Is Brown sacrificing small firms in bid to woo the City?

Last Wednesday, Gordon Brown announced that the main Corporation Tax rate would fall from 30% to 28%. At the same time, the Small Firms Tax Rate is going to rise from 19% currently, to 22% by 2009.

In the Sunday Times, David Smith takes a look at the possible motivations behind these changes. Smith points out that that decreasing the main rate will have little impact on the UK's international competitiveness:

"...according to an analysis by the CBI and accountant KPMG, the effect of the cut will be to make Britain’s tax regime more internationally competitive, but not by much.

Taking into account tax changes planned in other countries, the corporation-tax cut will lift the UK from joint 15th in the league table of OECD (Organisation for Economic Cooperation and Development) countries to equal 10th."

On the subject of the small business tax hike, understandably business organisations have been outraged:"Small-business organisations are particularly upset that Brown has singled out the smallest businesses for the tax hike while at the same time reducing the tax rate for large firms. They feel that they are having to pay for the benefits being bestowed on bigger companies."

The article also highlights a good point made by Nick Goulding from the Forum of Private Business:

"...although Brown had attempted to sugar the pill by introducing tax relief on investment, in practice many small businesses would not be able to take advantage of this because it was not relevant or appropriate to their business."

You can read the entire article here and read further reaction in our dedicated Budget 2007 section.