BUDGET 2015: Chancellor pulls off tough balancing act again
Commenting on Budget 2015, delivered today by Chancellor of the Exchequer George Osborne, John Longworth, Director General of the British Chambers of Commerce (BCC), said:
“The Budget unveiled today recognises both short-term electoral horizons and long-term economic needs. The Chancellor’s focus on business growth and prosperity will receive a warm welcome from businesses of all sizes.
“Businesses in every corner of the UK want more sustainable public finances, and they also want governments to take steps to support growth. Once again, it appears that the Chancellor has pulled off a difficult balancing act, maintaining fiscal discipline while ensuring that necessary deficit reduction doesn’t undermine the UK’s growth prospects.
“Lower business taxes, allowances for investment, and targeted support for sectors, regions and small companies all contribute to confidence, investment and job creation.
“Yet the Chancellor avoided the temptation to use newfound windfalls for gimmicks. His focus on fiscal responsibility will play well with business audiences.”
Commenting on the latest Office for Budget Responsibility forecast, published today in conjunction with Budget 2015, David Kern, Chief Economist at the British Chambers of Commerce (BCC) said:
“The latest OBR forecast is good news for the British economy. Compared to the last forecast, growth is stronger, inflation is lower and the speed of debt reduction is likely to be faster. These improvements highlight that despite a weak patch in the final months of 2014, the economy is showing renewed momentum. The recent surge in tax receipts will also help the government meet its borrowing and debt targets.
“The OBR’s GDP forecast, although higher than in December, is still too cautious and lower than our own economic forecast.
“In spite of their greater optimism about economic growth, we believe the OBR’s forecast for public finances is a little too optimistic. While the fiscal target for this financial year may be met or even exceeded, progress in subsequent years will be slower, as the ability of the UK economy to generate tax receipts is diminished over time. We expect the economy to return to surplus one or two years later than the OBR predicts.”
ADDITIONAL COMMENT FROM BCC DIRECTOR GENERAL JOHN LONGWORTH:
ON TAX MEASURES:
ON ANNUAL INVESTMENT ALLOWANCES FOR BUSINESSES:
The BCC’s Budget 2015 submission called for a single fiscal measure: the extension of the Annual Investment Allowance, at £500,000, beyond December 2015. Commenting, John Longworth said:
“We are pleased that the Chancellor mentioned our call to extend enhanced Annual Investment Allowances, but it is disappointing that concrete action has been delayed until the Autumn Statement. A stable, permanent Annual Investment Allowance would give businesses the certainty they need to make investment decisions, and help to rebalance the economy towards more sustainable growth. We will be pushing relentlessly for the AIA to be maintained at £500,000 over the coming months, and will campaign for the Chancellor’s promise to be actioned immediately after the General Election.”
ON CORPORATE TAX AVOIDANCE AND THE DIVERTED PROFITS TAX:
“Many businesses will cheer the introduction of a Diverted Profits Tax, as most companies pay all their tax here in the United Kingdom and want a level playing field.
“For far too long, the highest effective rates of tax have been paid by firms that are committed to the UK, whether large or small. These businesses are frustrated by the small number of their competitors who embark on expensive and complex tax avoidance procedures designed to circumvent the spirit, if not the letter, of our laws.
“It remains to be seen whether the Treasury’s diverted profits tax will work, and achieve its stated aim of reducing aggressive tax avoidance. We applaud the Chancellor, however, for seeking to improve the rules of the game and support competition.”
ON BUSINESS RATES:
“It is good to see that the government is looking at a wide-ranging review of business rates, as this iniquitous tax hammers businesses across the country, before they’ve even made a single pound in profit. The government is asking a lot of important questions in this review – for business however, actions speak louder than words.
“Unless a root and branch reform of business rates is delivered at Budget 2016, business will regard this as a missed opportunity to tackle a huge brake on investment and growth.”
ON DIGITAL TAX ACCOUNTS FOR SMALL BUSINESS AND INDIVIDUALS:
“The end of the dreaded annual tax return would be a real boon for small companies and entrepreneurs, as would the ability to smooth tax payments across the year. However, we will be watching vigilantly to ensure that the move to digital tax accounts is delivered effectively and securely, as too many such initiatives have gone wrong in the past.
“HMRC must ensure that a transition to digital tax accounts does not become a costly nightmare for businesses trying to comply with the new systems.”
ON PERSONAL TAX ALLOWANCES:
“Raising the personal allowance is a feel-good measure, but we would have preferred a rise in the unacceptably low thresholds at which individuals and their employers pay National Insurance contributions. Raising the NICs threshold would do far more to help the lowest-paid and support continued job creation.”
ON NATIONAL INSURANCE CONTRIBUTIONS FOR UNDER 21s:
“Firms giving young people their first step on the careers ladder should be rewarded, rather than taxed for their efforts. Abolishing National Insurance for young people from this April will encourage more businesses to hire, by reducing the costs of employment and additional training. It will also help to tackle youth unemployment, which remains persistently high relative to adult unemployment.”
“Liberalisation of pension pots will be welcomed by thousands of entrepreneurs and businesspeople who have deferred the fruits of their labour for retirement, and who will now have greater choice.
“However, cutting lifetime allowances for pension savings is a tax on entrepreneurial aspiration, and a perverse move when we know that private pension savings must increase. Entrepreneurs who take risks, invest everything in their companies, and seek long-term reward rather than short term gratification are penalised by this cynical move. So, too, are a vast number of employees in both the private and public sectors who will face perverse new tax bills for saving – and doing the right thing.”
ON OIL AND GAS TAXATION:
“The offshore oil and gas sector makes a significant contribution to the UK economy. However, the sector is facing a number of challenges as a result of the recent fall in oil prices and tax increases introduced earlier in this parliament. If the sector is to attract the necessary investment in the years ahead, we must have a competitive and stable tax regime. The Chancellor was correct to use the budget to introduce measures to support the industry.”
ON A REVIEW OF COMPULSORY PURCHASE ORDERS:
The BCC called for faster processes and bigger compensation payments to help speed up business-critical infrastructure projects at Autumn Statement 2014. Commenting, John Longworth said:
“Business wants infrastructure projects delivered faster, which is why our Autumn Statement submission called for a reform of the compulsory purchase order system and greater compensation to those directly affected by new road, rail or energy projects. We are pleased that the Chancellor has now embarked on a wide-ranging review, and we will be looking for concrete changes that ease unacceptable delays to key infrastructure projects.”
ON FUEL DUTY:
“The cancellation of the planned increase to fuel duty will be welcomed, particularly amongst sole traders and small businesses, for whom road transport is a significant cost.”
ADDITIONAL COMMENT ON POLICY ANNOUNCEMENTS IN BUDGET 2015:
ON INTERNATIONAL TRADE AND EXPORTS:
“It is good to see more resource put in place to boost Britain’s burgeoning exports into the Chinese market, and to fund additional trade missions, which help many companies get into markets for the first time. We hope the Chancellor will now look at ramping up support in many more emerging markets, where British Chambers of Commerce are working with government to boost British companies’ export prospects.”
ON APPRENTICESHIP FUNDING:
“Firms need an apprenticeship system that is simple, flexible and easy to use – with a range of funding options to cater to companies with different needs.
“It’s right to give employers more purchasing power when it comes to apprenticeship funding, as this will help ensure apprenticeships are delivered to an ever-higher standard. The voucher system announced today appears to be a step in the right direction, but we will wait to see if the government can deliver a model that doesn’t significantly increase bureaucracy.”
ON ACCESS TO FINANCE:
“Access to finance remains a major black spot for UK business growth, so the Help to Grow scheme, announced by the Prime Minister at the BCC’s 2015 Annual Conference, is a real step forward – and demonstrates that ministers recognise the difficulties facing fast-growing firms.
“However, if our most promising businesses are to reach their potential – and become Britain’s future business champions – even more needs to be done, including increasing competition in banking, better access to bond and equity markets, and delivering a British Business Bank at a scale that can match the ambitions of our future wealth creators. This sort of radical action will also support our future export leaders, and help tackle Britain’s persistently unsustainable current account performance.”
“The housing shortage is a key issue for businesses in many parts of the UK. Businesses will welcome more building on brownfield sites, but we need more land for housing and a much bigger push to increase housing supply. Without greater ambition from all parties, we won’t see the 200,000-plus new homes we need in Britain each year.”
ON BROADBAND AND DIGITIAL CONNECTIVITY:
“Warm words from the government on upgrading broadband and mobile networks across the UK often do not translate into change on the ground. While companies will appreciate the Chancellor’s ambition to extend ultra-fast broadband to much of the UK, businesses will remain sceptical until they see markedly better connectivity on the ground. Until then, too many companies will continue to operate at a competitive disadvantage to their international rivals.”
ON BUSINESS ENERGY COSTS:
“We welcome additional support for energy intensive industries, but the constant need to tinker with policy shows that businesses are paying the price for a lack of long-term leadership and vision in this critical area. The absence of a 50-year energy security plan adds further uncertainty for business.”