Budget 2011: business reaction (II)

Business-friendly in tone but still leaving unanswered questions was how the British Retail Consortium (BRC) assessed the Budget.

Reacting to the Budget, BRC director general Stephen Robertson said: "The Chancellor is right to stand firm on austerity measures to bring the deficit under control and to refocus on the need to boost economic growth, given falling forecasts for GDP. Consistency of direction is crucial for jobs and investment - this is no time for zig-zag Government.

'This Budget offers some support for enterprise. Certainly, the small business measures set the right tone but they should be applied more widely.

"We look forward to the promised reductions in regulatory burdens. They must be applied to legislation that has real impacts on business, not just to long-disused rules, so that significant cost reductions result."

On the decision to relax the planning laws to help businesses get development projects going, Mr Robertson said: "This could be a major step forward for investment and therefore jobs. We need a planning system that's streamlined, efficient and delivers more certainty and predictability. A presumption in favour of development and removing unnecessary planning requirements will help economic growth and free planners to accelerate decisions where they should be involved. For example, it should be made easier to make internal changes to commercial buildings."

The move to set up new enterprise zones was met with some caution by the BRC. Enterprise zones can make a difference at the margins, the retail group argued, but they must not disadvantage neighbouring areas. Benefits should be gradually phased out across a zone's borders to avoid businesses either side of a line facing very different regimes.

Turning to the Budget's green proposals, Mr Robertson said: "Setting a minimum floor for the trading price of carbon will provide much-needed certainty for future green investment.

"In the last Budget, the Government wrecked the Carbon Reduction Commitment energy efficiency scheme by turning it from incentive-based to a billion pound stealth tax. It should now be scrapped and retailers simply included in the Climate Change Levy."

Extending the business rate holiday for small businesses to October 2012 would help some struggling micro businesses but is a second best to full re-instatement of Empty Property Rates Relief, the BRC maintained, identifying much work ahead on bringing predictability and affordability to the business rates regime for companies of all sizes.

The CBI praised the Budget as a boost to business growth and job creation.

John Cridland, the CBI’s director general, commented: “The extra 1p cut in corporation tax will help firms increase investment. Meanwhile, significant changes to entrepreneurs’ taxation will rightly focus much-needed support on businesses with growth potential.

“Reductions in regulations on businesses and the promise of a faster planning system will provide relief to companies trying to take on staff and invest.

“Support for manufacturers through the Climate Change Agreements will help them manage energy costs, which is particularly important given that the Government is pushing ahead with a carbon price floor.

“Businesses and consumers will benefit from reduced fuel taxes, but the increased tax on North Sea oil and gas could be counterproductive, and will create uncertainty for future investment.”

Mr Cridland continued by saying that measures to increase the certainty of the tax treatment of foreign profits also increase UK tax competitiveness, and that businesses will be encouraged by the confirmation that the 50p top tax rate, which deters internationally-mobile talent, is only temporary.

The CBI described the banking levy as an additional cost to doing business in the UK, and added that it is important that international agreements are put in place quickly to avoid banks paying double taxation and to ensure that the UK remains an attractive global financial centre.

On the small business regulation moratorium, the CBI welcomed the move, arguing that the Government should think small first when it comes to making employment law on the principle that if it works for the smallest firms, then it works for businesses of all sizes.

Widening the scope of the Enterprise Investment Scheme will bridge the funding gap for SMEs, the CBI continued, while doubling the lifetime limit on entrepreneurs’ relief within Capital Gains Tax will encourage people to keep innovating as well as providing much-needed investment for start-ups.

Meanwhile, increasing the SME Research & Development tax rate will make the UK a more attractive place to invest, reducing the cost of doing R&D by a quarter by 2012-13.

On the low carbon economy, support for manufacturers through the Climate Change Agreements will help them manage energy costs, the CBI said, which is particularly important given that the Government is pushing ahead with a carbon price floor.

Mr Cridland added: “The Green Investment Bank will play an important role in mitigating some of the risks for companies planning major low-carbon investments. The additional £2 billion is welcome, but the bank should have powers to borrow from the outset to give investors confidence.”

The CBI also saw the sense in reforming the planning system in the UK, pointing out that the Chancellor was right to make the link between an effective planning regime and economic growth.

More funds for apprenticeships is good news, the CBI said, but warned that employers also need bureaucracy to be cut to encourage take up. The extra University Technical Colleges will support high-quality learning, boosting the number of science and maths graduates that businesses really need.

Terry Scuoler, Chief Executive of EEF, the manufacturers’ organisation thought the Chancellor had given a clear recognition that the UK is in an international race for investment and that manufacturing is at the heart of this.

The Budget, for the EEF, made a crucial down payment on creating a stronger and more balanced economy with measures to boost investment in technology, research and development, and skills.

But he added a caveat: “However, for manufacturers, despite the encouraging measures on investment, the significant rise in energy bills threatened by the Carbon Price Floor is unwelcome. The next stage of the Growth Review must seek to develop a more co-ordinated and cost effective approach to creating a low carbon economy.”

Commenting on the changes to capital allowances, EEF Director of policy, Steve Radley, believed the Government had recognised that the tax treatment of investment in the UK was antiquated. Extending the short life asset election is a simple way of assessing the true cost of modern machines with shorter lives.

The changes to the R&D tax credit regime was not surprisingly welcome to the EEF. The group’s chief economist, Lee Hopley, said:
“Raising the rate of the SME credit was essential to maintain the effectiveness of the UK R&D tax credit regime. The uplift will provide a much needed cash flow boost to innovative manufacturers.”

On the improvements to the Enterprise Investment Scheme, Ms Hopley commented that, while the extensions get closer to addressing the growth capital cap, the changes still don’t address the aversion of growing firms to equity finance, and expressed the hope that the Government looks at extending the scheme to debt in future.

On the Green Investment Bank, Mr Radley said:
”The increase in funding and the prospect of the Bank raising further funds on capital markets is welcome news, but will only make a real difference to the UK’s low carbon future if it is targeted at our best green economy prospects.

“The Bank’s investment remit must now be maximised to ensure it includes low carbon manufacturing of all types, as well as decarbonisation investments for existing manufacturing.”

The Government’s long term plan to adopt a flat rate state pension payment of £140 a week was, for Mr Radley, an important building block in restoring confidence in pension saving - crucial if auto-enrolment and the National Employment Savings Trust are to be a success.

The proposal, he commented, for a single tier pension has the potential to deliver a workable balance between reducing pensioner poverty, controlling the costs and supporting the incentive to save for a pension.

However he urged that the cycle that has beset past pension reform - a new initiative subsequently diluted - must be broken. He concluded: “The UK needs a period of pension stability. As well as looking for assurances the new pension will not be eroded over time we will want to see stability in the associated tax and NIC arrangements to maintain incentives for pension saving.”