Budget not as generous as it first appears
-Julie Meyer is CEO of Ariadne Capital, a technology investment and advisory firm backing entrepreneurs in media, moble Internet and communications. The opinions expressed are her own.-
I recently spoke at an IBM event alongside former chancellor Norman Lamont about the issues that face entrepreneurs and how we can turbo-charge these value creators to help rebuild the countryâ€™s wealth.
As I digest Wednesdayâ€™s budget and what it holds for entrepreneurs, Iâ€™m thinking back to that night and it convinced me not to be too impressed with what at first looks like it could be a generous budget.
At a simplistic level, it splits down into taxes and funding. It doesnâ€™t get talked about much, possibly because itâ€™s so dull, but employersâ€™ National Insurance is one of the most onerous taxes on business. Itâ€™s ironic that entrepreneurs are taxed for paying salaries when you think about it.
Rather than hold back the increase in NI, (1 percent for employers), Chancellor Alistair Darling has opted to cut business rates for a year for firms in premises whose rates are under 6,000 pounds â€“ feels good except that when you really look at the figures, itâ€™s a move directed mainly at the small retailer.
More generally the extension of a time to pay scheme for corporation tax is useful, and has kept many businesses afloat this year, but reduction rather than deferment would be more helpful until certain thresholds are reached to give start-ups a true leg up.
As a general principle, I favour cutting taxes in order to stimulate wealth creating activity which grows the size of the taxable pie overall.
Lowering tax creates confidence and an expectation of recovery, supplying much needed oxygen to the economy. But at the other end of the tax spectrum for the successful few, Darling has doubled the lifetime allowance for capital gains at 10 percent from 1 million to 2 million.
This is clever showboating as the loss in revenue is a pimple compared to what it would have cost to keep NI at its current level. The NI increase will raise around 3 billion pounds in 2011-12, according to Price Waterhouse Coopers.
So on to the funding. Much is made of the “mobilisation” of the EUâ€™s financial institutions to the benefit of our innovative businesses to stimulate venture capital and SME loans. This is a subject I know something about.
While itâ€™s a good thing to recognise that this country is and can be an innovator on a global stage (computer games have been elevated to the same tax incentive investment status as films in this budget), itâ€™s important that the funding decisions rest with people who know the sector.
The key to successful early stage investing is to know how to minimise the risk of investing in things that donâ€™t exist yet. The computer games industry overtook films a while back in terms of revenues generated for the UK but itâ€™s taken the government until now to change its investment status.
So it makes me wonder if the government appointed fund managers might be similarly behind the curve?
Hereâ€™s hoping that the European Investment Bank’s ambitious 3 billion pound fund and the 35 million pound enterprise fund earmarked to help university-launched businesses will each end up in experienced hands.