In his first budget since Britain's Conservative/Liberal Democrat coalition government came to power last month. Osborne announced that VAT sales tax would go up to 20% from 17.5% in January next year, with a new £2billion levy on banks introduced at the same time. Government spending would fall by around 25% over four years.
The Federation of Small Businesses said that plans to hike VAT to 20% will hurt small businesses in the high street. “However, we are pleased that there is some time to go before the increase takes place and it is interesting to note that commonsense has prevailed with the increase coming into play on 4 January 2011 and not on New Year's Day,” said John Walker, FSB national chairman. He added that increasing personal allowances by £1,000 will help to reduce the pressure on businesses from wage demands and give employees more cash in their pockets.
Budget proposals include:
National Insurance: From April 2011, the threshold at which employers start to pay National Insurance will rise by £21 per week, above indexation.
Business rates: Corporation tax will be cut next year to 27%, and by 1% annually for the next three years, until it reaches 24%. The small companies' tax rate will be cut to 20%.
Fuel duty: No change this time round.
Regional investment: A White Paper to be published on tackling regional economic differences in Britain later in the summer. A Regional Growth Fund will be created to help fund regional capital projects over two years. People setting up new businesses outside London, the South East and the east of England will be exempt from £5,000 of National Insurance payments for the first 10 workers.
Capital gains tax: Capital Gains Tax remains at 18% for low and middle-income savers but from midnight, higher rate taxpayers will pay 28%. The capital gains tax "entrepreneurs' relief" rate of 10% on the first £2m of gains will be extended to the first £5m.
FSB welcomed many of the measures announced but expressed concern that rises in Employer National Insurance Contributions (NICS) were not completely reversed. Reducing the Small Companies Tax Rate to 20% would help over 850,000 small firms, the FSB added.
It is also delighted that the government is to extend the Enterprise Finance Guarantee, which helps many small businesses that face difficulties in accessing credit.
FSB has also urged that proposals to exempt new businesses from NICs should be extended to existing businesses, which have the capacity to employ people and that this useful scheme should also be made UK-wide.
Both the FSB and small business support group the Forum of Private Business will also be lobbying the government to make sure the fuel price stabiliser referred to becomes a reality.
David Frost, director general of the British Chambers of Commerce (BCC), said that while BCC was pleased that the Government has taken the sting out of the National Insurance rise by raising payment thresholds some employers across the country will still be worse off from April 2011. “We would urge the Government to go further - and eliminate the the whole of this unwelcome tax on jobs.”
He added: “We believe that the Government's decisive moves to cut the deficit will have positive effects on business and investor confidence. Even more importantly, the Chancellor's message that Britain is “open for business” will be welcomed by companies the length and breadth of the country - and across the globe.”
Richard Lambert, CBI Director-General, said: "The 5-year route map for Corporation Tax provides much-needed consistency and certainty. Taken together with proposals on foreign profits and intellectual property, these measures will help prevent and could even reverse the flow of companies overseas.
He observed that the Budget clearly recognised the role that business needs to play in getting the economy back into shape, and generating the jobs and wealth needed to sustain economic recovery.
