Give business a chance, Alistair

Mar 12 2008 by Aled Blake, Western Mail

KEEP it simple and don’t risk further undermining the competitiveness of the UK economy.

That was the clear message from business leaders last night to Chancellor Alistair Darling who delivers his maiden Budget today.

After introducing controversial measures on capital gains tax in his Pre-Budget Report in the autumn and amid growing economic uncertainty, industry leaders’ Budget wish-list is for stability from the Chancellor.

They have urged Mr Darling, who delivers his speech at 12.30pm today, to concentrate on creating business-friendly conditions, stripping the speech down to the “bare minimum”.

His Budget could prove a defining moment for the Government’s business credentials.

Russell Lawson of the Federation of Small Businesses (FSB) Wales said stability is crucial and called on Mr Darling to ease the tax burden on business with signs that the economy is faltering.

The FSB said that any rises in fuel tax will hit small businesses hard as the economic climate gets tougher.

Mr Lawson said, “The Chancellor must keep it simple, with support for businesses and not more taxes and regulation.

“We want to scrap plans to increase fuel duty – using fuel duty to try and get people out of their cars and into public transport is all very well but a plumber or an electrician can’t use the bus to carry all their equipment and take them to where they need to go.

“For a lot of businesses fuel is a necessity, not a luxury. But a tax on fuel hits everybody.

“With energy prices going up and oil prices going up as well more tax on fuel will hit businesses hard especially during an economic downturn.”

Mr Lawson described the capital gains tax decision in the Pre-Budget Report as “difficult to stomach”.

Mr Darling announced in his pre-budget report that it would go up to 18% from 10%, while in January he backtracked a little with an “entrepreneurs’ relief” providing a 10% tax rate for up to £1m of gains.

Mr Lawson added, “What business wants more than anything is a stable economy and the ability to plan for the future without any nasty surprises.

“Mr Darling must apply consistency so that business can plan for the long term. The Treasury should be looking at imaginative ways to encourage business investment rather than more ways to tax companies.”

The chair of the FSB in Wales, Janet Jones, said, “Over recent months the positive relationship between business and Government has been strained over such issues as the capital gains tax announcement and a perception that Government had stopped listening to business.

“In his Budget the Chancellor has a chance to restore that trust that businesses want to have in the Government by ensuring that the measures he introduces are positive for business and will stimulate business growth and economic growth across Wales and the UK.”

Economists are predicting that Mr Darling will reveal GDP has slowed to 1.8% with prospects for the public finances looking “bleak”.

Howard Archer, chief economist at Global Insight, said higher- than-expected surpluses in the public finances in January will not ease the pressure of the Chancellor much.

Markedly slower consumer spending and overall growth in the economy “seem certain” to undermine VAT and corporation tax receipts, said Mr Archer.

“Mr Darling is likely to attribute much of the UK slowdown to a weaker global growth, tighter lending conditions influenced markedly by the US sub-prime mortgage crisis, and high energy, food and commodity prices.

“He may well argue that GDP growth in the UK is expected to be higher in the Eurozone and US in 2008.

“However, this does not mask the fact that the UK economy has problems of its own, notably including high household debt levels and an over-extended housing market.

“The public finances are in poor shape despite the economy experiencing extended robust growth during Labour’s time in power.”

Mr Archer said that the Chancellor has little scope to make “meaningful stimulative fiscal measures”, and that it is unlikely he will enact major tax raising measures or public spending cuts.

He added, “Whatever the Chancellor does on Wednesday, he cannot afford to make any major policy announcements that subsequently need to be significantly amended.

“The fiascoes over capital gains tax and the taxation of non-domiciles, on top of Northern Rock, have significantly damaged the Government’s reputation for economic competence, as well as Mr Darling’s own reputation.”

Roger Bootle, economic adviser to Deloitte, argued that Mr Darling’s room for manoeuvre was “pretty tight” – although he may be able to afford a small tax giveaway to support the economy.

Mr Bootle said, “Mr Darling will be forced to acknowledge that the outlook for the economy has weakened since October’s Pre-Budget Report.”

More must be done to help small and medium-sized businesses in Wales, according to Simon Jones senior partner at KPMG’s Cardiff office.

Mr Jones echoed the calls for a simplified Budget and said, “With economic conditions getting tougher, now is the time for the Treasury to act in helping ensure the UK is a great place to do business.”

Mr Jones said there was a lack of certainty around tax which KPMG would like to see addressed in the Budget.

He added, “Recent announcements and subsequent amendments to proposals around the capital gains tax rules and the tax regulations surrounding non-UK domiciled residents, have received an extremely negative response from business.

“And we still don’t have the final legislation. This leaves businesses operating in the dark – a position they find extremely uncomfortable, and also leaves them feeling uneasy about what future changes might be introduced without prior consultation.”

Those thoughts were backed up by Michael Izza, the chief executive of the Institute of Chartered Accountants in England & Wales, on a visit to Wales this week.

He said, “We don’t want Mr Darling to announce any more changes. I think the things he has done in the past six months have created a lot of uncertainty in the market. We need stability back.

“If Mr Darling was to do anything in particular we would want him to look at measures that would give business confidence again in the system.”

Don’t miss tomorrow’s 12 page Western Mail Budget Special in association with PwC

Visit icwales.co.uk’s business channel to post your thoughts on the Budget