Business responds to Budget 2010

Today’s budget has been touted by Chancellor George Osborne as one that “supports a strong enterprise-led recovery”. "I want a sign to go up, over the British economy, that says 'Open for Business'," Osborne said in his budget speech. Many of his proposed measures for the figurative erection of this sign have today been welcomed by the Federation of Small Businesses (FSB), the UK's leading business organisation. However, the FSB also has some misgivings about some new measures that it believes will be damaging to business growth.

As announced today, Capital Gains Tax will increase from 18 per cent to 28 per cent for higher-rate taxpayers. The Treasury’s initial plans had been a 50 per cent CGT hike, and the FSB has commended the government for having a re-think on this.

To promote enterprise, the government will extend the 10 per cent capital gains tax rate for entrepreneurs, which currently applies to the first £2 million of qualifying gains made over a lifetime, to the first £5 million of lifetime gains. This move has been similarly welcomed by the FSB.

The FBE says the government’s move to reduce the Small Companies Tax Rate to 20 per cent will help over 850,000 small firms.

Osborne said: “Because small business are struggling to obtain credit at the moment, I will extend the Enterprise Finance Guarantee Scheme, which supports SME access to lending.” The FSB has given this a very enthusiastic two thumbs up.

In an attempt to help create new businesses in areas where the private sector is currently quite weak, today’s budget announced an initiative where for the next three years, new businesses outside London and the South East and Eastern regions would be exempt from up to £5,000 of employer National Insurance Contribution payments for the first 10 employees hired. The government aims to have the scheme up and running by September, but any qualifying new business set up from today will also receive help. The FSB has welcomed this measure, but believes that this should also be extended to existing businesses, which have the capacity to employ people. It is also campaigning for the “useful scheme” to be made UK-wide. The threshold at which employers pay National Insurance will also be raised by £21 per week in April 2011. The FBE has voiced concerns that rises in Employer National Insurance Contributions (NICS) were not completely reversed in today’s budget.

The FBE has welcomed moves to increase personal allowances by £1,000, which it says will help to reduce the pressure on businesses from wage demands and give employees more cash in their pockets.

The standard rate of Value Added Tax (VAT) will rise from the current rate of 17.5 per cent to 20 per cent from 4 January 2011. According to Osborne: “The years of debt and spending make this unavoidable.” The FBE says this increase will hurt small businesses in the high street, but the group is thankful that there is some time to go before the increase takes place. The FBE has labelled the decision bring in the increase on 4 January, and not New Year’s Day, an example of ‘common sense prevailing’. In defence of the announcement, Osborne said this single tax measure would “by the end of this Parliament generate over £13 billion a year of extra revenues”.
“That is £13 billion we don’t have to find from extra spending cuts or income tax rises,” he added.

For many small businesses, insurance on many items is a must and the proposal to increase Insurance Premium Tax (IPT) from five to six per cent is a tax on responsible business and should be reversed, according to the FSB.

The FSB was pleased to see that its campaign to save many businesses in the tourist sector has reaped results with the Chancellor’s announcement that tax breaks for Furnished Holiday Lettings will continue.

While the Chancellor referred to stability in fuel prices, the FSB is concerned that proposals for a fair fuel stabiliser to control erratic movements in the price of fuel were not announced today.

FSB national chairman John Walker said: "The measures announced in the Emergency Budget will go a long way to reducing the deficit and will please the 93 per cent of FSB members who called for a clear plan on tackling the country's debt.

"The increase in VAT to 20 per cent will however, hurt small firms who will have to pass the increase on to their customers, unlike big business which can absorb the cost.

"We welcome moves to give a national insurance holiday to start-up firms, but are concerned that with 70 per cent 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."

Among other announcements in the emergency budget were:

• Enterprise Finance Guarantee increased by £200 million to support £700 million of additional lending until 31 March 2011 - the EFG supports lending to small businesses that find it difficult to get normal commercial loans.

• The small profits rate of Corporation Tax will be reduced to 20 per cent from April 2011.

• The government will accelerate the increase in the State Pension Age to 66. A call for evidence will be launched later this week. The government will also consult on whether to phase out the Default Retirement Age.

• The government will agree with business a long-term approach to the taxation of foreign profits, the treatment of intellectual property and the proposals from James Dyson on research and development.