Emergency Budget must support business
On 17 May George Osborne announced the new coalition government’s first ‘emergency’ Budget to be held on 22 June. The government faces an enormous challenge and its emergency Budget is going to be the first clear indication of how it is going to approach the eye-wateringly large financial deficit.
And whilst there has been plenty of speculation as to what he might or might not do, this emergency Budget must not leave businesses crippled. Businesses still need real help in freeing up credit from the banks and a proper reduction in red tape – something many previous governments have promised, but failed to deliver.
The government has indicated its desire to reduce corporation tax rates, which is clearly to be welcomed, yet there may be limited scope for significant reductions in the short term. Many entrepreneurial owner-managed businesses have benefited from tax incentives, such as R&D credits and an annual investment allowance for purchase of equipment. It is to be hoped that such incentives can be extended and refined; it would be very unwelcome if they were abolished or restricted on the grounds of simplification.
The UK is also under pressure from the International Monetary Fund (IMF) to remove many of its VAT exemptions and reduced rates. According to the IMF halving the number of exemptions in the UK would raise 3.3% of the country’s economic output or some £50 billion a year.
The government could repeal the zero rate of VAT, which covers food, books, child clothing, new houses, prescription medicines and passenger transport among others. The demand for many of these items is inelastic and suppliers could pass on the increase to customers, which would undoubtedly be unpopular but would not affect businesses that much.
The coalition government has some tough decisions, many of which are likely to be unpopular. Perhaps the only thing we can confidently predict is that businesses can expect to shoulder much of this financial burden.
Chris Lee is a partner at James Cowper accountants and business advisers. He can be reached by email: CLee@jamescowper.co.uk.