Comments on Alistair Darling's 1st Budget speech

Whilst never sounding as confident as we have come to expect from his predecessor, the Chancellor nevertheless managed to deliver an upbeat account of the state of the UK economy and Government tax and spending.  However, local businesses will not feel so good when they count the cost of the many fiscal changes that are being ushered in.

For example, whilst the headline rate of corporation tax for large companies is coming down from 30% to 28%, the majority of local businesses will see a 1% rise, due to be repeated next year (on top of last year’s rise).  Capital gains tax for individuals and trusts is set to change hugely, with business owners in particular seeing a tax rise from 10% to 18%.  This will be mitigated in a restricted way by the new Entrepreneurs’ Relief but there is no doubt that many will be worse off.

There is a raft of changes to reliefs for capital expenditure by businesses.  Some small firms will see a benefit but there are significant losers, including manufacturing concerns and farmers, who will see the withdrawal of industrial and agricultural buildings allowances.  Many will be reviewing their prior year claims to see if any tax relief can be saved, before it disappears.

It is a feature of this year’s changes that they have been brought in all at once and not phased, in the name of simplification, but they tend to act against the interests of trading businesses that provide employment.  The one exception to this is an announcement in the Press Releases that the proposed attack on the income of the spouses of higher earners will now be postponed by a year, to allow for consultation.  This will be a relief to family businesses.

Some good news for Small businesses (SMEs): the loan guarantee scheme is to be enhanced and there will be local access to Government contracts.  Extra cash is to be found to encourage women entrepreneurs.

The region strives to attract inward investment but the review of Residence and Domicile may affect this, as offshore investors may be put off by the personal charges proposed, which are threatening to tarnish the UK’s reputation for being a good base for multi-national firms and so could affect job prospects. 

In contrast, the York Science Park will be very pleased to hear a number of pieces of good news.  There will be Government support for high tech and creative industries and there will be welcome for a £65 million fund to help British Science and innovation, to be established by 2010.  In addition, an additional £30 million will be provided to help the teaching of science in schools.  Finally, increases in the availability of Research and Development tax credits and to the Enterprise Investment relief for investors will be good for businesses based there, as well as enhancement of employee share schemes.

Generally, tax rates and allowances have been set out ahead and the big losers are likely to be those who earn less than £18,500.  This is because there is going to be a doubling in the basic tax rate for them, from 10% to 20%.  Those over 65 will see a large rise in their personal allowances, to compensate, and higher earners will benefit from the 2% fall in the basic rate.  The effect on low-income families will be mitigated by increases in Child Benefit and Child Tax Credit.  Help for those that pay high-energy costs through prepaid meters will also be welcome, as will the generous increase in winter fuel allowances.

Charities will be pleased to hear that they can claim gift aid repayments at the old higher income tax basic rate for a transitional period of three years.

More talk of environmental measures included: possible road pricing; a tax on plastic shopping bags; the 2009 reform of vehicle excise duty; and extension of the zero carbon build scheme to commercial property.  The Chancellor noted that jobs would be created in the growing environmental industries sector – hopefully locally!

Road hauliers and rural drivers will be pleased to hear of further support for Bio fuels and the delay in the latest road fuel duty rise.  Nevertheless, this is still just a postponement and many will feel that the tax burden remains too high.