George Osborne's rallying cry to put Britain on a world stage – but what about growth and stability?
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The Chancellor's second Budget speech was peppered with references to Britain's standing in the global economy. He declared in the first few seconds that"Britain has lost ground in the world's economy and needs to catch up" and he talked about the"route from rescue to reform, and reform to recovery" which this Budget is designed to achieve. He called for it to be heard around the world from"Shanghai to Seattle, and from Stuttgart to Sao Paolo: Britain is open for Business".
So today's Budget was"an urgent call to action for Britain" for"private sector growth [to] take the place of government deficits". The Chancellor presented the government's vision for the City of London to remain a leading centre for financial services with the rest of the country becoming"a world leader in advanced manufacturing, life sciences, creative industries, business services, green energy and so much more".
However, in a fiscally neutral Budget, he conceded that growth targets have had to be revised downwards from 2.1% to 1.7% in 2011 and from 2.6% to 2.5% in 2012.
Although the borrowings forecast for the current year at £146bn was £2.5bn lower than anticipated, the overall borrowing over the whole period to 2015/16 is in fact up on previous forecasts – and this is dependent on assumptions of both growth and inflation.
Corporation tax lowered and a focus on manufacturing
To move towards this new vision for Britain, Osborne's proposals for making up that lost ground including a lowering of Corporation Tax by 2% rather than the previously announced 1%, followed by further 1% falls until it is at 23% in 3 years. That, he declared, would mean that Britain's corporation tax would be"16% lower than America, 11% lower than France and 7% lower than Germany [with] the lowest corporation tax rate in the G7".
There was a notable focus on support for the manufacturing sector deemed"crucial to the rebalancing of our economy" with this Budget being"the one for making things, not making things up". New apprenticeship schemes were announced along with a raft of other measures to help businesses including 21 new enterprise zones; enhanced capital allowances; and export credits for small businesses.
A simplified tax regime
In another global reference, Britain's tax code was compared with that of India and declared to be"so complex that it recently overtook India to become the longest in the world". It was announced that 43 complex reliefs will be abolished (and with them 100 pages of the tax code) and that from April 2012, the default indexation assumption for direct taxes will move to CPI rather than RPI.
In addition, it was announced that consultation will begin immediately on the merging of National Insurance and Income Tax as part of an overall move to overhaul our tax system dramatically and make it"fit for the modern age".
The 50% top rate of income tax will remain, though not indefinitely, and HM Revenue & Customs will review exactly how much it has actually pumped into the economy before any future decisions are made.
Radical reform of Gift Aid and encouragement of charitable giving
The Chancellor introduced what he called the most radical reform of Gift Aid in 20 years with a dramatic simplification of the administration burden which should help charities, both big and small. The Gift Aid benefit limits will be increased from £500 to £2,500 and, from April 2013, charities will be able to claim gift aid on cash donations without the need for donors to submit any forms.
In addition, it was announced that if 10% or more of an estate is left to a charity, there will be a 10% decrease in the Inheritance Tax payable. George Osborne said that he wanted to encourage the charitable giving of 10% in a Will as the"new norm".
Non-doms were again the focus with a statutory residence test to be introduced. The charge for non-doms who have been in the country for 7 years will stay at £30,000 but for those who have been in the country for 12 years, it will rise to £50,000. However, against this rise, the tax charge when non-doms remit foreign income or capital gains to the UK for the purpose of investing in a British business was removed.
Entrepreneurs and private investors
In keeping with the theme of rewarding investment in UK business, entrepreneurs and private investors were given several highly attractive incentives.
Firstly, the current 20% rate of income tax relief for investment in shares in companies qualifying under the Enterprise Investment Scheme (EIS) is to be increased from 20% to 30% on qualifying annual investment of up to £1m (currently the annual investment limit is £500,000). This is a generous tax break for those individuals prepared to invest in qualifying private companies but given the restrictions on the type of companies that qualify for the scheme, it is not without risk.
Secondly, the 10% capital gains tax rate on business gains qualifying for entrepreneurs' relief will, from 6 April 2011, be available on gains of up to £10m (currently the limit is £5m). There are no changes to the qualifying rules for the relief so this remains a highly motivating tax saving for those engaged in trading businesses.
Thirdly, Business Premises Renovation Allowance (BPRA) which provides income tax relief for investment in certain renovation works on disused business premises is to be extended for another 5 years. The allowance provides investors with tax relief at their marginal tax rate on the amount invested but can also be used to prevent taxable income exceeding the critical thresholds above which personal allowances are withdrawn or the 50% additional income tax rate applies. This relief, introduced in 2007, was due to be withdrawn on 5 April 2012 so the extension for a further 5 years is very welcome.
Fuel for economic growth?
In a final flourish, the Chancellor announced the 'Fair Fuel Stabiliser' where a supplementary charge levied on oil and gas production will rise from 20% to 32% and will offset the scrapping of the proposed rise in fuel duty and a lowering of a further 1p per litre at the pump from 6pm this evening. For those motorists who filled their vehicles earlier today in anticipation of the fuel increase, it may be frustrating to realise their forward thinking was thwarted by this last unexpected announcement. For others, they will be left wondering if the Chancellor's closing words,"we have put fuel into the tank of the British economy" really do ring true.