Budget 2010 – Reaction

Posted on 24 Mar 2010 by The Manufacturer

Leading trade organisations and business commentators respond to today's Budget

Food and Drink Federation

Julian Hunt, director of communications at the Food and Drink Federation, which represents the interests of the UK’s biggest manufacturing sector, said:

“The Government is showing it is serious about tackling unnecessary red tape – with a pledge to table a forward programme of proposed regulation in the new Parliament; clear targets to reduce the burdens on industry; and a commitment to work more closely with the EU institutions to improve regulatory processes in Brussels. We will be holding Government to these promises.

“We are relieved that the Government has decided on a modest increase to the National Minimum Wage – which strikes a fair balance between the needs of lower-paid workers and hard-pressed employers recovering from recession. And we support the extension of the Young Person’s Guarantee beyond March 2011. However, we are concerned that the Government has refused to change the proposal to increase National Insurance Contributions from next year and is pressing ahead with plans to change the default retirement age – both of which will add further burdens on employers.

“The extra £270m of priority funding for science, maths and technology courses in universities is a welcome initiative given our sector’s real need for more food scientists.

“Clearly we are disappointed that the Chancellor is cutting the rebate available to members under the Climate Change Agreement – a move that will cost our sector £8m a year in additional levy payments. At the same time, he has provided no clarity about the potential impact on industry of new green fiscal measures such as the Renewable Heat Incentive.”

Society of Motor Manufacturers and Traders

Commenting on today’s Budget, SMMT chief executive Paul Everitt said:

“Measures to encourage more and better priced lending to consumers and businesses, alongside additional support for investment in low carbon vehicle technologies is further evidence of the new priority given to UK motor manufacturing. There is disappointment that the introduction of the first year VED rates have not been deferred, but the doubling of the annual investment allowance will give a lift to the commercial vehicle market.”

Deloitte, tax and business advisors

David Norton, tax partner at Deloitte, comments: “We warmly welcomed the proposal of the ‘Patent Box’ when it was announced by the Chancellor in his Pre-Budget Report in December 2009. The Chancellor reiterated the commitment in his speech today. However, the documentation has yet to be published and there will undoubtedly be a need for everyone to work hard if the new regime is to be introduced in Finance Bill 2011 as planned.

“The aim of the patent box is for a 10% regime to apply to patent income. A UK or European patent is likely to be a condition of the relief, even though worldwide income from the invention may qualify. It’s clear that consideration will be given to requiring UK research (a similar requirement to the Belgian regime).

“Patent Box will be a boost to promoting innovation in the UK and a key beneficiary will be the UK’s world class pharmaceutical sector. However, we are pleased that the regime will not just focus on life sciences. It will be important for other industry sectors to seize the opportunity afforded to locate additional activities here and increase the number of patents registered. They will also need to make sure that HM Revenue & Customs understands their commercial issues during the consultation period as there are many nuances and complexities that will need to e addressed in designing the new relief.”

BDO, tax and business advisors

In the context of a Budget that is ‘giving away’ approximately £1.4 billion in 2010-11, the Chancellor’s announcement today (24 March 2010) that he is doubling the amount of lifetime gains qualifying for the 10 per cent rate of capital gains tax to £2 million was an inexpensive giveaway, as it is forecast to cost the Government only £5 million in 2010-11.

Stephen Herring, Senior Tax Partner at BDO LLP commented: “I welcome the Entrepreneurs’ relief change because it recognises that creating successful new businesses is the lifeblood of the economy. However, the gulf between the 50 per cent income tax rate and the 18 per cent normal capital gains tax rate appears increasingly unsustainable. It’s highly unlikely that the wider capital gains tax regime will remain intact for long after the General Election.

“The difference between the 18 per cent capital gains tax rate and the top 50 per cent income tax rate will, of course, incentivise individuals to seek ways to obtain returns from their investments by way of capital gains rather than income. Perhaps anticipating this there has been an announcement that there will be new anti-avoidance disclosure measures designed to target schemes intended to avoid paying the 50 per cent rate of income tax.”

Herring added: “Ahead of an Election, the Chancellor was understandably keen to minimise new announcements on tax rises, other than those affecting the ‘top 5 per cent of earners’. SME’s will welcome this doubling of the 10 per cent band for the sale of their business but they will be disappointed that a number of other measures announced at the PBR in 2009 will cost them and their businesses in the meantime.”

UK Aerospace, Defence & Security Industry

Ian Godden, chairman of A|D|S, said:

“We welcome the Chancellor’s focus on recovering from recession and investing in our industrial future, especially his focus on encouraging exports, supporting trade and discouraging protectionism as well as his warm words for advanced manufacturing, especially aerospace. His recognition that economic growth is the key to our recovery and reducing borrowing is encouraging and the sectors that we represent can deliver the goods in this regard.

“The British aerospace, defence and security sectors are number one in Europe and second only to the US globally. They can deliver on the Chancellor’s aim to generate long-term prosperity for Britain. There is considerable room for growth in the export markets for these successful sectors that would contribute to the recovery from recession and deliver a sustainable industrial future with many additional jobs. For example a recent study by Oxford Economics has shown that an additional Government investment of £100m in defence would deliver an output of £227m. That investment would also bring about an estimated additional 1,885 jobs.

“We will shortly be publishing manifestos for each of the four world-leading sectors that we represent to demonstrate to the political parties in the run-up to the General Election what we can deliver for the country in terms of jobs and added value to the economy providing current and future Governments deliver the correct climate in which they can prosper.”

On support for small and medium-sized enterprises (SMEs) Mr Godden said:

“Small and medium sized businesses are the lifeblood of the economy and this is no less true in the aerospace, defence and security sectors. Therefore, as the national voice for aerospace, defence and security SMEs, we welcome the investment support for SMEs that the Chancellor mentioned in his speech. Small firms are the source of innovation that drives the UK’s success in these areas. For example, in defence alone the UK has more SMEs than France, Germany, Italy, Spain and Norway combined and this provides the agility and innovation that has secured for Britain the role of Europe’s leader in these sectors. Helping small firms to invest in plant and machinery plus increasing Capital Gains tax relief are welcome and additional investment in skills will help smaller firms in particular.”

On defence Mr Godden continued:

“The defence budget is in urgent need of attention, notwithstanding the additional and separate £4 billion from the Treasury reserve for operations in Afghanistan for next year. It was disappointing that nothing specific was announced to address this funding gap.

“Instead of seeking to further cut or reallocate resources from one vital project to another it is time to recognise that defence has made its contribution to Government savings over the last two decades and that other departments must now have their budgets placed under similar pressure if future spending cuts are required to reduce the public sector deficit. As the Public Accounts Committee confirmed yesterday there is a hole in the Ministry of Defence budget. A large part of this is because defence has been consistently underfunded over a long period of time despite our armed forces being involved in two intense conflicts. While other departmental budgets have continued to rise, defence has been under constant pressure and scrutiny despite the operational demands on the MoD’s funds.”

On proposals for a £2 billion ‘green’ investment bank Mr Godden said:

“We look forward to aerospace projects being able to access this fund. An aircraft today produces 70 per cent less CO2 than its equivalent did 50 years ago. Furthermore, through the Sustainable Aviation carbon dioxide roadmap we aim to meet the predicted threefold rise in passenger demand in the UK to 2050 while simultaneously reducing CO2 emissions back to 2000 levels. As aerospace supports the aim of moving to a low carbon economy it is only natural that our sector should be eligible for support from this fund. With the industry employing 100,000 people and generating £20 billion per year to the UK economy such assistance will see a good return on investment and deliver the cleaner, greener aircraft that the highly-competitive multi-trillion dollar global market demands.”

Withers and Rogers, patent attorneys

Dave Croston, partner and patent attorney at Withers & Rogers LLP, comments:

“The raft of business measures for small to medium-sized business is largely a re-branded offering of existing support, and is unlikely to promote a significant increase in R&D and innovation by businesses. The £35m being made available as part of the university enterprise capital fund is unlikely to turn heads, as the institutions look to deal with the £400m cut-backs they face.

“There are a few rays of hope in the Chancellor’s budget. One is the Government’s announcement to prompt business lending by RBS and Lloyds. Access to finance is still a drag on businesses and this will hopefully give some imperative to try to encourage positive decisions from lenders. The move to cut red tape in accessing government support with the establishment of UK Finance for Growth will also help to free up blockages to businesses seeking to access funding to support new R&D activity. We are also pleased that the proposal for reduced corporation tax on patent income, the so-called “patent box”, is progressing with details to be fleshed out in the summer.

“Proposed expansion of the qualifying criteria for research friendly investment schemes EIS & VCT are welcome, as is the investigation of IP pooling arrangements for universities and the NHS and tax relief for the UK’s highly successful games industry.

“The Green Investment Bank will also help encourage investment in the clean tech industry which will promote confidence in the sector and innovative UK businesses with transferable technologies, such as in the aerospace sector, should be able to benefit.

“All in all, a mixture of small measures nudging SMEs in the right direction from a Chancellor with very little room for manoeuvre.”

EEF, the manufacturers organisation

Industry relieved by neutral Budget, but wants detail of plan to cut deficit

Commenting on today’s Budget, EEF Director of Policy, Steve Radley, said:

“Manufacturers will be relieved that the Chancellor resisted the temptation to announce extra spending ahead of the election. Neither manufacturers nor the markets were expecting one today but a plan for fixing the public finances is still urgently needed.

“Some measures such as the Green Investment Bank show that the Chancellor has not taken his eye off the medium term needs of the economy. However, frequent changes to the taxes such as those to investment incentives compound the view that the tax system lacks direction and predictability.”

On changes to capital allowances, chief economist Lee Hopley said:

“Some businesses will benefit but any incentives to invest will be off-set in the short-term by uncertainty about what tax and spending decisions may be around the corner. However, frequent changes to the taxes such as those to investment incentives compound the view that the tax system lacks direction and predictability.”

On changes to capital gains taxes, senior economist Jeegar Kakkad said:

“The changes to capital gains 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. Reforms after the election could mean this measure is short-lived.”

On the Green Infrastructure Fund, senior energy advisor Roger Salomone 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.”

On the Energy Market Assessment, senior energy advisor, Roger Salomone, said:

“We are concerned that government is in denial about the threats to energy security and the impact of its policies on industry. Major issues around gas security of supply and the impact on the competitiveness of industry are not addressed. We seem to have gone backwards from the regulator’s assessment in February.”