Budget 2007 and Business - What the experts say

Alongside our Budget 2007 Main Points article, we have published some expert reaction to the Chancellor's speech below:

Federation of Small Businesses (FSB)

The FSB today reacted to what is expected to be Gordon Brown’s last budget speech by criticising the Chancellor’s move to ramp up corporation tax on small businesses while cutting it for larger firms.

Carol Undy, FSB National Chairman, said:

“This is the Chancellor’s eleventh Budget and this year’s offering is no different to the others – he gives with one hand and takes with the other. However, this year, after some welcome initiatives for our members he throws it all away with a tax hike aimed at small businesses. Corporation tax was cut for large firms but increased for smaller ones. Small businesses employ fifty eight per cent of the private sector workforce - over twelve million people – and the increase in their tax rate fails to acknowledge their contribution. A cut in income tax is welcome but does not fully offset the dismay felt by small firms despite the other allowances that he has offered."

KPMG

David Woodward, head of capital allowances at KPMG said:

"The reduction in corporate tax rate is essentially being funded by the reduction in capital allowances.”

“Many businesses especially those in the more capital intensive sectors such as hotel, leisure, retail and others with large property portfolios are potentially going to be worse off."

“In addition, although the number of rates has been reduced - which on the surface is a simplification - this is at the cost of corporate taxpayers. Many of the areas of complexity still remain. The Chancellor has missed a clear opportunity to simplify the capital allowances system further.”

Institute of Directors

Responding to the Budget, Miles Templeman, Director General of the Institute of Directors (IoD) said:

“At last we’ve seen a Budget which business can be pleased about. It shows that if you shout loud enough and long enough the Chancellor will hear. The reductions in the main rates of Corporation Tax and Income Tax are just what we wanted. The IoD had called for a reduction in Corporation Tax from 30% to 28% and so we can only thank the Chancellor for listening to the voice of business and our concern that tax was becoming a ‘tipping point’ for international companies. Business will end the day happier than it started”.

“Tax and spend appears to being brought under control, but the level of both remains too high. It’s late in the day but a welcome development. We shouldn’t forget either that future borrowing projections have been raised yet again.”

The IoD stated that proposals on capital allowances should bring much-needed simplicity to the tax system. But there will be losers as well as winners.

Businesses whose assets last for around 8 to 10 years (the average capital asset life) will get allowances more slowly than they do now, but the new £50,000 100% investment allowance will be of significant benefit to some small companies. Future heavy investors in industrial and agricultural buildings look set to lose out.

The package for small businesses, increasing the small companies rate from 19% to 22%, but introducing the £50,000 allowance, will be a winner for very small companies with substantial capital investment. But the one-man company with little capital investment, and many slightly larger companies with profits of a few hundred thousand pounds, will lose out.

PriceWaterhouseCoopers

In response to today’s Budget, Richard Collier-Keywood, UK head of tax, PricewaterhouseCoopers LLP, said:

“The Chancellor’s announcement of a cut in corporation tax is welcome and will help put the UK back in business to attract and retain investment."

“However, while this move will boost the attractiveness of the UK for business, the government needs to make further progress in addressing the need to simplify the UK tax system. For example, the changes announced today to the capital allowances regime appear to add to the complexity of the system. It is disappointing that the Chancellor has not taken the opportunity to simplify the system as suggested by business, for example, by aligning tax depreciation with depreciation in commercial accounts.

“Any change in the corporation tax rate should be looked as being relative to other business taxes borne by companies in the UK. On the basis that the capital allowance are neutral, a 2% drop in the UK corporation tax will equal around a 1% drop in the total taxes borne by business. Only when the complexity of the total tax contribution of business is dealt with will the UK competitiveness objective - from a tax perspective - be fully achieved."

“There is a genuine opportunity to reduce costs on all sides and improve compliance if the UK tax system is simplified. Everyone buys into simplification as an idea; the benefits are clearly visible.”

Forum of Private Businesses

Chief Executive of the Forum of Private Business Nick Goulding said "The Chancellor has used smoke and mirrors to disguise the fact that there is nothing in this budget to support small businesses. In fact the resulting confusion created by some of his initiatives will serve only to increase the red tape burden."

Mr Goulding also said measures will deliver for larger firms not for smaller businesses.