The emergency Budget has today been delivered by the Chancellor George Osborne. It sets out a faster reduction of the deficit than was envisaged by the previous Government, and crucially delivers the bulk of the adjustment on lower spending rather than higher taxes.
Our verdict… It is bold and decisive and the right medicine for the economy.
There were a number of specific tax measures in the Budget that we have commented on this afternoon:
- We welcome the 2011 reduction in the main and small companies rates of corporation tax, and the promise to make further reductions in the main rate in future. Modest reductions in capital allowances are a reasonable price to pay. However, we would not want to see further reductions in capital allowances to below typical depreciation rates.
- We welcome the package to neutralise the damaging effect of the national insurance increase, through an increase in the level of income at which employers’ contributions start to be payable and an increase in the personal allowance.
- We welcome the Government’s commitment to a long-term reform of the corporation tax system, and the decision to consult on the important topics of the taxation of foreign profits and the taxation of intellectual property. It will however be important to consult on all the proposals, so as to ensure the package really is business-friendly.
- We welcome the decision to review IR35 and the taxation of small businesses.
- The rise in Capital Gains Tax rates is regrettable, but not as bad as an increase right up to income tax rates would have been.
- We welcome the decision that any changes to aviation tax will be subject to full public consultation.
- We warmly welcome the decision to review the restriction on pension contributions, with a view to replacing the impossibly complex regime created by the previous government with a simple limit on annual contributions.
There were also a number of specific measures on public spending:
- We recognise the need for bold action to freeze public sector pay for 2 years.
- We welcome the urgency to fast-track public sector pensions reform.
- Whilst we are pleased the Coalition won’t cut infrastructure spending even more than under Labour plans, we are concerned that investment will still halve over the next 3 years.
- We welcome the proposed slow-down in the growth of welfare spending, and want to see further radical structural reform of the system.
In a response to the Budget, Director General Miles Templeman said:
“George Osborne has faced up to the challenge. The economy needed faster and deeper deficit reduction and that’s exactly what the Chancellor has delivered. Equally important to the scale of deficit reduction is the way it is done. Here again the Chancellor has chosen the right route, by concentrating overwhelmingly on closing the fiscal gap by lower spending instead of higher taxation. We do not believe the Budget will threaten economic recovery. Quite the contrary, it is likely to improve the economic outlook by showing the public finances are finally being brought under control.
“Today’s Budget is an important step on the road to fiscal common sense. Knowing that the public finances are being brought under control is one less worry for companies and will also help long-term interest rates and business investment. We never expected the Chancellor to tick all our wish list but he did tick many boxes. Ideally we would have left CGT unchanged but that was never an option politically and the proposed changes are a tolerable compromise.”
Also this video shows our Chief Economist, Graeme Leech welcoming the Coalition Government’s first budget, providing a little more detail on the topic.