A hopeful budget, but only time will tell

March 24, 2011

BRITAIN/By Joe White

Delivering his second budget speech yesterday, Chancellor George Osborne revealed that he is leaving in place all of the austerity measures which will have a direct impact on the public sector. Meanwhile, there was a lot of policy aimed at supporting business and the private sector. The implicit assumption is that the private sector will take up the slack and continue to drive growth. This is the gamble, and we will have to wait and see if it works.

The government’s predictions for growth are down, and the reliance on the OBR forecasts could come back to haunt George if it starts to get worse and they continue to further revise down their independent estimates. Growth is the ultimate balancing factor for the public finances, so it is all important.

Simplification was a big part of this budget. Focusing on making the tax code easier to understand (43 tax reliefs abolished), and a potential merger of National Insurance and income tax will help. The calculation of payroll taxes is something that can only be done by a seasoned professional, so simplification matters and we can build on this.

Simplification also affects medium and longer term decisions to invest in the UK, as it makes a more attractive prospect for business. Flagging the 50 percent tax rate as temporary is also a nod in this direction to say, “stick around, it will get better”. Corporation tax is coming down for the same reason.

The increase in  R&D tax credits by 200 percent (rising to 225 percent) will help stimulate small business. This is linked to £100m further investment in new science facilities, funding of 12 new technical colleges and other initiatives like a reduction in times for clinical trials which will affect life science businesses. There will be further enterprise zones with tax benefits, but the welcome news is that there will be one in London, which as a major driver of UK growth is too often overlooked for additional support, particularly for start-ups and high tech businesses. A lot of this is longer term, but hopefully protects and develops the UK’s ability to build modern and high tech businesses.

For us as a business, the biggest benefit will be in the R&D tax credit, and in future the continuing reduction in corporation taxes, with the ongoing tax simplification being a good thing too. For our customers, 90 percent of which are small businesses who build and host their websites with us, the simplification of the tax code and the increase in personal allowances should reduce costs a bit and provide a bit more income. Other longer term business benefits around investment in skills and science should also help.

Whether this works is a big question. If we do get growth, how will the rewards be split? These are things that will be picked over in the days to come and analysed in the context of what actually happens in the coming years. This is a hopeful budget that is in keeping with the spirit of the non-banking private sector saving us from the state of our public finances. People like hope, but if it fails to deliver and growth continues to be revised downwards in months and years to come, people will soon feel that this hope has faded away.

Joe White is CEO of moonfruit.com. The opinions expressed are his own.

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