employment law as one of their main areas of concern so any moves to simplify and rebalance the regulations affecting smaller employers have got to be welcomed.
The moves to limit rises in National Insurance, introduce NI exemptions for some new employers and raise the income tax threshold were also positive, even though they were watered-down from the Conservatives’ original pre-election promises.
What we will be calling for now is a guarantee of genuine private sector input into the white paper on local economic growth Mr Osborne mentioned. We want to see it focusing on smaller business-led innovation and jobs in regions that are likely to be affected by public sector job cuts.
We will also be lobbying the government to make sure the ‘fuel price stabilizer’ Mr Osborne referred to becomes a reality. Extortionate petrol and diesel prices represent a huge inflationary problem for smaller firms and could threaten recovery if left unchecked.
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