Pre-Budget Report 2009: business reaction

Business groups greeted the Chancellor’s pre-Budget Report with a mixture of encouragement and dismay.

While the delay in the planned increase in small companies’ corporation tax and support measures for SMEs gained approval, the decision to raise national insurance contributions and the absence of detailed plans to scale back the budget deficit were met with a less positive reception.

CBI

Richard Lambert, the CBI’s director-general, said: “There were two tests for this Pre-Budget report. First, would it increase the credibility of Government plans to restore the public finances? Second, would it be a platform for job creation and economic growth? The government has failed on both counts.”

Mr Lambert said that the planned hike in NICs was a “serious mistake imposing an extra jobs tax at a time when the economic recovery will still be fragile”.

The CBI also wanted more action on reducing the public deficit earlier. “The government still needs to set out fuller plans on how it will reduce public expenditure,” said Mr Lambert.

The CBI was more hopeful about the measures aimed at SMEs.

Mr Lambert continued: “Delaying the planned rise in smaller companies’ corporation tax is welcome. Extending the Time to Pay scheme will give small and medium-sized firms longer to spread tax payments, while the extension of the Enterprise Finance Guarantee Scheme will help smaller firms obtain the credit they need to operate.”

But the CBI criticised the government’s pension policies: “Increasing the tax that some people will pay on their pensions savings worsens the regrettable change announced in the last Budget. It will spark a flight of high earners from pensions, and so reduce senior management involvement with corporate pension schemes.”

Forum of Private Business

While welcoming some of the small business-friendly measures outlined by the Chancellor, including the extension to the Enterprise Finance Guarantee scheme, the freeze on corporation tax for small firms and the extension of the Time to Pay scheme, the Forum of Private Business (FPB) argued that more could have been done for small firms.

Phil Orford, the FPB’s chief executive, said: “Of course, we’re glad that corporation tax for small firms wasn’t increased, and extensions to the EFG scheme, the Time to Pay scheme and empty property rates relief can only be a good thing for our members.

“However, these are limited measures which will help a relatively small number of firms – only 6,000 small businesses have been given EFG loans, for example. These benefits must also be offset against the hugely disappointing rise in national insurance contributions, which is effectively a tax on employment.”

British Chambers of Commerce

David Frost, the director general of the British Chambers of Commerce (BCC), also welcomed the schemes aimed at supporting businesses but believed their value was undermined by the additional rise in national insurance.

Mr Frost said: “It’s clear that NIC rises mean a brake on employment growth. While everyone understands the importance of restoring the public finances to a sustainable path, a tax on jobs is not the way to do it.”

On the broader economy, he questioned the Chancellor’s medium-term growth predictions, describing them as “optimistic”.

Mr Frost concluded: “Businesses across the country still want to see the detail of how the Chancellor intends to cut the public sector deficit, and ensure more sustainable levels of public spending. Investor confidence depends on it.”

British Retail Consortium

Stephen Robertson, the director general of the British Retail Consortium (BRC), was direct in his attack on the planned national insurance increase.

He said: “The new threshold will help some but the Chancellor should have said he’s scrapping the increase already announced not adding to it. This makes it more expensive for all businesses to maintain and create jobs but is particularly bad for retail because it is such a big employer.”

The BRC expressed relief that VAT will not be rising above 17.5 per cent but felt that the extended business rates exemption on empty properties “goes nowhere near far enough” and that “relief should be restored to empty business premises of all sizes”.

The BRC was also unhappy at the decision to stop the trade credit insurance top-up scheme at the end of the year. “It’s too soon to remove this help,” said Mr Robertson. “In our latest survey, 85 per cent of the UK’s large retailers and 68 per cent of SMEs said the availability of trade credit insurance hadn’t improved.”

Institute of Directors

Miles Templeman, director general of the Institute of Directors (IoD), claimed the pre-Budget Report was a case of “prudence postponed” and that the Chancellor should have made clear exactly how public spending is to be cut in order to reduce the budget deficit.

Mr Templeman added: “The economy has shrunk and the public sector needs to shrink far more as well.

“The government are right to focus on reducing unemployment but the additional National Insurance rise will directly put jobs at risk and make it even more difficult for businesses to rehire once the recovery starts.”

EEF

Manufacturing employers’ organisation, the EEF believed that the pre-Budget Report did not go far enough in its efforts to re-balance the economy.

Steve Radley, the EEF’s director of policy, said: “We needed to see tangible action to begin re-balancing our economy. However there were only limited measures which are unlikely to drive broad-based growth.

“Whilst there are some helpful measures such as deferring the increase in corporation tax for small firms, the failure to extend capital allowances for investment removes support at just the time in the cycle when firms could most benefit.”

Jeegar Kakkad, the EEF’s senior economist, questioned the patent-centred incentives: “While incentives to boost investment in biotech and pharmaceuticals are helpful, the narrow focus on intellectual patents is puzzling. Patents are only a small part of the UK’s broad innovative activity. Changes to their tax treatment would benefit only a limited set of companies at the expense of a broader-based rebalancing of our economy.”

Federation of Small Businesses

The delay in implementing the rise in small companies’ corporation tax and the extension of the Enterprise Finance Guarantee scheme both won the support of the Federation of Small Businesses (FSB).

But the business group was less enamoured by the decision to raise national insurance.

John Wright, the FSB’s national chairman, said: “Extending the Enterprise Finance Guarantee scheme is a welcome move, although we wanted to see the scheme extended indefinitely and promoted further to help small firms get much-needed access to finance.

“Holding off the planned 1p rise in small companies’ corporation tax will give small companies a real helping hand, giving them the chance to expand and invest, and to grow out of the recession with confidence.”

Mr Wright added: “Raising national insurance by one per cent in 2011 is an attack on jobs and shows a real lack of vision from the government on tackling the key challenge of rising unemployment. While unemployment continues to rise, it is unaccountable that the government hasn’t considered a new approach, such as a national insurance rebate for new jobs in small firms.”