Forum Brief: Business Budget response

Gordon Brown has today gambled his reputation as a shrewd political operator on tax increases to fund a massive injection of funds into the National Health Service.

Forum Response: Business Services Association

Norman Rose, director general of the BSA, told ePolitix.com: "This is a reasonably tax-neutral budget for companies, although it goes some way towards easing the undoubted burdens on small business. The main impact of Gordon Brown's proposals will be felt by the individual, rather than by the company.

"From the business perspective, reforms of Capital Gains Tax are clearly desirable, as is the proposed simplification of corporation tax regulations. However, the news of yet more changes to Working Families Tax Credit and other benefits is a cause for concern, especially to those employing large numbers of relatively low-paid staff. This will be yet another costly administrative burden for these companies, which have already been hit by so many changes to employment regulations over the last few years.

"On top of this we face further taxation in the form of increased National Insurance contributions, which will place an additional burden on employers, especially in the labour-intensive service industries.

"While we all share the chancellor's laudable aim of improving funding to the Health Service, it is disappointing that this will be achieved at the expense of the companies which provide employment to so many, both in the Health Service itself and elsewhere in the economy."

Forum Response: British Retail Consortium

Bill Moyes, director general of the British Retail Consortium, told ePolitix.com: "We broadly welcome the Budget, it seems to contain a number of measures that benefit the retail sector - especially in the SME sector.

"Whilst we understand the rational for raising the National Insurance threshold, the Government must understand that this is a tax on jobs and will potentially reduce domestic demand. This reinforces our view that interest rates should not be increased and in fact, gives more scope for their reduction."

Forum Response: Federation of Small Businesses

John Walker, policy chairman of the FSB, told ePolitix.com: "The rise in Employers' National Insurance is a direct increase in business costs and when combined with the increase in the Employees' NI Contributions, this is the equivalent of an increase of 2p on income tax.

"It is a tragedy that the chancellor has decided that the self employed will also pay higher National Insurance Contributions. The average income from self employment is just £13,890 compared to an average income from employment of £21,842 per annum. This undermines any attempts the chancellor has made to help the low paid.

"In March 1999, the chancellor stated that the £2 per week Class 2 NIC made by the self employed was adequate to fund their benefit entitlement. The class 4 entitlement is therefore a separate additional tax on entrepreneurs."

"The announcement on corporation tax will help incorporated small businesses. The abolition of 10 per cent rate tax band for businesses with annual profits of less than £10,000 will be a great help to fledgling companies. But over two thirds of small businesses are unincorporated, and once again the chancellor has done nothing for the self employed. In fact the inequality in their tax treatment has widened.

"The administration of VAT is a major headache for all small businesses. We have been pushing for VAT simplification over many years and a flat rate will give real benefits to small businesses, possibly as high as the chancellor's estimate of £1,000. Up to 700,000 small businesses will be affected once the flat rate is extended to businesses with a turnover under £150,000. We are also pleased with the abolition of automatic VAT fines.

"We are disappointed that the chancellor has failed to recognise the role small businesses play in administering welfare payments. The costs imposed on small businesses by the Government delivering social policies through the employer payroll have increased dramatically since 1997. Whilst we welcome payments to small employers, we believe the Inland Revenue should re-take responsibility for administering the welfare state.

"A tax break here and there does little to help the low paid. We believe that the only practical solution to assist the low paid in the long term and to combat the growth of the informal economy is to remove low earners from income tax altogether. We are extremely disappointed that the chancellor has decided to freeze personal income tax allowances."

Forum Response: Institute of Directors

George Cox, Director General of the IoD, said: "We all accept that there is a very pressing need to improve the public services in this country. Health provision has fallen behind other leading industrialised countries; there are major deficiencies in the educational sector; crime is an increasing problem; and the transport infrastructure falls well short of what the country needs. But merely throwing money at the problems will not solve them. Unless there is major reform, the risk is that the money will just disappear without noticeable benefit.

"However, the Budget demonstrates that when business succeeds and generates economic growth, we all benefit."

Forum Response: Royal Academy of Engineering

A spokesman for the Royal Academy of Engineering told ePolitix.com " The chancellor's announcement on R&D tax credits is good news for innovation in British engineering. £400 million is an excellent start."

"We have been impressed by the government's willingness to listen to industry at every stage of this process. Ministers were right to opt for a simple volume approach. This scheme will work well at both corporate and local level.

"Research is the engine of value creation. We shall be continuing to encourage Ministers to develop this important scheme in future years."

Forum Response: Recruitment and Employment Confederation

Tim Nicholson, Chief Executive of the Recruitment and Employment Confederation, told ePolitix.com: "The Budget is a mixed bag for employment. The proposed Employer Training Pilots looks like good news, as long as it isn't strangled by red tape, as is the reduction in corporation tax for small businesses. The increase in national insurance contributions will add costs for business which may stifle economic growth and job creation just as these are starting to pick up.

"The private recruitment sector also looks forward to continuing to help the Chancellor achieve his goal of full employment, as it has done in recent years, despite the threat of further regulation.

"More money for the public services will not necessarily assist them to attract and retain more staff. It's about better working practices, incentives, housing and flexibility. The private recruitment industry has a major contribution in achieving and maintaining staff levels in these essential public services."

Forum Response: Construction Products Association

Michael Ankers, chief executive of the Construction Products Association, told ePolitix.com: "Whilst some additional tax increases were inevitable to fund the planned increases in investment in public services, the Chancellor has once again put an additional burden on business. The 1 per cent increase in employers' NIC is particularly unwelcome as it acts as a tax on jobs.

"We are also concerned that the government has scaled back total investment for the current year to £32 billion, £3 billion less than set out in last year's Budget. This highlights the need to ensure that the relevant departments and spending authorities respond to the government's challenge and bring forward schemes promptly to improve the nation's built environment.

"We are also disappointed that the chancellor failed to respond to a number of key issues affecting the industry, particularly the extension of Climate Change Levy negotiated agreements, a lower rate of VAT on domestic repair and maintenance, and a wider range of energy-efficient products eligible for lower VAT rates.

"However, the Association welcomes the introduction of the R and D tax credit and the new enhanced capital allowance for energy saving technologies.

"The increased costs to construction product manufacturers and suppliers from the higher level of employers' NIC will, however, outweigh the benefits from the range of other measures the chancellor has introduced for the majority of companies."

Forum Response: Association of British Insurers

A spokesman for the Association of British Insurers told ePolitix.com: "We are pleased that the threat of an increase in Insurance Premium Tax has not materialised. We argued strongly that this tax acts as a disincentive to buying insurance and that an increase would be particularly damaging at a time of rising premiums, particularly to businesses.

"If anything, the government should have taken this opportunity to reduce the rate of IPT."

Forum Response: Retail Motor Industry Federation

A spokesman for the Retail Motor Industry Federation told ePolitix.com: "The chancellor's decision to freeze excise duty on motor fuels throws a vital lifeline to ailing independent petrol retailers who have been closing down at an unacceptable rate - 842 last year - due to the untenable tax burden forced upon them.

"For a considerable period of time we have pleaded with the government to freeze the current levels of excise duty on road transport fuels and to change how they are applied when fuel is purchased by small businesses in the petrol retail industry. Any increases would directly contribute to further closures of independently owned filling stations in the UK, as higher working capital costs to fund the purchase of tax-inclusive - duty plus VAT - litre prices disadvantages these retailers against the large oil corporations that supply them with fuel.

"The chancellor was not specific about further duty reductions on new, cleaner fuels next year or his definition of the term "frozen". I am sorely disappointed that a promise made in the pre-Budget report to cut tax on bio-fuels was not mentioned in the chancellor's statement."

Forum Response: British Bankers Association

Ian Mullen, chief executive of the British Bankers Association, told ePolitix.com: "The changes to UK tax rules for foreign companies' UK branches will massively increase the costs for foreign banks operating in the UK and have an adverse impact on jobs and the competitiveness of the City.

"To cherry pick foreign banks will have a significant effect on London's unique position and adversely impact jobs and in the long term, lead to a loss in tax revenue. This ill conceived proposal is bad for the City and bad for UK plc. The BBA will be meeting with the Inland Revenue next week to strenuously voice the concerns of our members."

Forum Response: Usdaw

Bill Connor, general secretary of Usdaw, told ePolitix.com: "The Working Tax Credit and the Child Credit will make a real difference to many of our members. It is clearly a family friendly Budget, and a Budget that low paid workers can welcome.

"However, we believe that tax credits are not the complete answer to the problem of low pay. Our position is that the National Minimum Wage should be raised to at least £5 an hour so that employers are paying a living wage.

"The increase of one per cent in National Insurance contributions will disappoint many workers. We would have preferred to have seen the Upper Earnings Limit increased affecting those at the upper end of the pay scale. But all in all the Budget package will leave most of our members with more money in their pockets - that has to be a good thing."

Forum Response: Commission for Architecture and the Built Environment

Jon Rouse, chief executive of CABE, told ePolitix.com: "We are obviously delighted that the chancellor has pledged so much extra funding to vital public services. However, if these new facilities are to serve the people that use them to the optimum then we should make sure that the money is not used just to plug the gaping holes that exist in the short term.

"This money must be used to procure new buildings which are designed to last, attract and keep staff, make the people that use them feel welcome and which look ahead to the needs to future generations as well as our own.

"CABE has recently seen several new public buildings in a variety of sectors which we think are shoddy and second rate. We firmly believe that low quality, badly designed buildings which will be demolished in less than a decade are a waste of vital public resources. Why save small sums now in order to provide buildings which will need millions to maintain and sure up in only a few year's time? We will be calling on all government departments to make sure that money is invested wisely in buildings of quality."