The Institute of Directors has welcomed a number of measures which will help small and medium-sized businesses announced in the Budget, including relief on business rates, capital gains tax and a further cut to corporation tax. However, it raised questions about how the Chancellor intends to run a Budget surplus by 2019/20.
Simon Walker, Director General of the IoD, said:
“There was plenty in the Budget for small and medium-sized businesses. They will welcome measures including more relief on business rates and cuts to capital gains tax, and a further corporation tax reduction coming in a few years. Business leaders and workers alike will be pleased with increases to the income tax personal allowance and the higher rate thresholds next year, while the introduction of a lifetime ISA will be a big boost for young people who have been put off by the inflexibility of pensions.
“The announcements of new infrastructure will be welcomed by IoD members, both in London and across the North. They key with new roads and rail links is getting spades in the ground. Businesses in Northern cities have been waiting a long time for these improvements, and cannot afford to see the protracted delays we have endured on other major infrastructure, such as airports.
“The UK faces risks on many fronts, and much heavy lifting will still be required to get rid of the deficit by the end of the Parliament. For a Chancellor who correctly prizes maths education, although he’s come up with a good answer, he hasn’t yet shown us enough of his working on how he plans to get there.”
On the Office for Budget Responsibility’s projections for future growth, the deficit and debt,James Sproule, the IoD’s Chief Economist, said:
“The further predictions are into the future, the less accurate they become. We should be especially cautious of the OBR’s projection that GDP will steadily tick up by around 2 per cent for the next five years. This relies on some fairly benign trends holding for the best part of a decade, such as strong real-terms wage growth, robust job creation and continuation of extremely low interest rates and debt servicing costs. As we have seen in the last few months, facts change quickly in the hyper-global economy, and if the Chancellor is hoping the next few years will be as predictable as the OBR forecast, he could be in for a shock, with deficit eradication targets slipping further into the future.”
On changes to business and personal tax, Stephen Herring, Head of Taxation at the IoD, said:
“We welcome both the Chancellor’s decision to outline significant progress towards the £12,500 personal tax allowance and a £50,000 higher rate tax threshold. Few would now bet against these both being delivered by the next general election in 2020. Fiscal drag has been used as a revenue raiser for far too long, so the increase in the higher rate tax threshold to £45,000 from next April is particularly long-overdue.
“Higher tax thresholds make good fiscal sense. They incentivise those working in both the private and the public sector to work more hours, accept promotions and move to more rewarding jobs. The Chancellor recognises this, so we are slightly disappointed that he did not act to smooth out the excessive and counter-productive spikes in marginal tax to more than 60% that occurs when child benefit is withdrawn on earnings over £50,000 and the personal allowance at earnings over £100,000.
“The cut to capital gains tax is also a big step forward. Taxes on transactions, like capital gains, hit the Exchequer’s tax take, and it makes sense to reduce the levy.
“Nevertheless, it is disappointing that the Chancellor has not been bolder on tax reform and simplification. Smaller businesses will welcome the doubling of the business rates exemption, but mid-sized businesses will feel rightly aggrieved that the reliefs are withdrawn too quickly as a business moves from start-up to scale-up.
“We also remain concerned that the Annual Investment Allowance, cut in 2015, will continue to act as a drag on capital investment by mid-sized businesses. The Chancellor must stand ready to act quickly to restore the previous cap if investment falls, which we suspect it will.
On the sugar tax: “There is no point in sugar-coating it, the soft drinks industry will not like their new levy. We understand the Chancellor’s reasons, but this should not set a precedent for the creation of new taxes for every favoured spending programme.”
On the announcement that every school will become an academy, Seamus Nevin, Head of Employment and Skills said:
“The academies programme, which enables innovation and freedom of choice, is absolutely the right model for the education system. However, there are serious questions regarding accountability, funding, oversight, and governance which need to be addressed. This is a very significant announcement and employers may worry that the Department for Education is trying to juggle too many plates at once. Standards matter much more than structures, but the revolution in governance that academisation requires risks becoming a distraction from the core issues of improving teaching and learning.
“The evidence on whether academies founded since 2010 have improved standards is mixed, and businesses continue to raise concerns about how well schools are preparing young people for the world of work. Despite the on-paper freedoms academies enjoy, this shift will mean little if government micromanagement and an overbearing monitoring and assessment regime continues to stifle schools’ ability to harness the innovative teaching and flexible curricula students will need to prepare them for the jobs of the future.”
On the fact that young people will have to study mathematics until the age of 18, Lady Barbara Judge, Chairman of the IoD, said:
“A quarter of adults in England leave school with the maths skills we expect of a 10-year-old so it is great to see the Government will make studying maths compulsory until the age of 18. Careers in science, technology, and engineering are becoming increasingly important to our economy so it is vital we have enough people with sufficient ability in maths to succeed in these careers.
“This is particularly important for women. The UK has made great strides in tackling the gender pay gap in recent times but we need to get more women into senior executive positions to end that gap once and for all. Without the language of maths you are disenfranchised from making critical decisions about risk, finance, and the direction of the economy. For that reason the Chancellor’s announcement will have benefits far beyond improving the numeracy of our young people.”
On measures to support the Northern Powerhouse, Mike Perls, Chairman of IoD North West, said:
“Today’s Budget announcement is a welcome step in the right direction and continues to build momentum in the Northern Powerhouse initiative. It is a clear signal that the Powerhouse levers remain high profile within Whitehall and is much needed actual investment and further devolution to sit alongside the hype. For too long, productivity and growth in the North West has suffered because of under-investment in the Northern infrastructure, certainly in comparison to the London investment.
“To assist economic balance, a fast and effective transport infrastructure around the region is absolutely key and therefore the HS3 and trans-Pennine tunnel projects, in addition to the upgrades to the East to West M62 route, will connect Manchester with Leeds, Sheffield and Merseyside much more efficiently.
"This however, is only the start of the beginning. Transport is only one strand of achieving a Powerhouse and we need to see further investment - in science, energy, technology clusters and infrastructure, in further devolution of powers, in finances and in our cultural offer.
On tax cuts for the North Sea, Dan Lewis, Senior Infrastructure and Energy Adviser at the IoD, said:
“These tax cuts will stoke the North Sea’s fire just as it is on the verge of going out. Keeping the North Sea in operation as long as possible is essential not just for tax revenues but delaying the staggering £70 billion costs of decommissioning – half of which will fall upon the public purse. The abolition of the Petroleum Tax and halving the supplementary charge on North Sea oil profits could not come soon enough.”
On the abolition of the Carbon Reduction Commitment and raising the Climate Change Levy, Dan Lewis, Senior Infrastructure Adviser at the IoD, said:
“Britain has far too many overlapping green and carbon reduction schemes that cost government to administer and businesses to comply. Streamlining by abolishing the Carbon Reduction Commitment and raising the Carbon Climate Levy is a welcome start which can go much further.”
On measures to boost business take-up of Export Finance Schemes, Allie Renison, Head of Europe and Trade Policy at the IoD said:
“The role of government is to create a supportive environment where trade can flourish. It can only do so much of the actual wheeling and dealing and, despite the Government’s overly ambitious export targets, this Budget recognised that Export Finance remains an untapped resource, with just 8% of IoD members having made use of it, and 6 in 10 being unaware of its offerings. Raising awareness must form part of their strategy.
“UKEF’s aim to cut transaction times alone won’t boost business take-up of the scheme, but rolling it out to third-party lenders would help streamline trade promotion measures, remove duplication of effort, and better integrate the private sector into the Government’s efforts to stimulate exports.”
On the creation of a Lifetime ISA, Jimmy McLoughlin, Head of New Economy Policy, said:
“The announcement of a lifetime ISA is an overdue recognition of the shifting nature of employment. Young people expect to move company, and even career, several times in their working lives and do not think pensions are a good fit for them. In a useful and ingenious response, the Chancellor has shifted easy-to-overlook pension tax relief into a new ISA, a format which is more accessible for under-40s.
On a new allowance for the sharing allowance, Jimmy McLoughlin, Head of New Economy Policy, said:
“It is good to see the Chancellor attempt to solidify the UKs position as the global leader on the sharing economy by announcing a world first ‘sharing economy’ allowance. However, the £1,000 allowance for such items as power tools, driveways and loft storage is still very low. The personal tax allowance for income from work, currently reaching up towards £12,000, should be replicated for those wanting to utilise assets as well.
On the extension of entrepreneur’s relief, Jimmy McLoughlin, Head of New Economy Policy, said:
“The extension of entrepreneur’s relief to external investors in unlisted trading companies is a recognition of the fact that Britain is undergoing an entrepreneurial revolution, but needs to focus on scale ups. Now the Government must focus on finding more ways to promote the Enterprise Investment Scheme and the Seed Enterprise Investment scheme to open up the equity economy to many more people.”