Graham Birse: Osborne has left businesses with plenty to think about

George Osborne's room for manoeuvre in this year's Budget was always going to be limited.

Growth just isn't strong enough yet for a giveaway, with December's winter chill putting tax receipts in the deep freeze, so the Chancellor could take few risks and it was no surprise that the tax changes he announced yesterday were fiscally neutral.

Balancing the books is the right thing to do from a business point of view. A government that pays its way is trusted in the international markets, so the cost of borrowing for all of us is kept down. That's crucial for both businesses and anyone with a mortgage.

Despite these tight constraints, Osborne made some eye-catching changes to the tax code. What impact will these have on the Edinburgh economy?

First of all, the good news. The income tax threshold, already going up by 1000 next month, will rise by another 630 next year, meaning that every earner's first 8105 will be tax-free. On top of that, we have a modest cut in fuel duty and lower corporation tax, by 2p this year and 1p in the next four years.

But all this has to be paid for. The levy on bank profits is set to go up, and the Chancellor has introduced a big hike in the tax on oil production. In theory, this will be reversed automatically if the oil price falls to $75 a barrel, but that is not going to happen any time soon.

Now, big banks and big oil are hardly flavour of the month, but both play an important role in the Scottish economy, with the financial sector one of Edinburgh's major employers.

The government is calling this a Budget for growth, and while we're not going to become the new China overnight, there are some interesting measures for the future. Osborne places a big emphasis on making life easier for business. The most striking example of this is to merge National Insurance contributions with income tax, which would simplify matters considerably. There are also some useful moves to encourage investment in small businesses, and to cut red tape for start-ups.

The Chancellor had something very interesting to say about pensions, though, which might not go down so well in Edinburgh. First of all, he's setting up a consultation on Lord Hutton's proposals on public sector pensions. This means that they are more likely to be implemented, and Edinburgh's large public sector workforce should take note. The main idea is to relate pension entitlements to average salaries over a career, rather than on the final salary. In other words, a significant cut in retirement income.

There's more, too. George Osborne made the very interesting suggestion that the age at which we can claim the state pension should rise automatically with life expectancy. The same age would apply to career-based pensions too. Raising the pension age usually involves a major political battle - no-one likes to be told that they have to work longer and harder. But if he can outsource this difficult decision to some sort of formula-based process, we're all the more likely to face the squeeze.

Again, from a business point of view, these measures are welcome, because pensions are becoming harder to fund as we all live longer, meaning higher taxes. But there's no doubt that they will have an impact on all of us as individuals.

A couple of other striking features of the Budget are worth a mention. George Osborne announced a minimum price for carbon emissions, and also extra funding for the government's Green Investment Bank (which will also start a year earlier than planned). With Edinburgh developing as a major hub for the renewable energy industry, both initiatives have major potential benefits for the city. A real bonus would be if we can persuade the government that Edinburgh is the natural home for the Green Bank, with our existing financial expertise and more than a third of renewable-energy plants now being developed in Scotland.

To achieve this requires real political engagement between Scotland's politicians and those at the UK level. A growing portion of Budget statements these days do not affect Scotland, quite properly, because of the devolved responsibilities. But this means that there needs to be more co-ordination between Edinburgh and London.

For example, George Osborne announced numerous promising measures yesterday to introduce enterprise zones to encourage manufacturing growth, as well as new ideas to encourage investment. None of this applies here, and the concern is that we get left behind, with cities in England gaining a competitive advantage over Edinburgh. That must not be allowed to happen.

The good...

Lower corporation tax: Down 2%

Lower fuel duty: Down 1p and next month's rise scrapped

Lower income tax: Personal tax allowance to rise 1630 by April 2012

MERGING NICs/INCOME TAX: Simpler taxes and less red tape

...THE BAD and the ugly

Higher pension age

Higher pension contributions

Bank levy up

North Sea oil taxes up

High borrowing, so no overall tax cuts

Lower growth forecast

Planning law reform and enterprise zones England only