Budget 2010: business reaction

Business groups have greeted the Budget with a guarded welcome. But while the measures designed to help businesses were applauded, doubts were expressed about the lack of a detailed plan for tackling the budget deficit.

CBI

Richard Lambert, the director general of the CBI, described the Budget as "clever and political" but added that "anxiety remains on how the deficit is going to be paid down" and that "growth forecasts for 2011 and beyond are still on the optimistic side".

Mr Lambert found several of the measures positive.

He said: "There was more support for business than might have been expected, with a series of modest but helpful changes. The doubling of entrepreneurs' CGT relief will help investment in small businesses and the extra money for science places at university will be welcomed by industry.

"The extension of the 'time to pay' scheme for taxes owed gives some breathing space to businesses struggling with their finances during the downturn. The extension will help companies manage their books during a fragile recovery. The government's decision to give the very smallest firms extra relief on business rates is a helpful step."

In the view of the CBI, however, the measure that would have brought business the greatest benefit - the scrapping of the proposed increase in employers' national insurance contributions - was not addressed.

The commitment to boost university places for science and technology students did win approval from the employers' group.

Given the scale of investment needed for a low-carbon economy, the CBI was pleased also to see the government making plans for attracting private capital.

Mr Lambert continued: "A green investment bank, reform of the electricity market and investment in ports' capacity to attract off-shore wind manufacturers would be steps in the right direction. But time is of the essence, and we need to see decisive action by the end of the year to convince companies to locate large-scale, low-carbon investments in the UK."

Institute of Directors

The IoD thought that the Budget contained many positive initiatives to help small and medium-sized businesses but regretted that it did not reverse the increases in the top rate of income tax and national insurance contributions.

The organisation also expressed concern that the proposed reductions in the budget deficit do not go far enough, while the Chancellor's GDP growth forecasts were considered on the optimistic side.

Meeting with greater enthusiasm was the increase in the CGT entrepreneurs' relief limit, and the one-year reduction in rates for properties with rateable values of up to £12,000.

Doubling the amount of plant and machinery that can be written off in the year of purchase would help some companies, the IoD said, but most will not benefit because their investment is smaller than the old £50,000 limit.

Miles Templeman, the IoD's director general, commented: "There is still no sign of a credible deficit reduction plan, so while we certainly welcome the specific measures to support small and medium-sized businesses, we need to hear a lot more from the Government on debt reduction."

The IoD sided with those seeking action sooner rather than later to tackle the budget deficit.

Mr Templeman concluded: "This means making significant spending cuts in 2010 rather than delaying commencement until 2011. The argument that early cuts would jeopardise the recovery is mistaken. We believe that lower spending would have triggered a whole series of positive developments to assist growth."

EEF

Steve Radley, director of policy at the manufacturing employers' group, similarly emphasised the urgency for formulating a plan to fix the public finances.

Acknowledging that the Green Investment Bank shows that the government has kept its eye on the medium-term needs of the economy, Mr Radley nevertheless lamented the frequent changes to taxes, citing the example of those made to investment incentives and arguing that they compound the view that the tax system lacks direction and predictability.

Jeegar Kakkad, the EEF's senior economist, questioned the wisdom of the changes to entrepreneurs' relief: "They will benefit a small number of serial entrepreneurs, but for how long? The capital gains tax regime needs fundamental reform. Current concerns about distortionary incentives were not only predictable, but exacerbated by the new 50p income tax rate."

Doubts were raised, too, about government plans for funding green infrastructure projects. Roger Salomone, the EEF's senior energy adviser, said: "The UK needs significant investment in low-carbon energy infrastructure, and the Green Infrastructure Fund will hopefully provide the necessary medium-term finance. Any funding, however, is not a substitute for reforms to financing mechanisms for low-carbon energy, or this well intentioned scheme could result in good money after bad."

British Chambers of Commerce

On an upbeat note, the BCC applauded measures by the Chancellor to place the needs of business at the centre of the Budget.

"Doubling the annual investment allowance, help with business rates, and allowing entrepreneurs to keep more of their gains will prove especially popular," said David Frost, the BCC's director general.

On a downbeat note, the BCC was disappointed that Mr Darling had not "done more to set out a clear plan for the reduction of the budget deficit, which continues to threaten business confidence and investment".

The BCC did find other positives. The staggering of fuel duty would offer comfort to some hard-pressed businesses. The doubling of the annual investment allowance would provide a shot in the arm for private investment. And the credit adjudication service would improve transparency in small business lending.

But the BCC also found other negatives. "The Chancellor has missed a golden opportunity to boost to job creation and business growth by scrapping the planned NICs rise," said Mr Frost. "Substituting the employer NICs hike - a tax on jobs - with a 1 per cent increase in VAT would have largely offset the lost revenue, and it would have been less damaging to the productive economy."

Too little was done by the Budget to push UK exports. "After a decade of growth driven by the public sector and consumption, a fundamental rebalancing of the UK economy is required. Britain needs to export far more goods and services than it currently does and the Budget did little to aid this transformation," added Mr Frost

"The Government should have used this opportunity to introduce a state-backed short-term export credit insurance scheme to ensure our exporting businesses can compete more closely with comparable trading nations like Holland and Germany."

Commenting on the macro-economic points in the Budget, David Kern, chief economist at the BCC, said: "The Chancellor's GDP forecasts for 2010, though slightly stronger than our own, are realistic. But the official forecasts envisaging very rapid growth in 2011 and beyond are much too optimistic.

"Since the Chancellor's medium-term predictions for the public finances are based on growth expectations that many analysts would see as unrealistic, he may struggle to persuade the markets that his deficit-cutting plans are achievable without further measures."

Federation of Small Businesses

The FSB was pleased with the announcement to take 345,000 small businesses in England out of the business rates system, is looking forward to the introduction of the new credit adjudicator giving small businesses the opportunity to appeal against a decision by the bank to reject a loan application, welcomed the Chancellor's announcement to direct more public sector contracts towards SMEs, and believes that proposals to increase the threshold for entrepreneurs' relief to £2 million should see serial entrepreneurship rise.

But it was disappointed by the decision to proceed with the planned increase in NICs.

John Walker, the FSB's national chairman, said: "This Budget has provided welcome news on helping to improve small businesses cash-flow, but the increase in the NICs will be bad for job creation.

"Small firms are key to furthering economic recovery, and we are concerned that through continuing plans to increase employer NICs and not introducing a NICs holiday to firms employing less than 50 staff who take on more employees, it will increase pressure on struggling firms meaning they will not be able to take on additional staff.

"Proposals to increase the Small Business Rate Relief threshold will be welcome news for those small firms in England whose cash-flow in hindered by big tax bills."

Forum of Private Business

Phil Orford, the FPB's chief executive, reacted: "I cautiously welcome the way the Chancellor acknowledged the importance of smaller businesses to economic recovery.

"The small-business-friendly measures he announced should be helpful - HMRC's Time to Pay scheme and prompt payment by government bodies emerged as the two most popular forms of government support in a survey of our members this month.

"The creation of an adjudicator for firms to go to when they are denied credit by the banks should be useful, but we need to know how the banks will get businesses back through the doors and get the money moving that has been ringfenced for lending.

"It was hugely disappointing to hear that the increase in national insurance contributions will still go ahead, together with the bureaucratic burden small businesses face in administering its threshold.

"Small businesses will also have been dismayed by the decision to plough ahead with increases in fuel duty, which came despite Alistair Darling's earlier acknowledgement of the damage high oil prices are wreaking on the economy."