The coalition government’s first budget has been broadly welcomed by the business community although a prominent industry body has expressed misgivings about the reduction in manufacturing allowances.
The Institute of Directors hailed the “bold and decisive” package of spending cuts set out by Chancellor George Osborne, while the British Chambers of Commerce said that the clear deficit-reduction plan would have “positive effects on business and investor confidence.”
However, the EEF, the most prominent manufacturing body, decried cuts to investment allowances and capital budgets.
The Chancellor fulfilled his pledge to cut corporation tax, committing to a 1% cut in each of the next four years to an eventual rate of 24%. Meanwhile, he has also won plaudits among businesses by matching Labour spending commitments on capital projects.
Osborne also extended the enterprise finance guarantee scheme, whereby the government provides state guarantees to small-business loans.
We do not believe the Budget will threaten economic recovery. Quite the contrary: it is likely to improve the economic outlook by showing the public finances are finally being brought under control
Mike Templeman, IoD director-general
Miles Templeman, director-general of the IoD, praised the Chancellor for recognising the urgency of the situation with regards to the budget deficit: “George Osborne has faced up to the challenge. The economy needed faster and deeper deficit reduction and that’s exactly what the Chancellor has delivered.”
Templeman did not give any credence to acting Labour leader Harriet Harman’s accusation that drastic spending cuts would imperil the recovery and put huge numbers of people out of work. “We do not believe the Budget will threaten economic recovery," he insists. "Quite the contrary: it is likely to improve the economic outlook by showing the public finances are finally being brought under control.”
The Federation of Small Businesses echoed the IoD in lauding the Chancellor’s audacious deficit-reduction plan. “The measures announced in the Emergency Budget will go a long way to reducing the deficit and will please the 93% of FSB members who called for a clear plan on tackling the country's debt,” says John Walker, national chairman of the small-business organisation.
However, the organisation said the VAT rise would hurt small businesses disproportionately and, despite the granting of an exemption on up to £5,000 of employer national insurance payments for a start-up's first 10 employees, it believes the Chancellor hasn’t gone far enough.
"The increase in VAT to 20% will hurt small firms who will have to pass the increase on to their customers, unlike big business which can absorb the cost," adds Walker.
"We welcome moves to give a national insurance holiday to start-up firms, but are concerned that with 70% of firms operating below capacity, those businesses already trading will not be helped. We need to see a full reversal of NICs increases to fully offset the ‘tax on jobs' which the previous administration initiated."
During the election campaign the Tories had hoped to fund a cut in corporation tax by axing manufacturing allowances, but apparently rowed back on this commitment under pressure from their new coalition partners, in particular Business Secretary Vince Cable.
However, the Chancellor has announced that the capital allowance rate for plant and machinery will fall from 20% to 18%.
Terry Scuoler, chief executive of EEF, acknowledged the Chancellor’s efforts in reducing the deficit, but says “the short-term pressure to start tackling the deficit means the chancellor has only done part of the job of rebalancing the economy.
“While businesses will welcome long-term reform and predictability of corporation tax and have been spared the worst impact of changes to capital gains tax, predictability has come at the cost of competitiveness.
“In recent weeks, manufacturers had been encouraged by strong commitments from the prime minister and the Chancellor on the role of manufacturing in a better balanced economy. They will now be left wondering where the necessary growth and investment will come from, given the cuts to investment allowances and capital budgets.”
