Big business delighted with corporation tax cuts

George OsborneAFP/Getty Images

George Osborne delivered an annual budget speech that lasted barely an hour and contained hardly any surprises. It raised few laughs - the Wallace and Gromit reference did despite being a feeble joke (it was later removed from the official text of the speech) - but the tax breaks announced for the film and video games industries were certainly gratefully received.

Introducing his Budget as one which "unashamedly backed business," the chancellor announced a bigger-than-expected cut in corporation tax to 22p over the next three years. How has the statement been received by the business world?
Bigger businesses are, on the whole, quite happy with the Budget - smaller firms less so.

Tax stole the show
Tax has stolen the show, with further cuts in corporation tax, while the cupboard seems bare in terms of new spending initiatives to promote growth, said Andrew Goodwin, senior economic adviser to the Ernst & Young ITEM Club. He described the statement as a "steady, but business-friendly, Budget". He added: "It is clear that the government is trying to improve the climate for business and it's now up to businesses themselves to deliver the goods."
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After the huge spending cuts made in previous years, the government has moved on to reforming the tax system to stimulate economic growth.

Following reductions announced last year, corporation tax will be cut further to 24% in April rather than the expected 25%, falling to 22% by 2014. The chancellor claimed this was the the "biggest sustained reduction in business tax rates for a generation".

The enterprise finance guarantee has been expanded, and George Osborne announced the ambitious goal of doubling UK exports to £1 trillion this decade. Industry welcomed his plans to introduce an above-the-line research & development tax credit. There is also new funding for ultra-fast broadband for ten cities. Belfast, Birmingham, Bradford, Bristol, Cardiff, Edinburgh, Leeds, Manchester, Newcastle and London will bid for their share of a £100m "super-connected cities" subsidy.

John Cridland, CBI Director-General, said: "An extra 1% off corporation tax this year could make a big difference to investment intentions. With many calls on the chancellor to spend money he didn't have, the best news for businesses is that he stuck to his guns and delivered a fiscally neutral programme.

"If businesses were looking for more, it was in the area of deregulation. Businesses, especially smaller ones, will be disappointed that the chancellor did not do more to cut red tape.For smaller businesses, things may not feel very different on the ground."

Wallace and Gromit
TV drama, animation and computer game firms were delighted with the new tax breaks - designed to "keep Wallace and Gromit exactly where they are," Osborne said. The TV Coalition, which comprises some of the biggest names in UK and international TV production, said the tax incentive could "put an end to the exodus from the UK of dramas telling a British story". It added:

"Shows such as Birdsong, Strike Back, The Tudors, Camelot, Parade's End and the Julian Fellowes' drama Titanic, were all made abroad in countries including South Africa and Canada in the last year to take advantage of tax incentives."

More infrastructure improvements should also help, with Network Rail to upgrade lines in the north and plans to tackle the lack of airport capacity in the south east. This raised hopes of more runways at existing airports, or perhaps a new airport in the Thames Estuary.

However, some, especially smaller firms, were disappointed that Osborne refused to scrap the planned rises in fuel duty. Fuel duty will go up by 3.02p a litre in August. Vehicle excise duty will rise in line with inflation, but has been frozen for road hauliers.

Not impresssed
Saurav Chopra, chief executive of daily deals for businesses site, was not at all impressed with the Budget.

"Corporation tax cuts do nothing to help the millions of smaller companies that are struggling to survive. How is this going to help them invest more money back into their businesses and jobs?

"The chancellor claims to unashamedly back business. He should be ashamed of himself for not doing more to help businesses with soaring fuel costs."

Budget winners and losers
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Big business delighted with corporation tax cuts

As of April 2013, the 50p rate will be reduced to 45p following a study which Osborne claims revealed it would make little or no difference to the amount of tax raised but would significantly reduce the damage to the economy. 

The much-debated cut to child benefit was confirmed, albeit through a less direct hit than was outlined in the pre-Budget report. The benefit will be removed gradually for those earning more than £50,000 – reducing by 1% for every £100 earned over the threshold, cutting off completely at the £60,00 mark. The Chancellor had planned to axe it where one parent earned over £43,000.

Financial service providers always refer to 'typical APR' in advertising to attract customers with favourable rates of interest.

Yet the typical APR on loans and credit cards is only available for those applicants who have a squeaky clean credit record, everyone else could end up with a much higher rate. For example, under EU rules, credit card providers only have to provide the typical APR advertised to 51% of applicants.

So always consider this when applying for accounts and products, and if approved – look out the actual APR that you will be charged.

A potential winner - Osborne particularly name-checked the South East in his Budget which many assume is a veiled reference to a Heathrow expansion.

The cost of a room in a care home in many parts of the country is now over £30,000 a year, according to figures from Prestige Nursing and Care. So even if the prime minister announces a cap on care costs - last year the economist Andrew Dilnot called for a new system of funding which would mean that no one would pay more than £35,000 for lifetime care - families will still face huge accommodation costs. Ways to cut this cost include opting for home care rather than a care home. Jonathan Bruce, managing director of Prestige Nursing and Care, said: "For older people who may need care in the shorter term, home care is an option which allows people to maintain their independence for longer while living in their own home and should be included in the cap." However, the only other answer is to save more while you can.

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A new stamp duty rate of 7% (up from 5%) will be introduced on properties worth over £2 million - widely considered a sop to the Lib Dems calling for a mansion tax. 

As was widely predicted, Osborne froze the fuel duty hike due in September 2013. He announced that his repeated scrapping of this duty has saved the average Ford Focus owner £7 on every tank of petrol.

Alcohol is on safe ground - for the moment. Duty will remain the same but do expect an announcement on alcohol pricing.

Duty will rise on all tobacco products by 5% above inflation, which will add 37p to a packet of cigarettes.

The Chancellor naming Wallace and Gromit caused quite a commotion on the Tory backbench and was possibly the most lively moment in the Chancellor's speech. The Chancellor is intent on keeping UK TV and film productions in Britain and will ramp up support to stop the exodus of British production companies abroad.


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