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Budget 2007: Budget provokes mixed reaction from business

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21st Mar 2007
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The budget has triggered a mixed reaction from businesses, with firms welcoming the cut in corporation tax but small companies branding overall measures as ‘smoke and mirrors’. Louise Druce reports.

Representing around 25,000 SMEs across the UK, the FPB had drawn up a pre-speech wish list for Gordon Brown outlining a raft of measures to give the country back what it called an entrepreneurial edge in which smaller businesses could thrive.

The measures included more influence for smaller businesses within skills initiatives, a percentage of public procurement contracts to be set aside, the re-introduction of the nil rate starting band on corporation tax for the first £10,000 of profits, a link between the minimum wage and the Retail Price index, and the introduction of a more efficient VAT registration process.

However, while FPB spokesman Matt Hardman said the dedication to reform dispute resolution was positive, he stressed that the budget had done very little to deliver the initiatives requested or make significant changes for smaller businesses that would make them more profitable in the near future. “What we have seen delivered by the Chancellor is smoke and mirrors,” he said. “He’s changed areas like corporation tax, which will effect very few and really only large companies, and substituted the money that he’s lost with raises in corporation tax for smaller businesses.

“Whilst he’s made interesting noises about training and funding for that training, we’re reserving judgement because it’s all about how that’s delivered and whether it is training that’s beneficial to the workplace or only to the actual employee, for example.”

Hardman conceded that there were a number of things Brown said that the FPB would approve of if regulated in the right way, but he added: “It’s difficult to see the long term impact for businesses. There is very little substance in the initiatives to make smaller businesses think there is going to be a reduction in red tape, an improvement in the tax burden or even in the process of administrating tax.”

But director-general of the Confederation of British Industry, Richard Lambert, said the 2p cut in corporation tax was a welcome first step that acknowledged the need for the UK to compete with the tax regimes in other developed countries in order to secure jobs and investment for the future.

The tax will be reduced from 30p to 28p in April 2008, bringing it to a rate lower than the US and other major international competitors, according to the Chancellor.

In particular, Lambert applauded the benefits to big profitable companies that might otherwise have thought about shifting their activities to lower tax regimes. Although he too added a note of caution that the business sector as a whole would not be popping the champagne corks. “These changes will not initially reduce the overall burden of business taxes, and there will be losers as well as winners,” he said.

“Some big companies that, for one reason or another, don’t pay much tax will lose out. So will small companies that don’t invest much, and so will not be able to benefit from the new capital allowances.

Lambert also voiced concerns about the unease some firms might feel about Sir Michael Lyons’ proposals for a supplementary business rate. “They will be very relieved that responsibility for business rates is not going to be returned to local authorities. But they will have to persuaded about the economic benefits that might come from a supplementary rate and they will need to be formally consulted on every proposal to ensure that their money will be well spent,” he added.

"Overall, the budget is only a first step on a journey that will need to go further. The challenge for government now is to get a grip on public spending so as to create the headroom that will be needed for further tax cuts in the years ahead.”

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Richard Murphy
By Richard Murphy
21st Mar 2007 17:42

I always thought Lambert had a limited grasp of tax
Now I know it's true.

See http://www.taxresearch.org.uk/Blog/2007/03/21/the-budget-now-ive-seen-the-figures/ where I explain why it was obvious that this cut was a charade, one that Lambert has not spotted.

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