The £11 billion headline figure for the value of tax concessions to UK
business contained in the Budget may appear eye-catching at first but it is, of
course, spread over the next five years. Larger corporates are mostly unaffected since Corporation Tax cuts for the next year or
two have already been announced.
The real beneficiaries of the 2014 Budget are medium sized manufacturers
who both export and consume a lot of energy. They will now be able to enjoy a
doubled annual investment allowance of £ 500,000 in respect of new equipment
and, according to the Chancellor, will save an average of £50,000 a year on
energy costs as the result of the cap on the Carbon Price Floor. Moreover, if
they export overseas, they will be able to access a further £1.5 billion of
credit via the UK Export Finance scheme.
It is not difficult to see why this section of the business community
has been singled out for such favourable treatment. Quite apart from his
well-trailed domestic political considerations like encouraging investment
outside London and the South East and shifting more of the economy into the
regions, the Chancellor is anxious to start closing the trade deficit in goods
and to switch responsibility for future economic growth away from British
consumers.
In fairness, the vast majority of smaller businesses are likely to be
largely unaffected by this budget since they don’t make things and they don’t
export physical goods. The only thing that might help them is the extension of
the apprenticeship scheme to provide another 100,000 places and the National
Insurance exemption for all under 21 year olds.
The implication
of a budget that really only affects a relatively narrow section of the
business world is that Mr.Osborne and his colleagues no doubt feel that
industry is already managing very well on its own and, if it ain’t broke, why
try and fix it. The economy is now officially growing at nearly 3% a year,
faster than every other developed nation, and too much stimulus from the
Chancellor could prompt Mr. Carney to start sharpening his interest rate pencil
even faster. The housing market, in particular, is now firing on all cylinders
and this always has a big knock-on effect on other businesses such as
furniture, floor coverings and other fittings.
The two big
areas of interest to the business world that remain unresolved are what the
Government is going to decide about tax avoidance / evasion by multinationals
and how the business rate regime is going to be reformed to help the High
Street compete with the Internet.
The underlying
message is that, despite all the headwinds from a depressed Eurozone and from
the strength of Sterling, the UK economy already has all the co-ordinates set
for a very busy pre-election boomlet. Businesses probably don’t have to worry
too much about a rise in interest rates to rein in excess demand until after
May 2014.
Read Baker Tilly’s full Budget 2014
analysis and what it means for your business >>