20 March 2014

Government listens to lobbying and implements a budget to support manufacturing

This year's Budget is a good one for manufacturers. Together with other leading trade associations, we argued the case for reducing the rising cost of energy and the Chancellor has responded with a £7bn support package. We have also stressed the need to strengthen the competiveness of UK businesses and this too has been recognised, with other measures announced to boost investment, exports and skills.

The Budget features two important changes that will help businesses to invest and export. The annual 100% investment tax allowance for investment has been doubled to £500,000 and extended to the end of 2015, and the amount of government credit available to support export sales through the UK Export Finance (UKEF) direct lending programme has also been doubled to £3bn - with the interest rate charged on that credit reduced by a third.

The new £7bn package on energy includes a freezing of the Carbon Price Floor at £18 per tonne from 2016-17 to 2019-20 and an extension of the existing compensation scheme for energy intensive industries for the cost of the CPF and EU Emissions Trading System through to 2019-20, as well as the introduction of a new compensation scheme to help energy intensive industries with higher electricity costs resulting from the renewables obligation and small-scale feed- in tariffs for renewable generation from 2016-17. This should help to curb rising energy costs and will go some way to levelling the playing field with overseas competitors. Likewise the cancellation of the fuel duty increase planned for this September is also welcome in relation to distribution costs.

On skills, we are promised an extra £85 million in both 2014-15 and 2015-16 for over 100,000 more apprentices and additional funding for apprenticeships up to postgraduate level. And on business incentives, a more generous R&D tax credit is to be implemented for small loss-making companies (up from 11% to 14.5%), and business rate discounts and enhanced capital allowances in enterprise zones are to be extended for three years.

The changes announced on personal tax and savings should help put more money into the economy, with the point at which people start paying income tax raised to £10,500 and the threshold for 40p income tax rising from £41,450 to £41,865 next month and by a further 1% to £42,285 next year. Cash and shares ISAs are to be merged into single New ISA with an annual tax-free savings limit of £15,000 from 1 July, and the 10p tax rate for savers (currently charged against the first £2,790 of savings income above the tax-free personal allowance) is to be abolished. As announced previously, the main rate of corporation tax will be reduced to 21% from April 2014 and 20% from April 2015. The small profits rate of corporation tax will remain at 20% from April 2014.

Some government reforms to address competition issues in banking - one of our calls for action in Priorities for Print - are promised. Action to date to remove barriers to entering the banking market has been fairly successful, with 25 applicants currently seeking banking licences compared to only 6 in March 2013. Building on these reforms, the Budget announces that key competition powers of the Payment Systems Regulator to act on competition issues will be brought in one year ahead of schedule, a new agreement from current account providers to give their customers standardised data which will enable millions of people to work out which current account will suit them best, and a new consultation on legislating to help match SMEs who are turned down for a loan with alternative lenders in order to broaden the sources of finance available to small businesses. The British Business Bank will issue a request for proposals to implement "an innovative wholesale guarantees programme" alongside the Budget.

Although public finances remain weak and borrowing is still worryingly high, the latest OBR forecast numbers do offer some better news on future expectations for the economy as whole, with GDP forecast to grow by 2.7% this year and 2.3% next year, then by 2.6% in 2016 and 2017 and by 2.5% in 2018. The Deficit is forecast to be 6.6% of GDP this year, 5.5% in 2014-15 then falling to 0.8% by 2017-18 with a surplus of 0.2% in 2018-19. Borrowing is forecast to be £108bn this year and £95bn next year, leading to a surplus of almost £5bn in 2018-19.

The Chancellor's Budget Statement can be found at https://www.gov.uk/government/speeches/chancellor-george-osbornes-budget-2014-speech 

The full Budget 2014 Report can be found at: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/293759/37630_Budget_2014_Web_Accessible.pdf