21 March 2012

BPIF Budget Reaction

The main plus point to emerge from the Chancellor’s Statement today (21 March) was the announcement of a cut in corporation tax from 26% to 24% from April, with a further reduction to 22% promised in two steps between now and 2014. And by putting more money into ordinary people’s pockets though increased tax allowances, the Chancellor will hopefully boost public confidence and consumer spending, which may bring some benefit to our industry in coming months. Also welcome is the Government’s commitment to retain VAT zero-rating for printed books and newspapers, and the introduction next year of an above-the-line R&D tax credit to encourage more product development and innovation in the UK.

Disappointingly though, the Budget turned out to be a missed opportunity to boost investment. With latest ONS figures reporting a 5.6% year-on-year fall in business investment in Q4 2011, a number of leading business organisations – including the BPIF – had been urging the Chancellor to boost capital allowances. We had proposed 100% allowances for new plant, machinery and buildings, for a period of two years initially. With many small to medium- sized businesses still struggling to obtain external finance, equipment becomes obsolete and over-extended and maintenance costs rise sharply. Fiscal incentives are therefore needed to stimulate investment in the cutting edge technologies required to deliver the innovation and productivity printing companies need to ensure competitiveness. We were disappointed that the Chancellor failed to grasp the chance to put these vital incentives in place.

Other disappointments this year were the failure to introduce a cap on business rate rises – with rates due to go up by 5.6% this year, as well as the Government’s decision not to cancel (at least defer) the 3p rise in fuel tax due to take effect this August.