NI hike top of business list of gripes over Darling's plans

Published on Tuesday 25 November 2008 20:31

BUSINESSES across Scotland were last night coming to terms with the impact of Alistair Darling's dramatic Pre-Budget Report.

As the dust settled, companies and their advisers began to look at the detail of the Chancellor's proposals and examine how they will effect individual firms.

Darling's report contained a number of measures which the UK government claimed would help to kick start the economy and aid companies.

They included:

&#149 Cutting VAT from 17.5 per cent to 15 per cent

&#149 Holding corporation tax at 21 per cent for small firms

&#149 A small business finance scheme plus 1 billion guarantee to support bank lending to small exporting firms

&#149 Giving companies the option to delay payments to Her Majesty's Revenue and Customs

&#149 A tax exemption scheme for the dividends large and medium-sized companies pay on their foreign subsidiaries

&#149 Allowing small businesses to receive rate relief on empty properties.

However, there were other moves that were not presented as business-friendly. National Insurance contributions for both employees and employers will go up by 0.5 per cent in 2011.

Last night business leaders singled out the NI hike as the most damaging for jobs.

Ron Hewitt, the chief executive of Edinburgh Chamber of Commerce, said that, now businesses had looked in detail at the proposals , was an even stronger case for the government to re-think its plans for an increase in national insurance.

Hewitt said: "Businesses are appalled that the government wants to increase the taxation on jobs at a time when we are facing the prospect of major job losses.

"We appreciate that the government has to do something about its increase in borrowing, but raising national insurance is the wrong way to do it."

Companies across Scotland were largely in agreement over NI move, although the CBI has surprised many observers by refusing to condemn it.

Yesterday the response to the PBR from small, medium-sized and large firms contacted by The Scotsman was generally cool.

Medium-sized business in particular were said to feel that there was nothing in the package for them.

However, experts challenged that view last night.

Gary Dean of KPMG said that all companies facing cash flow problems should be able to access the government's pledge to spread tax and VAT payments over a longer period, although the criteria Revenue and Customs would set was unclear.

Yesterday there was little sign that the business climate in the UK was set to improve, as it continues to respond to the global economic downturn.

In a gloomy a note to clients, published yesterday, James Fairweather, chief investment officer at Martin Currie investment management, warned that the "global economic outlook continues to deteriorate".

He added: "Macro events currently dominate global markets and the situation continues to unravel at an alarming pace.

"Without exception, indicators have shown a sustained and accelerating negative trend. It is quite apparent that the corporate sector is under huge duress."

LARGE FIRM

DIAGEO, the world's biggest spirits group and the biggest whisky producer in Scotland, said the Pre-Budget Report was a mixed bag for the company.

Paul Walsh, chief executive of Diageo, which employs 3500 people in Scotland and has a 21 per cent share of the Scotch whisky market, said he was "disappointed" with the 8 per cent increase in alcohol duty, following the hike of almost 9 per cent this March.

"This makes the UK one of the most highly taxed alcohol markets in Europe, with industry already facing the toughest of economic conditions." Walsh said.

The Diageo boss also criticised the increase in national insurance contributions from April 2011 as "a tax on employment". However, other government jobs initiatives like the national employment partnerships should be welcomed, he added.

Walsh said he welcomed the "broad thrust" of the fiscal stimulus, in particular those efforts to maintain and enhance the UK's economic competitiveness, for all businesses.

"Those measures designed to boost consumer confidence as well as those designed to assist those on lower incomes are particularly important," he said.

But Walsh added that the jury was still out on "whether this Budget will be enough to address the crisis of confidence the consumer is facing".

He said: "We will have to wait and see on that. If the GDP growth figures can be delivered for 2009-10 then we will all be happy."

Analysts say Diageo is partly insulated from any rigours that the UK economy may face because of its broad geographical reach, with more than a third of group sales in the United States.

MEDIUM-SIZED FIRM

SANGS is Scotland's "other soft drink maker", producing Deveron Spring water, MacB flavoured waters and Jet Pop children's' drinks. The company employs 70 at its factory in Macduff and its bottling and distribution unit in Rutherglen.

The company's chairman Kenny Webster admits it has been a tough year.

For Webster, the PBR brings little that makes it any easier or benefits his company directly, although he welcomes small business support measures for the retailers which are an essential part of the group's supply chain.

Webster is also managing director of Sangs's sister company, Calanike Retailing, Scotland's largest independent petrol retailer. He estimates it will cost Calanike 1,000 to change the systems to adjust to the new rate of VAT.

Webster says there will be some benefit in the Chancellor's VAT reduction but this may be offset by other costs.

He said: "For some medium to larger companies there will be a slight benefit to cash flow.

"For smaller retailers it will cost them money to get systems changed."

He is less impressed with the rises in National Insurance come 2011. Webster added: "From an employer's point of view, you are just collecting more taxes for the government."

With many of the government's measures aimed at small businesses, such as the 4 billion small business loan facility, Webster feels left out of the Chancellor's generosity. "We are just falling into the wrong category. There is not any major benefit to us," said Webster.

As for the relationship with his bank, Webster says Allied Irish, who funded the group's 10m MBO 18 months ago is "absolutely fantastic".

SMALL FIRM

They may be free agents but they feel restricted

ACCOUNTS – and tax – are the lifeblood of FreeAgent Central, the Edinburgh-based software company that produces online book-keeping programmes for contractors and freelancers, writes Peter Ranscombe.

But it is finance that has occupied the minds of Olly Headey and his fellow founders of FreeAgent, as they try to grow the two-year-old business.

After seeking funding from the banks without success, the trio turned to private investors to help them expand.

Do they think the Chancellor's pressure on the banks pay off for small businesses like theirs?

"Anything that could facilitate lending to small businesses would be more than welcome," said Headey, FreeAgent's chief technical officer.

"I think there may be some small concessions from the banks but I wouldn't expect anything that's significant.

"Fundraising hasn't been an easy ride – it's been a long slog. There's certainly no-one throwing any money at us."

Overall, Headey felt the Pre-Budget Report was a "fairly positive move" by the Chancellor but would like to have seen the corporate tax rate scaled back to 19 per cent instead of being held at the current 21 per cent.

"We hope as many small businesses and freelancers survive as possible because they're our bread and butter," explained Headey.

"Obviously the VAT rate reduction is welcome for our business but some of our customers, who are IT contractors or freelancers, won't see that 2.5 per cent benefit because the flat rate for that particular sector has only been reduced by 1.5 per cent from 13 to 11.5 per cent."

Looking ahead, Headey and his co-founders – chief executive Ed Molyneux and design director Roan Lavery – want to "grow quite quickly even in the current market" but are not worried about the proposed increases in national insurance (NI) contributions.

"I think the planned rises in NI are quite small," Headey said. "I don't think that will affect us – it's one of those things that we have to take on the chin.

"It certainly wouldn't affect our hiring policy."