Budget 2011 Review

Although perhaps not quite the “Budget for Growth” that it had been billed as (which was not unexpected due to the current focus on deficit reduction), George Osborne’s budget did manage to be broadly beneficial to industry – with the distinct exception of banks and oil companies. He taxed the North Sea oil revenues for some £2bn as well as ensuring the banks continued to pay their levy (whilst not benefitting from the Corporation Tax changes for large businesses). The big news for most businesses was that the headline rate of large company Corporation Tax is to be reduced by 2% from April rather than the initially announced 1%, therefore taking CT down to 23% by the end of the current Parliament. This would give Britain the lowest rates in the G7 – by 2014-15, the UK’s tax rate would be 16% lower than America, 11% less than France and 7% lower than Germany, assuming other countries do not cut their rates. For smaller businesses, the benefits included the plan for 21 enterprise zones, a 1 year extension of business rate relief for small property holders and 1p per litre reduction in the fuel duty. Although many post budget “vox pop” comments from the pumps on the news programmes showed disappointed drivers saying that the Chancellor could have done more (although I’m not quite sure how they expected him to pay for a greater reduction), they seem to be forgetting that he has also got rid of the 5p per litre increase that the previous government were due to implement in April 2011. So although fuel prices are uncomfortably high, it could have been a lot worse for drivers come April – so I suspect a number of hauliers and distribution companies will be pleased to have some of the pain removed, at least in the short term. Manufacturers received good news on new investment including a change in the capital allowances regime allowing them to write down the cost of expensive machines over eight years (from the current four years). And entrepreneurs were pleased to see that Enterprise Investment Scheme income tax relief was increased from 20% to 30% and that the scheme was widened to encourage Business Angel investors, along with an enhanced research and development tax credit for small companies. Furthermore, entrepreneurs’ capital gains tax relief was doubled to £10m. There were cuts in red tape amounting to £350m and a 3-year moratorium exempting businesses with less than 10 staff from new domestic regulation. There was also confirmation that the 50p top rate of tax introduced by the previous administration would be temporary. As Miles Templeman, Director-General of the Institute of Directors, commented, “The Chancellor didn’t have much money to play with but he played his hand well.” Further, David Frost, Director-General of the British Chamber of Commerce, said, “Despite tight fiscal conditions, we are encouraged the Chancellor has prioritised business growth and private sector expansion alongside deficit reduction.” Overall then, a good budget for business and for getting companies on the road back to growth. As George Osborne said in his budget speech, “Let it be heard clearly around the world – from Shanghai to Seattle, and from Stuttgart to Sao Paulo: Britain is open for business.”