Budget message: "UK is open for business"

The dust is now settling on a dramatic budget and FBM’s Bill Livingstone explores what it might mean for Fife’s business community.

With public-sector workers facing a two year pay freeze and job cuts in the toughest Budget in peacetime Britain, it’s business that will have to grow the economy and create new jobs. While banks will pay a new levy, business tax cuts are seen as presenting both an incentive and a challenge to British

business to create a new style of economy.

In his Big Bang tax and axe budget, Chancellor George Osborne put business

in the driving seat as he looked to private sector growth to lead the UK’s recovery and to rebalance both the economy and the record £155bn budget defi cit by 2015/16.

As British Chambers of Commerce welcomed the Chancellor’s message that

Britain is “open for business,” Fife Chamber boss Alan Russell observed, “The Government is clear that a shift away from reliance on the public sector, towards a recognition that growth in the economy will be driven by

businesses. From that perspective, and for its clear direction in tackling the spending deficit, it is welcome.”

But he warned, “Nonetheless, there will undoubtedly be fierce battles ahead to ensure that Fife and Scottish businesses receive the recognition and support it needs going forward.”

Will the coalition government’s first Budget help or hinder the prospects for Fife

businesses?

As strategic chair of Fife Council’s Environment, Enterprise and Transportation

Committee, Councillor Tony Martin sets his conclusions within the context of the Fife economy.

He points out, “The Fife Economy Partnership Economic Strategy Document emphasises the importance of renewable energy to the Fife economy. If Fife

businesses are able to take advantage of the opportunities green energy will offer, there could be resurgence in manufacturing - the first for many years.”

On the Emergency Budget impacts, he suggests the fact the money markets

seemed to be pleased should mean interest rates staying low for the foreseeable future. "This is very important to any business that sees renewable energy as an important opportunity,” he says.

“Most business, large and small, will welcome the lowering of the rates of

corporation tax and also the changes on the annual investment allowance. The exemption from up to £5000 in National Insurance payments for each of the first 10 employees could help and let’s hope Fife will be able to take advantage of the Regional Growth Fund for capital projects.

“However, the hike in VAT will no doubt offer up further challenges to the hard-hit Fife retail sector. Although cushioned a little by not being introduced until after the Christmas rush and the January sales, it will no doubt make 2011 a diffi cult year for retailers in Fife’s towns.”

Councillor Martin believes tourism in Fife will have to rely on innovation and improving marketing and standards, “There was little, I fear, in the Budget to bring joy in this sector. However, the £ is unlikely to rise dramatically and neither is the Euro, so Scotland is still well placed as an international destination.

Fife just has to work harder to get its fair share.”

He believes the Budget will bring stability over the next few years. “That is important,” he says. “It has set out, in broad terms, how the 20% taxes rises will be implemented.”

But he acknowledges, “The next thing we anticipate is how the 80% cuts in public spending will impact on Fife. With the public sector Fife’s biggest employer, there may be trouble ahead.”

Fife Chamber was expecting this to be a painful Budget and despite all the parties’ pre-election assurances that raising the rate of VAT was not in their immediate plans, were anticipating an increase to 20% sooner rather than later.

But chief executive Alan Russell acknowledges, “For businesses in Fife, this will undoubtedly cause concerns in our retail and tourism sectors, as it will serve to dampen consumer demand in the economy next year.”

He adds, “We do welcome the plans to reduce headline levels of Corporation Tax, which will help to boost our competitiveness as a place to do business and, in particular, we applaud the Chancellor for listening to Chambers of Commerce and announcing plans to reduce the Small Companies Rate of

Corporation Tax to 20%.

“The Government has failed to match pre-election promises to axe the planned National Insurance Contribution rises in full and that is disappointing,

although the exemptions created for new business start-ups outside London, the East and South East are a welcome bonus for Scotland.

“Also, the changes to the Capital Gains Tax regime do not appear to have been as burdensome as many had feared, and the extension of the 10% rate for entrepreneurs to £5m of lifetime gains is positive.”

Professor Bill McIntosh, principal of Fife’s Carnegie College and vice chair of

the Scottish Chambers of Commerce, believes the Budget marks a turning point in British politics and for British economic policy as signifi cant as the change in direction introduced by Margaret Thatcher.

Its impacts would be “far-reaching and long-lasting.”

To an extent, Professor McIntosh sees it as an enterprising budget which encourages ‘entrepreneurship’ - especially outside London - and reduces corporation tax over the next few years. “This will support business start-ups and business development,” he suggests.

“What a shame for Scotland that the tax incentives for computer gaming were

withdrawn. This is a real negative and is likely to result in future businesses, in a sector where we have genuine international expertise, setting up elsewhere because of a more supportive tax environment.”

Of the pending public spending cuts, he warns that Scotland, with its over-dependence on public-sector employment, should brace itself for major cuts in transport and education. “We should not delude ourselves. These cuts in employment will be significant and they will have a multiplier effect as they

impact on aggregate demand in the economy.”

But he adds, “If we cannot stomach our own medicine, the issue of international confidence in the UK economy will re-emerge with a vengeance. So, whatever we may think about the fairness or otherwise of the Budget, there

is a bigger game to play. Pray to your God, but tie up your camel!”

The Federation of Small Business in Scotland has welcomed the moves to give

a National Insurance holiday to Scottish business start-up firms - but expressed concern over the possible impact of the VAT increase.

East of Scotland organiser Gordon Henderson says, “Not only will goods and

services be more expensive but small firms are less able to absorb the costs of making the VAT change than their big business competition.

“We were, however, pleased to see that the FSB campaign to save many businesses in Scottish tourism has reaped results with the Chancellor’s announcement that tax breaks for furnished holiday lettings will continue.

Tourism and the furnished holiday lets business is vital to the rural Fife economy.”

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Permalink: http://www.fifebusinessmatters.co.uk/articles/404547-budget-message-uk-is-open-for-business.html

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