But will the Budget fuel the economic growth British businesses (and the chancellor) so critically need
By Michelle Perry | Published 16:09, 21 March 12
Chancellor George Osborne on Wednesday was clearly determined to overturn the recent anti-business sentiment that prime minister David Cameron and business secretary Vince Cable has been recently fostering with their repeated attacks on executive pay.
The country’s top finance chiefs have been telling CFO World of their growing concerns over the ‘spread’ of anti-business sentiment.
Osborne opened his Budget speech to parliament on Wednesday with a clarion call that Britain was officially open for business and the Budget “unashamedly backs business”.
Indeed it put in place the final pieces in the jigsaw that the Treasury has been working towards in making Britain more competitive on the world stage.
Many of the announcements have however been widely mooted and/or previously announced. The reform of controlled foreign companies (CFCs), the introduction of the Patent Box regime, and improvements to R&D tax credits all encourage companies to base themselves and carry out new activity in the UK. But none of it is new.
The one new step that Osborne took to try to drive home a sense that the coalition government is not anti-business was his decision to cut the headline corporation tax by two percentage points rather than the planned one, taking the rate to 24 percent this April. But again this announcement was widely leaked.
Of course business will broadly welcome this headline grabber but the question tax experts are asking is ‘will it attract further international business to the UK?’ The big issue for CFOs is certainty in the tax system. Finance chiefs do not want change. In fact, Andrew Bonfield, CFO of National Grid recently told CFO World that the chancellor should avoid changes to the tax system in his Budget to secure some stability for business.
“I hope we’ll see as little as possible in change. Let’s have a little bit of stability and help create growth by having an environment that doesn’t mean we are continually changing decisions,” he told us.
Still, one of the final barriers to a more favourable corporate tax system – the 50p tax rate – was today felled. The chancellor cut the rate to 45p for high earners after repeated criticism from business lobby groups that the high rate of tax was discouraging investment.
Bill Dodwell, head of tax policy at Deloitte, says: “The cost to the UK economy isn’t the tax paid by the highly-paid person who leaves, or who doesn’t come to the UK, but rather the cost of the activity led by that individual now being based in a different country. Where teams relocate, or where entire corporate activities move, the UK’s loss could turn out to be permanent.
“It is good to see the top rate of tax reduced to 45 percent with effect from April 2013.”
Whether business leaders welcome this Budget perhaps the more pertinent question is will it encourage economic growth? If today’s initial reactions from economists are to be believed, the prospects aren’t looking great.
I’ll leave you with just one chilling response.
“Stripping away the bells and whistles, this budget may appeal to some … but is essentially neutral and has done nothing to fundamentally change the outlook. The economy remains in a deep hole and austerity will grind on well into the next parliament,” says Andrew Smith, chief economist at KPMG.
Smith adds: “Things may not be getting worse, but they are not about to get much better either.
“The big question is whether private demand will expand to fill the gap. Experience so far is not terribly encouraging as exports have yet to take off and many businesses prefer to hoard cash rather than invest.”