British businesses are waiting anxiously to find out how much of the considerable burden of deficit reduction they will have to bear.
And with the Emergency Budget just four days away, the bond markets are watching keenly for signs that the coalition government is resolute in reducing a debt accounting for 11% of GDP last year.
Danny Alexander, the Chief Secretary to the Treasury, has already cancelled £2bn worth of projects set up by Labour. Ministers had embarked on a "pre-election spending spree in the full knowledge that the government had long since run out of money"," he told MPs, explaining why an £80m loan to Sheffield steelmaker Forgemasters, a new visitor centre at Stonehenge and funding for North Tees and Hartlepool hospital, among other things, have been cancelled.
The UK received a rare financial fillip today, however, with news that a smaller fiscal deficit was posted in May than economists had forecast as growth lifted tax receipts. Nevertheless, pressure from investors and credit rating agencies to slash spending is unlikely to abate.
Proposals to give new firms a National Insurance holiday do not go far enough and will not help those businesses who have been running for a couple of years and want to expand by taking on staff
John Walker, FSB national chairman
It’s a far cry from the days when Northern Rock was a respectable building society, a Credit Crunch would have been taken to mean a new breakfast cereal and Gordon Brown claimed to be adhering to a ‘golden rule’ of borrowing and to have vanquished ‘boom and bust’.
Back then, the iconic red box of HM Treasury was a veritable trove of goodies. It was like Christmas in Spring: a tax break for manufacturers here, a rise in child maintenance for single mothers there, it was a time of great bounty.
Now it’s not the son of a manse handing out cheques, it’s Boy George, as Mandelson derided him, and there are no more giveaways. There’s a huge deficit to plug and “we’re all in it together”, according to Cameron.
However, it recalls to one’s mind the animals’ slogan in George Orwell’s Animal Farm; but for “everyone’s equal but some are more equal than others” read “we’re all in it together but some are more in it than others”.
Wondering who will suffer the most, UK Plc is fretting over the following issues:
- What will be the balance between public spending cuts and tax rises?
- Will the government raise VAT? Osborne has neither ruled it in or out but economists have forecast a rise to 20%
- How much exactly will capital gains tax increase by, and how will the government make good on its promise to exempt entrepreneurs from the highest rate?
- Will the government preserve the 1p rise in employees’ national insurance contributions?
- Will manufacturers’ tax allowances be retained, allowances the sector says is vital if firms are to continue affording to replace and update equipment?
- Will alcohol duty rise again? Bad news for pubs seems likely given both the Labour government and the Major government instituted above-inflation tax rises even during the boom times
Regarding capital gains tax, Alex Henderson, tax partner at PricewaterhouseCoopers, is anticipating: “An extension to the existing definition of business asset, possibly to include shareholdings by employees in their employers”.
John Walker, national chairman of the Federation for Small Business, meanwhile, believes the government needs to go further on national insurance plans: “Proposals to give new firms a National Insurance holiday do not go far enough and will not help those businesses who have been running for a couple of years and want to expand by taking on staff.”
