Terry Murden: A give-and-take Budget, with business picking up the bill

Published on Saturday 20 March 2010 12:43

ACCORDING to Lloyds Banking Group, Friday's surprise trading statement was issued ahead of an update that chief executive Eric Daniels is due to deliver to shareholders this week. Whether or not the Treasury had anything to do with the timing of the announcement I'll leave others to judge.

Whatever the case, Daniels provided a huge boost to Alistair Darling ahead of Wednesday's Budget – the improvement in bank share prices now enables him to announce to long-suffering taxpayers that they could soon be making a profit on those investments in the banks.

Both Lloyds and Royal Bank of Scotland saw their shares move closer to the 74p and 50p break-even required, respectively, so that the loss on the Treasury's stakes may be down from 50 billion to as low as 4bn. The prospect of making a profit and allowing the government to sell off parts of the banks could form part of the Budget statement.

The more positive outlook for the banks is a timely boost to the Chancellor. This is an election Budget and his underlying aim will be to ensure it stands a chance of being implemented. Of course, he's caught between a rock and a hard place by having to win over the electorate while making some tough choices on public debt.

We've been warmed up by the business secretary, Lord Mandelson, to expect tax rises and cuts in public sector spending. Addressing the Federation of Small Businesses' conference in Aberdeen on Friday Mandelson was at least honest enough to admit there would be some pain ahead but he kept reminding his audience that he had their interests at heart. With George Osborne, the shadow chancellor, and Alex Salmond, the First Minister, also among the speakers, it was clear that the politicians are keen to curry favour with business.

Yet such devotion will struggle to convince business leaders that Darling will be handing out huge benefits on Wednesday. If there is one Budget likely to fall into the give-and-take category then this will be it.

On the plus side, things have picked up sufficiently since his pre-budget report in December to allow him a few options for offering the beleaguered taxpayers some respite from the gloom. Tax receipts are higher than forecast and benefits paid out to the unemployed have declined thanks to a fall in the jobless rate. He can be expected to provide more incentives to get people back to work. A good start would be to provide more tax relief to firms offering to train young people in the skills they claim they are sorely lacking.

Expect some tinkering with tax relief for start-ups and small growth firms, but the capital gains tax rate may rise and the planned 1 per cent lift in National Insurance will remain. It would be no surprise if the 3p rise in fuel duty is postponed, probably until July or the autumn, not for the benefit of business, but to avoid damaging headlines that will cost Labour any chance of success at the ballot box.

Above all, I expect this to be a Budget for families and the low paid by taking more people out of the tax system and offering a bit of help for working parents, pensioners and savers. Of course, business will have to pay for it.

Recovery needs tax cuts, not rises

MORE worrying headlines today for the government as our report into the findings of an HSBC survey reveals a poor response from business leaders about Scotland as a place in which to do business.

David Murray junior has warned the authorities that the conditions are just not right. Sadly, the Scottish Government chose to pass the buck by laying the blame on Westminster. This is one of the unpalatable consequences of devolution.

Tax breaks came top of the list of demands for improving the investment climate, an interesting observation, as it was Xavier Rolet, chief executive of the London Stock Exchange, who told this newspaper last autumn during a visit to Edinburgh that Scotland would benefit from a tax relief system that encouraged entrepreneurialism.

Apart from advocating a tax-free zone for investors wanting to fund start-up companies, he also suggested the creation of an innovation fund of up to 300 million, financed by the banks, and called for restrictions to be lifted on venture capital trusts, allowing them to invest more and to trade in the secondary market.

The Chancellor would do well to take note when he's working out what needs to be done to kick-start the recovery.

Sadly, he's likely to administer the wrong medicine. Tax cuts, not tax rises, will help stimulate growth. Just ask those ready and willing to invest.