Guest post from Nick Saalfeld from http://www.yoodoo.biz.  You can reach Nick by email at nick.saalfeld@yoodoo.biz  

We knew that this was going to be a Budget for Business; for several reasons. Firstly, it was widely trailed in the media; but also let’s not kid ourselves – Chancellor George Osborne didn’t exactly have much wiggle room for tinkering with the system. Within seconds, he’d clarified that this Budget was going to be “fiscally neutral”, and then, with a healthy dig at Labour, “a Budget for making things, not making things up”.

 

It wasn’t an easy ride for Osborne – he was progressively barracked by the Opposition benches, but did manage to pull a few smart moves. The masterstroke was a reduction in Corporation Tax (see below) – but the clever move was to clarify that this would be funded entirely by increases in the Bank Levy. This allowed the Conservatives to be seen as the champions of small business and grass-roots enterprise, whilst still bashing those pesky bankers.

 

So, was this a Budget for business? The immediate measures, "a call to action for Britain", were certainly encouraging and in some cases innovative. And where real tax cuts couldn’t be made, he went for the next best thing: simplification and removal of overheads.

 

In order to create “the most competitive tax regime in the G20”, the following measures were announced:

-   43 complex taxes abolished, because Britain now has “the longest tax code in the world”

-   A consultation on the merging of Income Tax and National Insurance (no news on how that’s going to work, though!)

-   Corporation Tax was cut by 2% for 2011; reducing by a further 1% over the next 3 years; giving us the lowest Corporation Tax in the G7. Osborne declared “Britain is open for Business”.

 

His next objective was to make Britain the best place to start a business. Osborne heaped scorn on our current enterprise performance, saying that “Britain has lost ground in the world's economy and needs to catch up”, dropping from fourth to twelfth in global competitiveness; and further that “Britain has to earn its way in the modern world”. Key measures include:

  • Wholesale reform of the council planning regime. “Cumbersome planning regulation stands in the way of new jobs”, said Osborne, and all planning bodies will be expected to prioritise jobs and growth.
  • A very generous increase in Income Tax relief as part of the Enterprise Investment Scheme; which will increase from 20% to 30% in April.
  • A “Startup Britain” campaign to encourage new entrepreneurs
  • The lifetime Entrepreneurs’ Relief limit doubled from £5m to £10m
  • A restriction on the activities of no-win-no-fee lawyers; to prevent “ambulance-chasing” and dubious claims against businesses.
  • The Rates Holiday for small businesses is being extended for another year
  • Support for certain priority British industries, including Science and Life Sciences, Construction, Manufacturing, the Creative Industries and Green Energy.
  • To help drive up manufacturing (which, the Chancellor was keen to point out, is now growing at a record rate with 14,000 new jobs in the past three months), there will be new assistance in the promotion of exports, nine new University Centres for Manufacturing, and most helpfully of all, increases in the Small Companies Research and Tax Credit to 200% (and indeed 225% in future)
  • Also in support of manufacturers, or indeed any business with a large amount of upfront capital expenditure, the capital allowances for the tax treatment of short life assets has been extended from four years to eight.
  • In order to create “prosperity across all parts of Britain”, there will be a whopping 21 new Enterprise Zones all around the country, featuring up to a 100% discount on Rates and superfast broadband. Areas to benefit will include Birmingham, Leeds, Liverpool, the Tyne, Bristol, Derby and Sheffield (and to help you get to them, specific improvements were announced to railways and £100m to deal with our rutted, pothole-ridden highways!).
  • The Chancellor also promised a new strategy paper on "Tackling Tax Avoidance" which will help smaller companies compete against larger firms with offshore warehouses and other tax avoidance resources.
  • And there was the promised support for hard-pressed hauliers and motorists. Vehicle Excise Duty was frozen for HGVs, and the Approved Mileage Rate (for claiming motor expenses) was increased from 40p to 45p. Finally, changes to the Fuel Escalator mean that proposed increases in the price of petrol will be mitigated (in fact delayed by 12 months at least) and assisted by a one-off immediate cut of 1p. Rather like his approach to Corporation Tax, Osborne used his “Rob Peter to pay Paul whilst remaining fiscally neutral” approach: the fuel duty cuts will be funded by equilibrium taxes on the North Sea Oil industry.

 Incidentally, for the high earners, the 50p tax rate is staying for now. The Chancellor went out of his way to say that it’s “temporary”, but it won’t be going anytime soon.

 

So far so good. But this is where the wind started to seep away from Mr Osborne’s sails. His third big priority was to create a more “educated workforce”. That’s a long term aim, and here at Yoodoo we’re particularly aware that these objectives require significant commitment. Osborne correctly pointed out that something’s gone very wrong with our education system: we have a lower skills base than Germany, the U.S. and France. But the response was unimaginative and non-committal:

  • The government will fund 24 (rather than 12) vocational “Non-Technical Colleges”
  • A total of 250,000 more Apprenticeships and other placements on Work Experience schemes will be created over the next four years.

…All good as far as they go, but that’s it. There’s no additional support for re-training unemployed adults; nor a focus on reforming the problems in an education system which is still turning out students and graduates who are ill-equipped to take part in modern business.

 

So, there it is. Mr Osborne says he wants “the words ‘Made in Britain, built in Britain, designed in Britain’” stamped on every product in sight; and this was a pretty comprehensive start. But when we sit back in our rocking chairs, (having retired at a pension age which will now be defined by “independent assessment, in a more automatic way”, i.e. later than we were planning!), we’ll see that this was a Budget of good intentions. We need more of the same, across three years in which the Chancellor gets his forecasted inflation and investment figures right, before we can see a brighter light at the end of the economic tunnel.