Pre-Budget report fails to support business

Pre-Budget report fails to support business

Alistair Darling’s Pre-Budget report was received among a flurry of interest and excitement, but anyone expecting tax cuts to help the UK’s small businesses and entrepreneurs will be left sorely disappointed.

A cut in VAT from 17.5% to 15% was announced, ostensibly to help consumers – and yet consumers would be hit with rises on duty for fuel, drink and tobacco to compensate for this.

In short, the much anticipated change in VAT merely creates extra administrative demands on business by forcing complete changes in pricing, while offering few benefits to consumers who actually drive or use any form of public transport.

That presumes any cut in VAT will actually be passed on to consumers in the first place, which Alistair Darling does not have the authority to enforce.

This is a dangerous point to note because despite the government rescuing the UK banking sector, UK banks have still remained reluctant to lend, and where they do push on doing so, it is only because the government is able to force their hand.

So if, despite having a controlling share in banks, the government has trouble influencing their business activities, how will the government insist that consumers see real savings from VAT cuts from private business?

This is private business which suffers from reduced revenues and desperately needs to revive their revenues – so where is the impetus to pass on VAT cuts to consumers?

Additionally, at a time when businesses are looking to save on costs, rather than introduce any real tax breaks to help, all the government has done is halt creeping increases to corporation tax.

There is no incentive to hire people by cutting down on National Insurance contributions, which is a real failing, and instead National Contributions will rise 0.5% from 2011.

Instead, Alistair Darling has focused on the New Deal “employment scheme” in the hope that this will reduce unemployment, and thinks having the UK’s largest companies behind this will help solve real employment issues.

Unfortunately, as someone who has experienced New Deal personally, I can say without fear of contradiction that such schemes fail outright to offer real employable skills training or experience, but instead merely act as a way to remove people from unemployment figures.

Therefore the prospect of reducing unemployment figures merely by shunting those without work into second-rate training, and by offering useless job experience, is hardly going to be effective way to tackle core problems in the economy and employment.

So overall, when the world of business looked expectantly for leadership from the UK government, instead they have been roundly told:

1. That their paperwork will increase due to VAT changes
2. No tax cuts, just a freeze on rise corporate tax
3. No help for employers – in fact, get ready for rises in NI

Unfortunately, the opposition parties have roundly failed to take constructive issue on the Pre Budget report, instead bludgeoning on for political point scoring how badly the UK has got itself in a mess.

The one point George Osborne they did get right: “lifetime tax rises to make up for temporary tax cuts”.

The problem being, the tax cuts are too small and in the wrong places, and there is absolutely nothing to guarantee reduced costs for consumers or businesses to help them through what is roundly forecast to be the worst recession among the G7 nations.

Overall, at a time when the Chancellor of the Exchequer could have done something radical and significant, instead we see minor tax cuts and minor tax rises that are more permanent – and all dressed up in political fluff that hides the fact that no real or effective attack on recession has been made.


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