The Budget: Osborne gets thumbs-up from business leaders

Published on Tuesday 22 June 2010 20:38

GEORGE Osborne yesterday appeared to dispel any doubts that the business sector may have had about his suitability to reside at Number 11 Downing Street.

All of the major industry groups – including the CBI, the Institute of Directors (IoD) and the British Chambers of Commerce (BCC) – heaped praise on the old Etonian as he responded to calls to support private-sector growth, while cutting back on public-sector spending.

IoD director-general Miles Templeman went so far as to label Osborne's package "bold, decisive and the right medicine for the economy".

Top of the bill was the pledge to cut headline corporation tax by 1 per cent for the next four years, taking it down to 24 per cent by 2014. Osborne said it would "give us the lowest rate of any major western economy, one of the lowest rates in the G20 and the lowest rate this country has ever known".

Richard Lambert, director-general of the CBI, applauded the Chancellor for the "certainty and consistency" that the four-year reduction would provide, adding: "With luck, that will stop firms from moving to low-tax havens and may encourage some to come back."

David Frost, director-general of the BCC, said the changes would be welcomed by companies "the length and breadth of the country – and across the globe". However, David Glen, tax partner at PricewaterhouseCoopers (PwC) in Scotland, warned that the benefits to some companies of the corporation tax cut would be eroded by other "tweaks".

He pointed to the manufacturing sector, which is facing a fall in the rates for capital allowances – such as machinery.

Although Osborne insisted "manufacturing as a whole will pay less tax", Glen said the changes would water down the boost "capital intensive" industries would receive from yesterday's Budget.

He said: "The UK is now going to appear to become a more attractive place to do business, but the Chancellor's certainly doing other things to tweak the tax base. The net effect for some companies might not be as big as it might appear."

Reaction to VAT, which will rise from 17.5 per cent to 20 per cent on 4 January 2011, was divided. The British Retail Consortium despaired, saying it would "hit jobs, consumer spending and economic growth", but Lambert conceded: "Taxes had to go up one way or another."

He added that consumers were likely to bring forward spending to this year, when the economy would need a bigger spending boost.

Entrepreneurs were relieved that Capital Gains Tax (CGT) was only lifted to 28 per cent for the highest earners. But David Kilshaw, head of the private client department at KPMG, said: "It still gives the UK one of the highest (CGT] rates in Europe."

The Federation of Small Businesses (FSB) in Scotland welcomed many of Osborne's measures – in particular the cut in small business tax to 20 per cent – but expressed concern that rises in employers' National Insurance contributions (NICS) had not been completely reversed. The lobby group also warned of the potentially catastrophic effect of the VAT hike on some small firms.

Scottish policy convener Andy Willox said: "The increase in VAT will pose problems to many small firms, who may find it difficult to absorb the financial and administrative costs associated with this move."

Given Scotland's heavy dependency on small firms, the Scottish Chambers of Commerce (SCC) called the cut in the small business tax rate a "big win".

Garry Clark, head of policy at the SCC, said: "We've always argued that the small business tax rate should be in line with income tax because, for a lot of businesses, that's the level they're operating at."

Nelson Gray, special projects director at business angel trade body LINC Scotland, said the Budget "looks promising" for companies seeking investment and high growth.

Gray added: "The arrival of 28 per cent for higher-rate tax-payers will probably attract more people to consider angel investment opportunities, in attempts to enhance their profit potential. It will, in effect, rebalance the attractiveness of investing in the Enterprise Investment Scheme (EIS), which escapes CGT charges even after three years.

"This makes higher-risk investments more attractive now than ever and is extremely positive for high growth potential companies."

&#149 Additional reporting by Peter Ranscombe