“We’re going to act now to save later”; “a Budget for the next generation”; “we’re not afraid to put the next generation first”. There was no mistaking George Osborne’s intention in his 2016 Budget, but with stalling growth and a tense political picture across the UK and Europe, he couldn’t afford to be bashful.
So did the substance of his Commons speech yesterday deliver for Scottish business? Or as Labour leader Jeremy Corbyn claimed, was it a culmination of six years of failure?
By and large, businesses had a number of reasons to be cheerful; unless of course you’re running a soft drinks company, in which case the new sugar levy is pretty bad news whichever way you cut it. Before the Chancellor had even sat down, share prices in some soft drinks firms had started to go south.
However, there are opportunities to offset the investment required to reduce sugar levels in the next two years before the levy comes into force. R&D tax incentives could alleviate the pressure companies will feel as they prepare for the changes.
More broadly, the Chancellor strongly set out his stall in supporting entrepreneurship. Bringing down the corporation tax rate to 17 per cent by 2020 will make the UK headline corporation tax rate the lowest in the G20. The idea is that it will encourage more businesses to invest in the UK, creating jobs and bringing more tax revenues to the Treasury.
Where it might cause a few raised eyebrows will be among the multinationals which have operations here, since payments of royalties overseas (effectively moving profits elsewhere in the world) and storing goods for sale in the UK will now increase the amount of tax paid in the UK.
Loss relief for companies will be made more flexible from April 2017, since restrictions on the income to which it applies has been removed. That’s good news for smaller companies. If the Chancellor is giving with one hand, he’s taking away with the other from bigger companies by restricting to 50 per cent the loss relief that can be claimed if profits exceed £5m. Banks fare even worse, with loss relief cut to 25 per cent.
Osborne made great spectacle of supporting the North Sea oil and gas industry, halving the supplementary charge to 10 per cent and effectively abolishing the Petroleum Revenue Tax. Those changes have been calculated to total £1 billion over five years – a figure he’ll hope will act as a catalyst for the sector.
We shouldn’t underestimate the regular fixtures of fuel, tobacco and alcohol. A further fuel duty freeze will go down very well with families, the country’s fleet of white vans and haulage companies, and you can almost hear beer and cider producers breathing a sigh of relief at the stay in duty for their products. The whisky industry also received a special mention, so keeping duty steady on whisky will help in the face of reduced global exports.
All told, the Government claims a £9 billion upside over the next five years from tax avoidance and evasion measures, and an £8 billion boost from larger companies with the changes to corporate taxes. The net effect of these changes add up to a very attractive tax environment for businesses, especially SMEs, while creating a credible method of increasing the tax take from larger companies.
Among a series of measures to reward those ‘who work hard and save money’, a highlight was the reduction in the highest rate of Capital Gains Tax from 28 per cent to 20 per cent. The UK Government has made a big noise about supporting entrepreneurship, and this move will be encouraging for business owners and investors in non-trading unlisted companies.
While the Chancellor still faces a tough challenge around long-term economic growth, and criticism over missed economic targets, he’ll be hoping his business bonuses this week will provide him with a bit of security over his own long-term prospects.
John McAuslin is a partner of Johnston Carmichael
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