The budget left Alistair Darling’s opinion poll ratings at rock bottom. And Colin Chinery says manufacturing is not surprised
To a country mauled by gales, Alistair Darling delivered his first budget, and a message: Britain is well placed to “weather economic storms.”
If there is an economic version of the Beaufort Scale, the Chancellor surely has his own unique variant. His estimations fall so short of that of most economic analysts that there is a suspicion he inhabits a personal micro climate, possibly another planet.
Not since Labour’s Philip Snowden’s 1930 budget has any Chancellor offered an accounting “more certain to be swept away by hurricane forces of global finance,” retorted the Daily Telegraph’s Ambrose Evans-Prichard. For Nick Brayshaw, industrialist, banker, and former chairman of the CBI Manufacturing Council, it was ‘marginal tinkering’. “It looks to me that the economy is in a very poor shape to handle a storm in world markets.” Ian Smith, chief executive of EEF West Midlands was also dismissive. “If it wasn’t for the change in Chancellor I would have been sure they were just showing a repeat of last year’s budget. All the announcements for business have been announced several times before and most were not welcome the first time.”
Despite the darkening economic background, there was little for the entrepreneur. The extra £60 million for the Small Firms’ Loan Guarantee scheme welcomed by the EEF was offset by the increase in the rate of Corporation Tax for small firms.
And while applauding measures that could “put the lid on the inexorable growth of regulation,” the EEF waits on events, a view shared by Nick Sanders, chief executive of Redditch-based manufacturer CompAir. “Fine words but what’s the substance? I see nothing. This budget has not made things easier for business at a time when it desperately needs to be helping business.”
Overall a mixed reaction from the EEF, welcoming measures announced within the Enterprise White Paper, but disenchanted by its failure to address the business taxation issue.
“The lack of any announcement on the future direction of business tax strategy failed to impress,” said EEF chairman Martin Temple. “The UK’s tax competitiveness is heading in the wrong direction and this still needs to be addressed if other positive measures are not to be undermined.”
Anger over Capital Gains Tax still smoulders in the business community, says Nottinghamshire manufacturer Anthony Ullmann, managing director of Autofil Worldwide, a European leader in the production of polyester yarns used in automotive interior trim.
“The overriding concern that business taxes continue to rise following previous budgets – with many new tax proposals having surfaced – suggests that the Government is not moving towards its stated objective of a simpler tax system.
“This can only further burden the business community that is already reeling from the impact of tightening credit due to global financial repositioning.”
Nick Brayshaw agrees. “Darling should have addressed the outrage over the change in Capital Gains Tax; he should have brought in incentives for manufacturers to invest in capital as well as in training, and sought to restore the Government’s credentials on the enterprise agenda which in the last 12 months they have trampled underfoot.
“The Government has secured for itself a double-whammy, introducing some antique business agenda items such as the tax on non-doms, and increasing CGT. And the second whammy, and perhaps the most important, is that they have done it in total absence of consultation with the business community.”
The CGT changes, says Nick Sanders, are “very business unfriendly, investment unfriendly, innovation unfriendly. It has been very damaging for the relationship with business. It has set that relationship back a long way, and I don’t see any sign of the Government doing anything to help business, which they will ultimately regret. The Government sought to close a tax loophole, got it wrong, and penalised the wrong people.”
Darling is now boxed in by his ‘well placed’ boast, says economic commentator and deputy editor of The Scotsman, Bill Jamieson.
“Having stressed this several times in his speech he could hardly offer tax cuts for business to help it through the coming tough times,” he told me.
“As a result there was a big opportunity lost to announce a review of mainstream Corporation Tax, given that the UK rate, although modestly reduced to 28 per cent, is still some 10 percentage points above the greater European average. That might have given the business sector something to hope for. No such luck.”
According to Louise Bennett, chief executive of the Coventry and Warwickshire Chamber of Commerce, “anyone could have easily missed the mention of business in this budget. The postponement on the increase to fuel duty was like throwing breadcrumbs to the millions of businesses who will be impacted by the eventual 2p increase in fuel duty, and the further increase in 2010. Transporting goods and services to market is a high cost to every business, and increases in such costs are not to be welcomed.”
Here, as with his tax hike on alcohol and tobacco, the Chancellor dressed up straightforward revenue take as virtuous social engineering. But smokescreens are two a penny and no one was buying.
Hanson, Britain’s biggest brick maker, also sees itself as a victim of spurious political piety. Its mainstream industry is aggregates and concrete, and Hanson’s David Weeks points out that an unseen in the budget statement was a further increase in the aggregates levy.
“The Government had already announced it was increasing the levy to £1.95 a tonne from 1 April, but within the budget document the Chancellor announced this will increase to £2 from April 2009. As an industry we continue to argue that the levy has absolutely no environmental benefit, and simply pushes up the cost of construction and therefore effectively the payments deficit.”
But in a ‘green budget’ disappointing to greens, Hanson is poised to capitalise on new targets to make all new non-domestic buildings zero carbon by 2019. “We have been working towards zero carbon housing by developing brick, light weight blocks and other products that give the kind of thermal mass and benefits that will be required to achieve those targets,” says Weeks.“Sustainable construction has been a key part of our agenda.”
Jaguar and Land Rover responded to the new ‘gas guzzling’ taxes saying they are well ahead of the game. “Last year we announced a £700 million programme to reduce tailpipe emissions and by the time the new VED bands are introduced in 2010, our CO2 levels will have been reduced even further.”
While the EEF was critical of the absence of increased R&D public funding for climate change measures, there were tax credit enhancements for R&D in new technologies – “a step in the right direction, but still a long way to go in order to bring it into line with schemes in other countries,” says Alma Consulting Group director, David Marshall.
“The tax credit enhancement is a token gesture,” says Trevor Cross, chief technology officer at e2v of Chelmsford and Lincoln. “Government must take a closer examination of what will drive British manufacturing, and one way is to support and incentivise university – industry collaboration.
“Post the demise of corporate research centres which underpinned innovation in the 1970s to 1990s, it is essential that UK industry engages directly with the academic base. We would have welcomed it, if the budget doubled or trebled tax incentives for collaborative industry/university programmes. We have strong research relationships with universities across the country but do not feel this type of investment is well supported to achieve maximum economic impact. We are missing a trick here.”
Meanwhile across the Atlantic, Bear Stearns is sold for a sum that Wall Street insiders regard as little more than a Christmas bonus, and the Fed cuts interest rates below the level of inflation. The outlook in this bell weather economy “has weakened further,” says the Fed.
And according to Mike Deacon, managing director of Asset Based Finance and Leasing, of Pinner, Middlesex, the US sub-prime mortgage crisis “will become an auto finance sub-prime crisis because the car loans are all defaulting in America, similarly credit cards. And all these have been packaged in the same way. So the iceberg is very big and it’s going to be in three stages, the second of which is about to emerge in the next three to four months.
“In my view we are in a two to three year downward spiral. Businesses that have relied on banks and easy credit are suddenly going to find that their credit lines are frozen – as is happening I am told with major house builders. With less liquidity they have less money to support good businesses including manufacturing.”
A more sanguine perspective from Nick Brayshaw, who chairs Barclays Manufacturing Strategy Board as well as heading a number of manufacturing companies: “I am absolutely clear that we are very keen to continue lending to good, sound businesses, and we are redoubling our efforts to increase our lending to the manufacturing sector.
“For a sound manufacturing business I do not believe there is any credit crunch at present. It may be difficult for very highly leveraged or difficult transactions, but for the vast majority of manufacturing businesses, who are doing a good job with good assets, bank finance is readily available from Barclays and I’m sure from others.”
“I think there’s a great danger of the media talking up declines and recessions with a self-fulfilling prophecy,” says Nick Sanders. “At this moment, and speaking personally from my business, I don’t see it.”