Budget Reaction


24th March 2011

The Chancellor presented his Budget or 'Plan for Growth' yesterday and like every other Budget, it contains what appears on the surface to be a mixture of good and bad measures.

The good news is that there was an emphasis on growing the private sector economy; the Chancellor plans to consult on merging NIC and Income Tax, which would be a major and beneficial simplification of the tax system; there will be a 2% cut in Corporation Tax this year instead of the 1% planned; R&D tax relief for SMEs will be raised; £350m of regulations will be abolished with a moratorium on new regulations for small businesses from 2012; there will be more funding available for apprenticeships; and there will be a 1p cut in fuel duty from today instead of the planned rise.

However the Chancellor announced that he is pressing ahead with the planned increase in Employer NIC rates, which according to his estimates  will increase the cost of hiring someone on a wage of £21,000 or more.  This is likely  to have a disproportionate impact on the high-growth, international business sectors such as games/creative industries, life sciences, advanced manufacturing that the Government says it wants to support, and who generally aren't in the market for staff earning under £21000.   The Chancellor has also undermined his goal to make the UK business tax  regime the most competitive amongst the G20 economies by choosing to raise taxes for the oil and gas sector to fund the reduction in  fuel duty.   Too often in the past an extra tax on a business sector that is doing well was the easy option for a politician who needed to find money quickly to pay for a politically popular measure.  It would appear the current Government is no exception and that will not encourage inward investment.

The impact of some of the other measures announced in the Budget will only become clear once we know whether they will apply to Scotland and in what form they will be implemented here.  For example, will the Enterprise Zones that are being set up in England be extended to Scotland and what form will they take?   There is going to be extra money available in England to repair pot holes.  Will that automatically generate extra money for Scotland and will the Scottish Government choose to spend any extra money to repair pot holes here?

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