March 23, 2011
Exemptions from red tape for the smallest firms, the creation of 21 Enterprise Zones and tax simplification measures were among the pledges made by the Chancellor in a Budget he said would provide the best conditions for “real businesses”.
Outlining his plans to bring the economy back to stability and growth through enterprise, George Osborne said: “This is a Budget that encourages enterprise and that supports exports, manufacturing and investment – a Budget for making things, not for making things up.”
The Chancellor said his Budget speech would outline four economic ambitions for 2011, which are:
As expected, he downgraded the forecast for GDP growth to 1.7 per cent from 2.1 per cent this year, saying that the task of reducing the public deficit is unchanged. He stressed that the country does not just need stability, but also growth.
Tax simplification and red tape cuts
Emphasising the restrictions red tape imposed on small firms, the Chancellor said that the cost of regulation totalled £90 billion, and pledged to remove £350 million worth of regulation.
This would include adopting Lord Young’s recommendations on health and safety in full to reduce the burden on small businesses, scrapping the Equality Act’s costly dual discrimination rules, and allowing the public to scrutinise certain existing regulation via a dedicated website.
He also confirmed that the Government will impose a moratorium for small businesses with less than ten employees on all new domestic regulation for the next three years.
Osborne also pledged that the Government would make the UK tax system more competitive, to encourage more businesses to remain in the country.
Following much speculation about the potential merging of income tax and national insurance (NI), Mr Osborne said that the current system presents employers with “totally unnecessary costs and complexity”. However, he said that the two would not be merged until a consultation had taken place and may not be introduced for a number of “years”.
The Budget report said that the planned NI increase will go ahead this year – but it pointed out that as the personal allowance has also gone up, it will be cheaper to employ people on incomes of up to £21,000.
Osborne took into account the recommendations of the Office for Tax Simplification (OTS), which was set up in July 2010 to help simplify the tax system. On the OTS’ advice, he said the Government would abolish 43 tax reliefs.
In addition, the one-year business rate holiday being enjoyed by small businesses since October 2010 will be extended to October 2012. The Chancellor said the extension would help alleviate the concerns of many small shopkeepers anxious about the scheduled business rate rise.
The main rate of corporation tax will be reduced by 2 per cent in April instead of the expected 1 per cent, and will reduce to 23 per cent by 2014. The small companies rate will be reduced from 21 per cent to 20 per cent in April 2011 as announced before the Budget.
Although not mentioned by the Chancellor, the Budget report also revealed that the VAT registration threshold will increase from £70,000 to £73,000. All VAT returns must be filed online from April 2012.
To pay for the new measures, the Chancellor announced that the Government is publishing a strategy paper “Tackling Tax Avoidance” outlining a crackdown on “open abuses” of the tax system, which it estimates will raise £1 billion.
The Chancellor pledged to make Britain the best place in Europe to start, grow and finance a business. “Our ambition is to encourage investment and exports as a route to a more balanced economy for Britain,” said Osborne.
He said that small firms are the “innocent victims of the credit crunch” and that the Government had agreed with banks a 15 per cent increase in the availability of credit to small firms.
In addition, Osborne announced a number of enterprise investment initiatives to boost start-ups. From April this year, income tax relief will increase from 20 per cent to 30 per cent under the Enterprise Investment Scheme (EIS) for investors who buy shares in higher-risk businesses.
Next year, the Government is upping the amount that an individual can invest through the EIS, as well as increasing the size of company that qualifies for investment and raising the limit on the amount that can be invested in a company by 400 per cent.
The Chancellor also revealed that from 6 April, Entrepreneurs Relief will double to £10 million.
He went on to announce specific initiatives to help continue the growth of the UK’s manufacturing sector by creating new export credits to help smaller businesses, launching Britain’s first Technology and Innovation Centre for high-value manufacturing, and opening a further nine new university centres for innovative manufacturing.
“We want the words ‘made in Britain, created in Britain, designed in Britain, invented in Britain’ to drive our nation forward,” he said.
To make Britain a “home of innovation”, Osborne announced plans to increase the small companies Research and Development tax credit to 200 per cent and from next year it will rise again to 225 per cent.
He added that he wanted to encourage manufacturers to invest in the latest machinery and technology, and so will double the limit on the capital allowances for short-life assets from four years to eight years.
As anticipated by many, Osborne unveiled plans for new enterprise zones to be set up this year to encourage business growth in deprived regions across the UK. There will be a total of 21, of which 11 have already been announced. They will be located in areas including Greater Manchester, Bristol and Birmingham.
Firms in these areas will get a potential 100 per cent discount on rates as well as new superfast broadband.
This rate discount could be worth up to £275,000 over a five-year period for businesses that move into enterprise zones during the course of this parliament. All business rates growth within the zone for a period of at least 25 years will be retained and shared by the local authorities in the Local Enterprise Partnerships (LEPs) which are to support their economic priorities.
A further ten enterprise zones will be announced in the summer. The Chancellor called on LEPs across the UK to come forward with proposals as to where these should be.
In an attempt to tackle youth unemployment, Osborne said the Government was increasing the number of placements for young people on work experience schemes fivefold to 100,000 places over the next two years.
He also announced funds for an additional 40,000 apprenticeship placements for unemployed young people.
The Chancellor acknowledged that small firms have been hit particularly hard by rising fuel prices, and scrapped the planned 4p rise in fuel duty.
He also announced a 1p cut on fuel duty per litre from 6pm on 23 March, going further than expected. In addition, he introduced a Fair Fuel Stabiliser to prevent further rises.
“It is important that when shocks like the steep rise in oil price occur, a responsible government is able to listen and respond,” said Mr Osborne.
He commented that the previous Government had introduced a “fuel duty escalator” which involved seven increases, and that the increase due to come into effect next week would have added almost another 5p to the price of a litre of petrol.
He said that the Government would freeze the price of fuel for the rest of this Parliament, providing the oil price stays above $75. This will be paid for by imposing an extra charge on oil companies.
Vehicle excise duty will only rise in line with inflation. However, from 6 April this year, Approved Mileage Allowance Payments (AMAPs) rates will rise from 40p to 45p per mile for the first 10,000 miles, but will remain at 25p for each extra mile. In addition to claiming AMAPs rates, an allowance for passenger payments currently in place for business employees, at 5p per passenger per mile, will be extended to volunteers.