CSSA NEWS
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Briefing on 2010 Budget
Released on 26/03/2010
On March 24th Alistair Darling delivered his final budget before the General Election. Although tax increases and spending cuts are widely anticipated; with the impending election due to be held in May there was a noticeable lack of specifics in the report. Where there could have been detailed information on proposed economic policy the void was instead plugged with political slogans designed to position the Labour party in the run up to the election. Despite the lack of details the Chancellor did convey information that all of those in the service industry should take note when planning business strategies in the months and years to come.
Economy
The Chancellor reported that the economy had contracted by 6% during the recession. The projected growth figures for 2011 have been downgraded to 3-3.5% while predicted growth for the remainder of this year is projected at 1-1.5% which is in line with forecasts. It is therefore likely that any decisive fiscal tightening would begin in earnest in the following year when growth has increased; giving a sure indication that economic recovery has been established.
Borrowing has been projected to be £11 billion lower this year at £167 billion. It then predicted to fall to £163 billion in before eventually reaching £74 billion in 2014-15. This represents a reduction in the deficit from 11.8% of GDP to 5.2% of GDP. Although this represents a decrease of more than half many have criticised the plan as not being ambitious enough. Some are concerned that even a reduction of this magnitude is not sufficient enough to inspire confidence in the financial markets. If this is the case it could have serious consequences for the Pound Sterling resulting in its value tumbling even further.
Taxation
Most significantly, business rates will be cut for one year in October. An estimated 345,000 businesses will pay no rates at all during this period. This is keeping in line with the general strategy of consolidating economic recovery before undertaking significant fiscal tightening. Businesses should benefit from this cut in the short term. However, they will need to make plans for the long term when the business rate cut expires in October 2011.
Tax allowances for those earning over £100,000 will be gradually removed. There will be no plans to alter the VAT or income tax. Additionally, the threshold for inheritance tax will be frozen for four years. The Chancellor also announced that the threshold Stamp Duty will increase from £125,000 to £250,000. This will however be funded by a 5% increase in the Stamp Duty for properties valued at £1,000,000
It was also reported that taxation on bank bonuses generated revenue of £2 billion in 2009-10. This suggests that little has been done to reform the banking system in order to curb large disbursements of bonuses. It is unlikely that any reform will be undertaken as taxation on these large bonuses represents a sizable revenue stream for the government as it struggles to reduce its public sector debt.
Business assistance and development
The government has pledged £2.5 billion to support small businesses to boost skills and innovation. They also pledged to double the investment allowance for small firms to £100,000. As part of their strategy to solidify recovery they have also initiated plans to double the relief on capital gains tax for entrepreneurs, however there will be no changes to the capital gains tax rates.
Plans have also been laid out for Lloyd and RBS to make £94 billion available in new business loans, with nearly half specifically targeting SME’s over the next year. In an effort to make access to credit easier for small businesses the government plans to establish a new credit adjudicator whose purpose will be to fast track complaints from smaller firms claiming that they have been unfairly denied credit. Additionally the government will also introduce a faster licensing process for new banks in order to boost competition.
In another interesting development the Chancellor announced plans to increase the amount of government contracts awarded to SME’s by 15%.
The environment
The Chancellor announced that the government will also set up a £2 billion Green Investment bank. The purpose of this bank will be to support the UK economy as it transitions towards becoming a low carbon economy. The Chancellor did not elaborate on the specifics of the scheme, therefore it is difficult to illustrate the details of the scheme and how it would affect businesses in the services sector. It seems however the main focus of the scheme is to support the development of offshore wind projects. Therefore it remains to be seen whether individual businesses could benefit from the scheme by perhaps gaining access to some of the funding to procure energy efficient capital.
Jobs and minimum wage
The government has pledged to extend the six month work or training guarantee to 2012. This guarantee will ensure that anyone under the age of 24 that has been unemployed for a maximum of 6 months will be offered either employment or training. The government has also announced plans to extend the provision of tax credits for older workers.
Most significantly the government will increase the national minimum wage by 2.2% taking the rate from £5.80 to £5.93 in October 2010. According to the budget report the 2.2% increase was in line with the LPC’s recommendations. An increase in the minimum wage of this magnitude could have serious detrimental impact for low wage earners and businesses alike. Many businesses beleaguered by the crippling economic conditions last year will be compelled to further drive down the amount of hours worked. A reduction in the amount of hours will reduce the take home pay of workers. This could also have an impact on employment as such an increase will discourage businesses from taking on additional workers in order to mitigate the rise in operative costs, brought about by the increase in the minimum wage.
Contact
Mahriar Hussain / Andrew Large
Email: mhussain@cleaningassoc.org
Telephone: 020 7920 9632
