There are flashes of boldness and brilliance here, but other bits of the Budget are a bit banal. Does it do enough?
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It’s been a surprisingly good Budget for businesses. Normally we bemoan the boredom of Budgets, which tend to waft through a few vague mentions of R&D investments and nice-sounding but empty promises the government du jour “will do more to help small and medium-sized business”.
Today, even though the Standard managed to accidentally leak the key measures before Osborne had opened his mouth, London businesses have a few things to get excited about.
There are two big ones you should cheers to over your 1p-discounted pint tonight. Corporation tax will drop to 20% for all companies from April 2015 (bringing mid-market and large companies in line with the existing 20% rate for small businesses). Most commentators were expecting the 1% drop (on top of the drop to 21% planned for April 2014), and we warmly welcome that it will apply across the board for companies of all turnovers. Even though it’s frustrating that we have to wait another two years for it.
There is still a long, long way to go on simplifying our tax system. Quite shockingly, the number of pages a true tax aficionado must wade through to fully grasp all the ins and outs of our system has doubled since 1997, as our columnist James Max pointed out earlier this week. But simplifying corporation tax is a start.
If the new Employment Allowance incentivised even one in 500 of the UK’s micro-businesses to employ someone on a part or full-time basis, 4,600 new jobs would be created
As Osborne noted in his Budget speech, the UK will now boast a corporation tax rate that is half that of the US, and significantly more competitive than France (33%) and Germany (29%). We will, to quote the Chancellor, have “the lowest rate of any major western economy”. This is particularly good news for London, giving us yet another selling point in the fight for international talent, as multinational companies – we hope – choose to either keep themselves headquartered here or, even better, move to our shores.
The second biggie – and this one was certainly a nice surprise – is a £2,000 Employment Allowance each year towards the National Insurance Contributions bill for companies from April 2014. As the BBC’s political editor Nick Robinson pointed out, this is really the only measure that costs government in today’s Budget. The hope, of course, is that it will encourage particularly small businesses to hire more people.
It’s sensible thinking. The measure will mean 450,000 small companies will pay no employer national insurance at all. Let’s not forget that 96% of the 4.8 million businesses in the UK employ 0 – 10 people, according to the latest government figures (December 2012).
Not all of those are employers, but by my workings 2.3 million are (as there are 2.5 million employers in the UK, and only 200,000 medium and large businesses). If the new Employment Allowance incentivised even one in 500 of those micro-businesses to employ someone on a part or full-time basis, 4,600 new jobs would be created. That would go some way to alleviating UK unemployment, which, we found out today, rose by 7,000 between November and January. In London, SMEs make up 98% of the businesses in the Square Mile, according to the City of London Corporation. So the Chancellor’s measure will make a difference to companies in the capital too.
There will also be a “limited extension” of the capital gains tax relief for the Seed Enterprise Investment Scheme (SEIS), which enables up to 78% tax relief for individuals investing in start-ups, and reduces the risks of investing. The scheme has been hugely well-received by investors and the small businesses community, although how many people have used it is unclear.
We hope that the extension encourages more angel investors to make use of it, as it really is probably the best start-up investment scheme you’ll come across in this country. But we need to know as soon as possible just how long this extension will last. Angel investment decisions take time, and London start-ups need more of them over the next few years, not just months, if we are to continue pushing forwards our explorations of exciting new technologies and innovations that take a few years to gestate before really disrupting markets and growing seriously.
In other mildly good news, Osborne said he is in talks with the Bank of England about a potential extension of the Funding for Lending Scheme, which supports banks to make business loans and mortgages cheaper. Thirty-nine banks and building societies have signed up for this so far.
How can we expect to trade more with Brazil or China when Portuguese and Mandarin are so rarely taught in schools?
That said, the FLS has fallen woefully short of its lending ambitions for businesses, so we shouldn’t place to high a hope on it dramatically improving our economic fortunes. It’s a decent scheme, but perhaps more visible education about its benefits should be invested in, to encourage a wider adoption of it among London businesses.
The abolition of stamp duty on shares traded on AIM should generate more interest in mid-market companies. There are more than 1,000 companies listed on the market – almost three times more than the FTSE 350 (you do the math) – and many are pioneering interesting new models and technologies (ASOS is the market’s textbook superstar).
But AIM is not without its problems – as we reported in September, many mid-market companies seem reluctant to list on it. Many see floating on it as too bureaucratic and expensive. There have been some nasty mishaps with it, and a spate of de-listings. So actively encouraging activity in the market isn’t as straightforwardly good news as it might seem. But it’s good to see an active measure to generate more interest and support for growth and mid-market companies.
It’s a big shame, though, that there was no mention whatsoever of business rates in the Budget. This government has made plenty of media-friendly gestures about its commitment to helping the high street– enlisting the help of one Mary Portas springs to mind – but freezing rates would have been a welcome salve to retailers, not to mention all other businesses they drag down.
And for all the Chancellor’s invigorating rhetoric about how keen he is for UK companies to export to non-EU countries, where were the measures supporting that aim?
Sure, exports to BRIC countries might be up by two thirds, and yes, this might be the first time in more than two decades we are exporting more to non-EU than EU countries (even though the continent still buys up 40% of our exports). But if this government truly wants to encourage a more diversified exporting base, it needs to create more grants for companies intent on exporting outside the EU, and perhaps implement some new tax reliefs to incentivise them still further.
Allocating a larger pot of cash in the 2012 Budget to the government’s UK Trade & Investment, which does very admirable work helping British companies expand overseas, was a good start. But the number of London companies exporting is still estimated to stand at only around a third, according to the London Chamber of Commerce & Industry. That’s pitifully low bearing in mind how fantastically international a city we are, and how strong our businesses are.
Creating a pot of money for business organisations to carry out trade missions (which are usually privately sponsored) would help businesses explore export options further afield.
Looking further forwards, the ambition to cast ou
r exporting net wider should be supported by education. How can we expect to trade more with Brazil or China when Portuguese and Mandarin are so rarely taught in schools?
And why not relax visa restrictions for immigrant workers from the countries we are keenest to export to, so the UK could establish the kind of cultural and commercial connections that really make cross-country trade happen? A more holistic approach in this respect would make much more sense when working toward securing our future economy.
Although, of course, it is always very tempting for the current government to introduce measures that make voters (and businesses) happy in the short-term, rather than the more radical moves that would cement our growth prospects in the decades ahead.
Follow me on Twitter @sophiehobson and @londonlovesbiz
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