Chancellor George Osborne on Wednesday revealed a heavily manufacturing-centric Budget with a two per cent drop in corporation tax forming his headline policy.
In the opening gambit of his address, Mr Osborne described the budget as one “for making things, not making things up”.
Mr Osborne announced that the Plan for Growth is also to be released today which has been formulated from the Growth Review which commenced last September. Industry practitioners and trade organisation have been canvassed over the last few months, including at a behind-closed-doors manufacturing summit in January, about what measure they want different government departments to take in order to remove barriers to growth.
The plan contains around 100 measures centred around four main aims: making the UK “the most competitive tax system for growth” among the G20 countries; making the UK the best place in Europe to start, finance and grow a business; encouraging investment and exports as a route to a more balanced economy; and creating a more educated workforce that is the most flexible in Europe.
He then explained many of the measures within his address.
To make the UK competitive, he announced that as well as cutting corporation tax by two per cent this April, instead of the one per cent which had been planned, he will also commit to cutting a further one per cent in each remaining year of the Parliament. This will bring UK Corporation Tax down to 23 per cent by 2016 which is lower than any other G7 country’s current rates. The bank levy will be increased to ensure that banks do not benefit form this change.
To simplify the tax system in the UK – an urgent requirement since the UK tax code recently overtook India’s to become the longest in the world – Mr Osborne announced that 43 tax reliefs are to be scrapped, taking 100 pages out of the code. There will also now be a consultation on the merger of income tax and National Insurance though Mr Osborne conceded that even if such a plan were ever feasible it will be some years before it is introduced.
Mr Osborne reassured Britain’s higher earners that the 50p tax rate is still seen as a temporary measure though it remains in place for now.
Back on National Insurance, Mr Osborne announced a £370m extension for the National Insurance holiday available to small businesses. This measure was introduced in Osborne’s first Budget with an estimation of helping 40,000 businesses. However, as Labour leader Ed Miliband pointed out in his response, it has actually only benefited 1,500 so far.
Osborne announced that a new Plan for Growth is also to be released today which has been formulated form the growth review which commenced last September.
Industry practitioners and trade organisations have been canvassed over the last few months, including at a behind-closed-doors manufacturing summit in January, about what measure they want different government departments to take in order to remove barriers to growth.
The Chancellor pointed out that manufacturing in the UK is now growing at ‘a record rate’ and has employed an extra 14,000 people since Christmas. He cited the recent new line of export credit facilities as a way government is trying to improve the situation further and revealed that R&D tax credits for innovative small businesses are going to increase from 175% to 225%.
Government is to create 21 new ‘enterprise zones’ around the country in manufacturing stronghold areas. Originally there was only going to be 10. Businesses based in these areas are to benefit form lower business rates, super high speed broadband and simplified planning rules. There will also be funding for 24 new University technical colleges in manufacturing heartlands and a £100m pot for four new science centres.
Funding will be provided for an extra 50,000 apprenticeship starts over the next four years, including 10,000 higher apprenticeships. At present there are only 150 of the latter such programmes ongoing in the country. Osborne pointed out that while one in four Austrian, Swiss and German companies offer apprenticeships, only one in ten do here in the UK.
The Plan for Growth also includes an extension of capital allowances for short life plant and machinery from four to eight years, from April 2011, to bring forward investment in new equipment; a moratorium exempting micro (fewer than ten employees) and start-up businesses from new domestic regulation for three years from 1 April 2011; and reforms to the planning regime so that the default answer to development is ‘yes’;
To aid development of green technology, the Green Investment Bank first announced last year is to be given an extra £2bn on top of its initial £1bn fund. This will provide financing for projects that are valuable for the development of the sector and could potentially bring strong technological and later monetary advances for the UK economy but, for whatever reason, are not seen as attractive propositions at the current time to the private market.
For transparency purposes, apparently, there will now be an introduction of a carbon floor price which will see carbon emission priced at £16 per tonne now, rising to £30 per tonne by 2030.
Osborne’s biggest surprise in the Budget was a new ‘Fair Fuel Stabilizer’ initiative which will see the fuel duty rises planned for this year and next year suspended and balanced out by an increase in tax on the oil companies from 20 per cent to 32 per cent. This is because the oil companies are currently very profitable, Osborne said, but if the price of oil were to fall below $75 a barrel the situation will be reversed again. There will also be a one penny reduction in fuel duty active from 6pm today.
All in all, though, as Mr Miliband pointed out, even with the Chancellor’s raft of measures announced today, official predictions for growth in the UK have now dropped from 2.1 per cent to 1.7 per cent for this year and 2.5 per cent from 2.6 per cent in 2012.
The Labour leader said Osborne’s second budget “tells the story of the failure of the first” in that the growth plans he announced last June have amounted to the growth prediction falling now. He said Osborne could not hide behind his excuse of the snow being to blame for Q4 2010’s economic contraction as France, Germany and the US all also experienced severely adverse weather conditions over the period and grew all the same.
He said the Chancellor’s budget announcements were “classic Tory tricks” based on ‘Del Boy economics” – giving with one hand and taking away with the other. After Mr Osborne had last weekend said he aspired to emulate Michael Heseltine, Mr Miliband said he was more like “Norman Lamont with an iPod. And no doubt on his playlist is Je Ne Regrette Rien.”
He suggested Osborne believes unemployment is “a price worth paying for”.
EEF, the manufacturers’ organisation, took a rather more positive view. The leading trade organisation for UK manufacturers called the Chancellor’s policies ‘a down payment on growth’
Terry Scuoler, EEF chief executive, said: “Today the Chancellor gave a clear recognition that we are in an international race for investment and that manufacturing is at the heart of this. He 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. The Growth Review has now started to deliver tangible process in removing the barriers to growth, investment and job creation in the UK.”
However, Mr Scuoler went on to warn that the carbon floor price could translate into higher energy bills for manufacturers.