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Can Osborne pull a rabbit from a hat in the budget?

PUBLISHED: 00:03 16 March 2011

Chancellor George Osborne. Photo: Bill Smith

Chancellor George Osborne. Photo: Bill Smith

Archant © 2009

The government has shown it is more than capable of cutting public spending.

But at the centre of next week’s budget will be a far trickier task –stimulating business growth.

The importance of this aim is difficult to overstate.

East Anglia – along with the rest of the country – has seen unemployment rise significantly since the start of the recession, and while the economies of France, Germany and the US have begun to grow again, Britain’s remains in the doldrums.

As public sector cuts start to bite, business growth will be essential to stop a double-dip recession and cur-tail further rises in unemployment.

So with the constraint of virtually no money to play with, what options are open to chancellor George Osborne?

And what steps are the region’s businesses hoping for?

Clare Goodswen, partner at Norwich-based chartered accountants M+A Partners, said this year’s budget was set to be quite different to those in previous years.

A finance bill, outlining many changes in taxation, has already been published, meaning much of the budget’s content is already known.

For example, the headline rate of corporation tax will fall from 28pc to 24pc over four years, with small companies set to pay 20pc from April 1 in what Ms Goodswen called a “very welcome” move.

But businesses looking to invest in new plants and machinery will suffer as the limit for the annual investment allowance - a form of tax relief given for capital expenditure - falls from £100,000 to £25,000 from April 2012 - which she said was a “surprise” given the need to encourage business growth.

While finance bill will limit shocks in the budget, Ms Goodswen said she still expected a surprise or two, possibly in the form of some kind of tax simplification or additional tax reliefs for small businesses.

She said: “With increasing calls for a budget for growth it will be interesting to see whether there might be some changes that have not been announced already.

“For small businesses the chancellor might well pull a rabbit out of a hat but with the amount of money available for any tax breaks for small business, his options may be limited.

“My view is that if additional tax relief is given to business to stimulate growth, I would expect additional tax revenue to be levied elsewhere to pay for that.

“Looking at what we have in the finance bill so far he will have to do something further if this is to be a budget for growth.”

One of the key issues for the region’s businesses is red tape.

A string of regulations, ranging from health and safety to paternity pay and employee rights, are seen as placing an unfair burden on business, particularly small and medium-sized enterprises which provide the bulk of East Anglia’s jobs.

Ministers are considering exempting firms employing just a few staff from a raft of regulations in a “small enterprise exemption initiative” - a move backed by Norfolk Chamber of Commerce, which has also called for a moratorium on new employment legislation.

Caroline Williams, the chamber’s chief executive, said: “Norfolk is a county made of small and medium businesses and the chamber is clear it wants the budget to deliver.”

National Insurance Contributions (NICs) are also an area of controversy.

A 1pc rise announced by the last government is due to come into effect in April, and while the coalition has attempted to alleviate the pain by offering a contribution ‘holiday’ to new businesses, this does not extend in the East, South East or London.

While the cost of reversing the 1pc rise could be prohibitive, there have been calls to extend breaks in NICs.

Martin Lake, mid Norfolk branch chairman for the Federation of Small Businesses, said: “To stimulate job creation, the NIC holiday must be extended to include the East, and furthermore extended to include micro businesses employing fewer than four people.”

The chamber has also called for NIC relief to encourage firms to take on young staff to help tackle youth unemployment.

Mr Lake said he would also welcome the introduction of a “fuel stabiliser”, which would reduce taxes on fuel when global prices rise to prevent the soaring prices at the pumps today.

Another area of focus is exports.

A white paper published earlier in the year included a number of possible measures aimed at helping companies sell their products overseas - of particular importance to the region’s manufacturers.

The moves included support with credit insurance and an online forum to allow exporters to talk to each other and share best practice.

While the white paper has met with mixed responses from East Anglian exporters, the chamber of commerce is also calling for the restoration of £25m cut from the trade promotion budget and ensuring firms have the support and trade finance needed to break into new markets.

Caroline Williams added: “Norfolk businesses are not seeking handouts but need the government to create the climate in which they can grow.”

In his last speech as director general of business organisation CBI in January, Richard Lambert said the government had “failed so far to articulate” its vision for the UK economy.

Wednesday will be a chance for the coalition to change this.

Ian McCafferty, CBI chief economic adviser, said: “The government has been right to stay the course on its fiscal consolidation plans to bring the current budget deficit back to balance by 2015.

“As spending cuts put household spending under ever greater pressure, the budget must create the right conditions for businesses to invest and grow.

“Given that much more growth will have to come from exports and corporate investment, the role of [government body] UK Trade & Investment in helping firms exploit overseas opportunities will be crucial.

“In addition, public service reform needs to be more than simply taking the easy option of reducing headcount and cutting frontline services. Less money should not equate to a poorer quality service.”

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