Mixed reaction from firms to 'live now, pay later' Pre-Budget Report

Published on Monday 24 November 2008 20:50

SCOTTISH business leaders yesterday attacked the Chancellor's increase in National Insurance payments and called into question the value of the cut in Vat.

Although they welcomed the Chancellor's moves to free up corporate cashflow, reaction to the Pre-Budget Report package north of the Border was mixed.

Liz Cameron, the chief executive of the Scottish Chambers of Commerce, warned that the 2.5 per cent cut in Vat could lead to additional costs for business.

She cautioned that the reduction "may be too diluted to have a significant impact on consumer spending" and was coming at a time "when Scottish retailers are marking down prices in advance of Christmas".

She also hit out at a delayed 0.5 per cent rise in National Insurance (NI) for employers and employees from April 2011, saying: "This tax on jobs is bad news for Scottish business and is storing up problems for the future."

The SCC, Confederation of British Industry and the Federation of Small Businesses (FSB) all welcomed the one-year deferral of the 1 per cent increase in corporation tax for small firms.

That tax, for businesses with profits of up to 300,000, will now remain at 21 per cent during the financial year 2009-10.

The Chancellor's announcement of a 1 billion government fund to help with loans to small businesses, and a more flexible timetable for small and medium-sized enterprises to pay their tax bills, was also widely welcomed.

John Walker, FSB national policy chairman, said the government's small business finance scheme "resembles the Small Business Survival Fund the FSB has been calling for (and] will provide a vital cash boost to businesses struggling with rising costs and a lack of credit."

The FSB has also been calling for banks to follow the lead taken recently by the Royal Bank of Scotland in freezing all business customers' overdrafts for the coming year. In his speech, Darling said the RBS initiative "should become the benchmark for all UK banks".

Iain Duff, the chief economist at the Scottish Council for Development and Industry, said the increased flexibility for small businesses when paying tax, alongside other measures, "should ensure that the recession is not as deep or as long as it would otherwise have been".

Surprisingly, the CBI had no comment to make on the issue of additional NI contributions for its members. But it said the exemption of foreign dividends from taxation was welcome.

However, it also said the Chancellor's growth forecasts "depend on his success in stimulating consumer spending and otherwise look optimistic".

David Buik, a partner at brokers BGC Partners, said: "We are into a live now, pay later scene … the (public sector] borrowing requirements for the next two years of 78bn and 118bn blew my brains away."

Writing in The Scotsman's Between The Lines column today, Rhona Irving of PriceWaterhouseCoopers, says: "The gamble of lowering VAT rates now … may stoke up more problems for the future and carries the risk of the Bank of England feeling less able to continue to cut interest rates rapidly in the short term."

THE PRE-BUDGET REPORT: FULL COVERAGE