Business West says’ Summer budget a ‘mixed bag’ for South West business
Phil Smith, managing director of Business West
Commenting on the Summer Budget 2015, delivered today (Wednesday) by the Chancellor of the Exchequer George Osborne, Phil Smith, managing director of Business West, said:
“The first budget of a new government will be seen as a mixed bag for South West firms. In a speech that will be remembered in the history books as one of deficit reduction and a surprise compulsory Living Wage, there were both highs and lows. Before the budget we called for a focus on infrastructure, exports and the skills gap, and whilst our nation’s roads and apprentices got a cordial mention, international trade was almost utterly absent. Also missing was a mention of the West when it came to the devolution stakes, showing that we need to raise our game.
“Firstly, let’s look at the positives. Amongst a welcome focus on productivity we saw the Chancellor promise a new ‘Roads Fund’ for sustained investment to get Britain moving and tackle the poor state of our roads. Add to that a new apprenticeship levy to create an additional 3 million apprenticeships and you see a government firmly committed to improving skills levels..
“However, the lack of exporting initiatives was a major disappointment. A brief statement from the Chancellor that ‘we need to see investment at home matched by exports abroad’ wasn’t backed up by any detail of incentives to ensure we pull this off. Whilst this budget boosted business in other ways, such as the planned reduction in Corporation Tax and raising the Annual Investment Allowance, exporters will be wondering where the government support was today. With the UK battling a trade deficit and the government still falling well short of its target of £1 trillion worth of exports by 2020, it was a missed opportunity to kick start this drive.
“Far reaching devolution deals were announced for the cities of Leeds, Liverpool, Manchester and Sheffield and also for areas like Cornwall, but there was no mention of Bristol and the West of England. The Chancellor also announced that new powers could be available for counties and county towns – for Swindon, Wiltshire and Gloucestershire this will be welcome news. He also announced that county towns could set up Enterprise Zones, again opening up economic opportunities in these areas.
“The boldest measure from the Chancellor was saved till last, with his announcement that ‘Britain will be getting a pay rise’ with a new compulsory National Living Wage starting at £7.20 next year and a target for this to rise to £9 per hour by 2020, with the Low Pay Commission recommending future rises. Many businesses in the South West, including ourselves, already pay the living wage and are proud to pay their employees a good salary. They already know that retaining and recruiting talent means being fair on pay. Nonetheless, it is important that the underlying health of the economy supports higher pay, otherwise there is a danger that it will impede future jobs creation.
“We are pleased that future pay rises will be based on an independent assessment of the state of the economy and the labour market and that initial analysis has shown that negative impact will be minimal. Safeguards are made for smaller firms, exempting them from national insurance payments if they employ four or less and pay the living wage. The move to exclude employees aged under 25 will also mean it doesn’t stop firms hiring young people, an important safeguard when youth unemployment is still high.”
Reaction from Baker Tilly in the South West
Sharon Omer-Kaye, managing partner of Baker Tilly
Sharon Omer – Kaye, Tax Partner at Baker Tilly in the South West said:
“The Chancellor’s summer Budget was far more significant than expected. He seems to have shown some creativity in navigating around the triple lock, finding numerous areas for generating revenues while announcing some eye-catching measures such as the new living wage, designed to generate a feelgood factor about progress in the economy.
“In addition to the heavily trailed changes to the inheritance tax threshold which increases to up to £1m for a couple over their lifetime reflecting the value of a family home, the other significant announcement concerned buy to let property owners, who will be adversely affected by mortgage interest being abolished.
“Corporate businesses are set to benefit from further reduction in the corporation tax rate which will reduce to 18% by 2020, however, this could be offset by higher costs for employers such as meeting the apprenticeship levy and the living wage requirement.
“There will also be a review of how dividends are taxed, the outcome of which seems likely to be that most recipients will be no worse off, and may actually be better off. However recipients of large dividends from private businesses and holders of large investment portfolios may well stand to lose out.”
Reaction from Thrings law
Malcolm Emery, partner at Thrings
“In his first Budget since the Conservatives won a parliamentary majority, George Osborne delivered on his pre-election promise of introducing a special inheritance tax (IHT) exemption for the family home in circumstances where the home passes to children/grandchildren, provisions which will address the concerns of individuals who have downsized or even sold their home. A married couple which owns property worth at least £350k will now only pay IHT if the value of their combined estates exceeds £1m. The new household IHT exemption is available from 2017, while rules to protect the allowance in situations where downsizing takes place will also be introduced. Gradual tapering will reduce this new allowance should a married couple’s total combined estate exceed £2m.”
“With one of the highest rates of VAT in Europe the Chancellor missed the opportunity to reduce the current rate of 20%. A flat rate reduction of 2.5% would have been a welcome relief to businesses since it is their customer base which is ultimately responsible for this cost at a time when the effects of the austerity measures put in place by the coalition government are still being felt.”
“The reduction in the rate of corporation tax rate from 20% to 19% in 2017 and down again to 18% by 2020 is clearly good news for business and will help companies rebuild their reserves and bolster their ability to reinvest.”
“Unincorporated businesses will welcome the increase in the 40% income tax threshold, so too the increase in personal allowances. There were concerns that the freezing in tax rates might be mirrored by freezes in the bands and perhaps only very modest increases in personal allowances, so this aspect of the Budget is encouraging, not least in its effect on spending.”
“The relaxation in Sunday trading laws will be welcomed by many businesses, but some smaller retailers may be less enthusiastic given the increase in competition from supermarkets and other large retail outlets freed from the current Sunday trading constraints.”
“Over the last decade, the acquisition of property rental businesses has proved very popular. Most of these businesses have been funded by debt since the cost of the interest on the loans are deductible against the profits generated. Individuals who operate as sole traders or via a partnership will only be able to claim income tax relief at basic rate (20%) from 2017 rather than at rates as high as 45% under the current regime. The proposed changes will not impact on those property owners who carry on their business through a company.”
“Under current rules, a non-dom living in the UK can permanently avoid paying tax on foreign income and foreign capital gains by not remitting, transferring or enjoying the income or capital gain in the UK, and by also paying the UK government a fine known as the remittance basis charge. From 2017, any non-doms who have lived in the UK for 15 out of 20 years will be treated as being UK domiciled, meaning the previous tax benefits will be lost. The Chancellor is also curtailing the inheritance tax advantages currently enjoyed by UK-resident non-doms to swell the Treasury’s coffers further.”
Budget was no surprise, says Swindon accountants Banks BHG
Richard Mathews, director of Banks BHG
Banks BHG chartered accountants said the Budget contained few surprises, and the Conservatives’ targeting of welfare payments was good news for working people.
Richard Mathews, director of the Swindon-based company, said the effect of the Budget on owner managed businesses needed careful studying. “Raising the Annual Investment Allowance to £200,000 and cutting Corporation Tax to first 19 per cent, then 18 per cent, is very good news for businesses.
“But we need to look carefully at what the Chancellor called the simplification of the dividend system, and how that will affect business owners.”
He said introducing a Living Wage was a positive step, as was the change to Inheritance Tax, raising personal allowance and higher rate tax thresholds, and the freezing of fuel duty.
But he added: “There may be cause for concern over the mortgage interest relief changes to property landlords, and this will need careful examination.”