GWE BUSINESS WEST BRIEFING
COALITION EMERGENCY BUDGET 22ND JUNE 2010
In the Coalition Agreement the government
promised an emergency budget in 50 days, this was presented to the
House at 12.30pm on Tuesday 22nd June. George Osborne introduced
this as a tough but fair budget that deals decisively with the
country’s record debts – it pays for the past and plans for the
future.
It spelt out the government’s desire to address the current
budget deficit and reflected the core values of responsibility,
fairness, freedom.
The budget sets out a plan to tackle the deficit, restore
confidence in the economy and support the recovery. This budget
marks the start of the long-term task of moving from an economy
built on debt to one based on saving, investment and exports where
growth is spread more widely.
More detail and tough decisions will be announced in the autumn
spending review on 20th October 2010.
TAX CHANGES
George Osborne set out a budget that cuts borrowing faster than
previously planned by the Labour Government. It included £85bn of
tax rises and spending cuts to be implemented by 2013/14. The bulk
of reduction comes from lower spending rather than higher taxes,
77% to come from spending cuts and 23% from tax increases.
The changes to the tax system are varied and mostly expected,
they include:
- Personal income tax allowance – increase of £1000 in threshold
from next year, with the aim of increasing this to £10k in
time.
- National Insurance Contributions – employers NIC threshold to
rise from £110 to £131, reducing the cost of employing people on
lower incomes.
- VAT increase – from 17.5% to 20% from 4th January 2011.
- Aviation duty - to be reviewed on the basis of a per
plane rather than a per person tax, to be announced in the
autumn.
- Council tax freeze - the government will help low-spending
councils in England to freeze council tax for one year from April
2011.
- Capital Gains Tax - remains at 18% for low and middle-income
savers but from midnight higher rate taxpayers will pay 28%.
- Corporation Tax - to be cut next year to 27%, and by 1%
annually for the next three years, until it reaches 24%. The small
companies' tax rate will be cut to 20%.
- "Landline tax" - to fund the rollout of fast broadband will be
scrapped, instead the government will support private
investment.
- A bank levy – to be introduced, which will apply to the balance
sheets of UK banks and building societies and the UK operations of
foreign banks. It is expected to raise over £2bn a year.
The government proposed no increase to tax on alcohol, tobacco
or fuel in this budget; indeed they also reversed the previous
government’s “cider tax”.
BRITISH CHAMBERS OF COMMERCE COMMENT
90% of the businesses we surveyed this month were supportive of a
reduction in the headline rate of corporation tax. It is
particularly welcome that the small companies’ rate will be reduced
to 20% from next year. The business community will also welcome the
four-year plan to reduce the headline rate for large companies to
24% - as this will help make our tax system more competitive
internationally.
The BCC opposed changes to the Capital Gains Tax system that
penalized investors. However, we believe the Government has made
some sensible compromises in its approach, such as the significant
increase in Entrepreneurs’ Relief and the maintenance of capital
gains tax allowances. The Chancellor has tried to steer a course
between retaining simplicity and tackling avoidance, and he has
appeared to have succeeded in this aim. The proposal to increase
the capital gains rate from 18% to 28% for individuals seems a
reasoned response. We will watch closely, however, to see if this
change has an impact on investor confidence.
The BCC lobbied hard to roll back the rise in employers’
National Insurance planned for next year. While we are pleased that
the Government has taken the sting out of the rise by raising
payment thresholds, some employers across the country will still be
worse off from April 2011. We would urge the Government to go
further – and eliminate the whole of this unwelcome tax on
jobs.
Our members were clear that VAT was the ‘least worst’ tax rise
they could face. While the rise will inevitably affect businesses
and consumption, we are pleased that the Government has put off the
increase to 4th January 2011 – exactly what we called for when the
main rate rose earlier this year. A few days’ delay after New Year
gives businesses time to adjust.
SPENDING CUTS
The Chancellor announced significant cuts in public spending,
with £11bn off the welfare bill, a further £17bn cuts in
departmental spending meaning unprotected departments face an
average real cut of around 25% over four years. The budget proposed
an additional cut in current expenditure of £30bn per year by
2014-15 compared to the plans set out by the Labour government.
The cuts in welfare spending include freezing child benefit for
3 years, reducing tax credits to families earning over £40,000,
putting a maximum limit on housing benefit and introducing a 2-year
pay freeze for all public sector workers earning over £21,000.
There are no further reductions in capital spending totals
announced in this Budget but the Chancellor made it clear that
"careful choices" would be made about how it was spent. Projects
with "a significant economic return to the country" would be
prioritised and assessed in the autumn spending review.
Specific reference was made to a small number of key
infrastructure schemes where funding would be made available –
these were the upgrade of the Tyne and Wear Metro, extension of the
Manchester Metrolink, redevelopment of Birmingham New Street
station and improvements to the rail lines to Sheffield and between
Liverpool and Leeds, all of which now have the go ahead. Meanwhile
there is an extensive list of schemes in the South West region
still on hold and under review, with funding likely to be withdrawn
or significantly reduced. The full list of schemes is included as
appendix 1, but these include some of the very transport schemes
fundamental to the future growth and development of the region.
GWE BUSINESS WEST COMMENT
Whilst welcoming the intention to support continued investment
in capital projects, we are concerned at the lack of reference to
the South West region and the many schemes now hanging in the
balance in our area. Many of our Chamber of Commerce and other
business members have constantly campaigned for the need to redress
the infrastructure deficit in the South West and the Bristol city
region in particular, with many schemes actively supported by the
business community. These schemes are now under threat and
businesses ever more frustrated about the lack of progress on some
significant but quite basic infrastructure improvements needed to
enable business and the economy to function.
BRITISH CHAMBERS OF COMMERCE COMMENT
Chambers of Commerce have vocally supported continued investment
in infrastructure – which underpins productivity and growth. While
the UK still faces an important infrastructure deficit, we are very
pleased that the Government is not further slashing capital
spending, meaning that vital regional transport projects like
Birmingham New Street Station will be able to go ahead.
PLANNING & THE REGIONS
The announced its intention to introduce a "simplified planning
consents process in specific areas" as part of its Emergency Budget
today. The move, through the use of Local Development Orders, was
described as "part of the shift to a more locally driven planning
regime".
The government also confirmed its intention to scrap Regional
Development Agencies and replace them with "strong local enterprise
partnerships, particularly those based around England’s major
cities and other natural economic areas, to enable improved
coordination of public and private investment in transport,
housing, skills, regeneration and other areas of economic
development."
Osborne called for a "new approach" to the English regions and
promised a white paper on the issue later in the summer. He
announced that a White Paper would be published later in the summer
on tackling regional economic differences in Britain. This could
potentially include additional support for areas most reliant on
public sector funding and support.
A Regional Growth Fund will be created to help fund regional
capital projects over two years. Projects will be prioritised in
terms of greatest impact on improving innovation and creating jobs.
Further information is due to be provided over the summer on this
Fund.
The Budget also confirms the establishment of Infrastructure UK
(IUK) to lead work within HM Treasury to "enable greater private
sector investment in infrastructure, and improve the government’s
long-term planning and delivery". The government will publish a
national infrastructure plan in the autumn that will set out goals
for UK infrastructure. The Chancellor did make it clear that there
would be no further reductions in capital spending - "we have faced
many tough choices about the areas in which we should make
additional savings, but I have decided that capital spending should
not be one of them. There will be no further reductions in capital
spending totals in this Budget."
GWE BUSINESS WEST COMMENT
The Budget (page 31, paragraph 1.89) confirmed that Regional
Development Agencies in England will be replaced by Local
Enterprise Partnerships. A White Paper is expected this summer. GWE
Business West is taking a lead role in bringing the business
community together to be at the forefront of this debate across
Gloucestershire, West of England and Swindon/Wiltshire. We agree
with British Chambers of Commerce on this issue – Chambers of
Commerce and business need to be ready to take on a leadership role
in any new arrangements.
In terms of tackling regional economic differences in Britain,
we accept that there is a role for government and recognise the
importance of supporting “failing” areas, but we also believe the
government needs to recognise the benefits of investing in
“buoyant” cities. If the Government wants to grow its private
sector economy and create more private sector jobs, it needs to
prioritise strategic capital investment in buoyant cities that have
the most chance of generating jobs through their expansion, rather
than solely prioritising investment in struggling city economies
(Report by the Centre for Cities – Private Sector Cites: A New
Geography of Opportunity 2010).
APPENDIX 1 – TRANSPORT SCHEMES
The government has released a list of the 62 transport schemes
which are on hold pending the outcome of the spending review. The
Department for Transport announced that schemes prioritised under
the Regional Funding Allocation process, but on which contracts
have yet to be signed, were under review. In a written ministerial
statement, Hammond said that councils should consider carefully
whether investing further time and resources in such schemes is
justified. No decisions will be made on these schemes until the
conclusion of the spending review.
The full list of South West schemes affected is set out
below:
- Isles of Scilly Link (Cornwall)
- Bath Transportation Package (Bath & North East
Somerset)
- Kingskerswell Bypass (Devon County Council)
- East of Exeter improvements (Devon)
- Taunton Northern Inner Distributor Road (Somerset)
- Weston Super Mare package (North East Somerset)
- BRT Ashton Gate to Temple Meads (Bristol)
- Camborne-Pool-Redruth Transport Package (Cornwall
- Kingskerswell By-pass (Devon/Torbay)
- A338 Bournemouth Spur Road maintenance (Dorset)
- North Fringe to Hengrove Package Bus Rapid Transit
(Bristol)
- South Bristol Link Phases 1&2 (Bristol)
- Elmbridge Transport (Gloucestershire)