David Lonsdale: Age of austerity will mean no bonanza for anyone from budgets

GIVEN the parlous state of the public finances, anyone would have thought the emergency Budget was unlikely to be a bonanza for business.

The Chancellor, however, has made good on his promise to try to eliminate the deficit in a timely fashion, while protecting GDP-enhancing public-sector capital spend from yet further cutbacks and introducing measures which will enable firms to grow and create jobs.

An enterprise-led recovery focused on business investment and trade, rather than on debt-fuelled consumer or government spending as in the past decade, will be vital. Indeed, the private sector will need to expand quickly if the latest growth forecasts from the Office for Budget Responsibility are to be realised at a time of significant public-sector retrenchment.

Several measures to aid business growth in particular stand out and should assist.

Retained profits are likely to play a larger role in funding firms' investment in future given the constraints on traditional lending sources, therefore the five-year strategy to reduce the headline and smaller firms' rates of corporation tax is particularly welcome. CBI research has shown that Britain's tax competitiveness has eroded over recent years, partly due to other nations lowering their taxes on business, so these staged reductions – down to 24 per cent from 28 per cent – should start to deliver a corporate tax regime fit for a globalised world.

The reductions in employers' National Insurance contributions – and notably for start-up businesses recruiting in their first year of trading – will make it less costly for firms to employ staff than was previously envisaged. In the CBI's submission to Treasury prior to the emergency Budget, we made the case for a full reversal of the planned 1per cent increase in employers' NICs due from next April. However the changes announced will reduce the burden from around 4.5 billion to 1.4bn.

While these were significantly beneficial decisions, several other measures will be less well received by business. The new 2bn annual levy on banks is unlikely to spur much-needed new lending to businesses, and the rise in VAT will prove an administrative headache for retailers and make it more difficult to tempt back shoppers.

The decision to consult fully before implementing any changes to aviation taxation is encouraging. The CBI is concerned that a per-plane tax – as opposed to the current per passenger one – could damage competitiveness without cutting carbon emissions. The decision to block an extra runway at Heathrow and Gatwick has already raised questions about the coalition's strategy for helping Scots firms export. As such, the UK government needs to be careful to avoid doing anything that might make it more difficult to access overseas markets or service foreign customers.

The Chancellor seems to have achieved his twin objectives of producing a convincing narrative for growth for the longer-term with a credible plan to get public finances under control.

Many of the tough and more detailed decisions on expenditure restraint have yet to be taken, and the scale of the public sector austerity this Budget heralds is startling though necessary. It is, however, telling that even with the deep cuts in spending and higher taxes, government debt at the end of this five-year parliament is still set to be higher as a share of our economy than now. That implies continued austerity and future Budget statements that are unlikely to provide a bonanza for business or anyone else.

• David Lonsdale is assistant director of CBI Scotland.