True Business- real life for small businesses

Well, given the unstable state of the economy, we should have expected a pretty bland budget, and that’s what we got. Darling was barracked the moment he got to his feet, using the phrase “Stability now, and in the future” to much laughter. But in my previous post I lamented this administration’s endless tinkering, and now I’m going to have to eat my words. This was a tinker-free Budget.

It was hardly a bravura performance- Darling is actually a less effective speaker than even Gordon Brown, and at times he sounded sonorous; but he did seem to get into his stride after the first ten minutes or so- perhaps after he had dealt with the uncomfortable macroeconomic discussions which are so overshadowed by Northern Rock.

His first job was to make sure we all understood that our economic problems weren’t his fault- they’re global, right? He used the term “world economic slowdown” in only his second sentence, and “global economic uncertainty” soon followed. He reminded us sagely that “Problems in one part of the world can spread to another”. To raucous laughter, Darling told us that “We’ve maintained confidence in the banking system”.

My expectations were low, but Darling did have an answer to the baying throng across the floor. He reminded us that the UK’s GDP per head has risen from the lowest in the G7 to performing second only to the US. That’s true. And whilst annual growth forecasts were reduced to 2.25-2.75% for 2009, he forecast that growth in the British Economy will still be faster than Japan, the US and the Eurozone. He may be right there, too.

He promised an anti-inflationary policy (like every Chancellor before him) but had the grace to mention that he was aware of the upward pressure on energy and food prices; predicting a return to the 2% inflation target by 2009, and noting that discipline on pay in the public sector is key to maintaining low inflation. If you work in the public sector, remember this well.

I do have a couple of criticisms though. One of Darling’s more political techniques was to use 1997 as some sort of benchmark year. Yes, it’s when Labour took over, but 1997 wasn’t a defining moment in the economic cycle, and it’s over 10 years ago. His regular references to “between the 1970’s and 1997” rather fudged the way economics works. The post-’97 decade has not been some sort of Golden Age.

One more political caveat- much was made of the Golden Rule- that the government would stick to a sustainable debt level of below 40% of GDP. If you include the Northern Rock fiasco, we’re well past that target already.

This was also, above all, a Budget of aspirations rather than firm commitments. “Radical new proposals” on cutting red tape and business administration were promised, but not clearly itemised. The Chancellor is ready to put a tax on plastic bags- but only if voluntary agreements with supermarkets don’t work out. He’d like to see longer-term mortgages (of 25 years, for example) become the norm, as is the case in many other countries, but is merely putting the idea out for consultation. And wouldn’t it be great to increase our carbon reduction targets to 80% by 2050? Well, by 2050, his term in office will be long gone. These are all pie-in-the-sky “maybes” rather than anything concrete- just the sort of bluster needed to fill time in an otherwise “business as usual” Budget.

Speaking of business, though, this was a very fair and reasonable Budget. The headlines which will have a resonance for businesses included the following. All are of some use, but generally balanced- the last thing Darling wanted to do in the current political climate was to rock the boat with any surprises. There is little to criticise:

• The 2p rise on fuel duty due in April has been postponed to October, so those £5-a-gallon headlines were wrong. Another modest rise of 0.5p is scheduled for 2010.
• There are proposals to reduce reliance on long-term incapacity benefits. It should make economic sense for more people on benefits to move into work
• The Cash ISA allowance will rise to £3600 from April
• Measures (hidden deep in the Budget documentation- watch out for them in the next week or so) will simplify the tax regime for small businesses.
• The tax benefits offered by the Enterprise Investment Scheme will apply to a larger investment band- up to £500,000 instead of £400,000.
• A capital fund of £12.5 million will be made available to encourage more women entrepreneurs.
  Another £60m will be allocated to funding the Small Firms Loans Guarantee Scheme, which will be extended to cover all small businesses.
• The Chancellor committed to ensuring that small businesses win a target of 30% of all public sector business
• Whilst the £30,000 charge for all non-domiciled entrepreneurs will come into force as expected in April, the Chancellor promised no further tinkering for two terms of parliament to come.
• £60m was promised to provide skills and training in order to encourage workers to re-enter the labour market

Darling reminded us that we have the lowest Corporation Tax in the G7 (and from April it will of course be reduced to 28%), so whilst the CGT debacle doesn’t necessarily sit comfortably with a pro-business approach, this has certainly been one of the most business-friendly budgets of the past five years.

I was also expecting swingeing environmental taxes, but the Chancellor’s response was measured. He rightly said that use of public transport is at a 25-year high. He said that “we can’t build our way out” of congestion. He’s right there, too. I don’t like the idea of road pricing any more than anyone else, but without many other options, his honest approach and tentative endorsement of road pricing seems pretty fair. We’ll see the devil in the details when the appropriate report is published next year.

And whilst there will be increases in the meantime in Vehicle Excise Duty, the Chancellor rightly took a major step in moving the focus of VED from the consumer to the manufacturer. I think this is where the Chancellor has played nothing short of a blinder. If manufacturers are encouraged to make environmentally-friendly cars, there’s a much greater chance that we will buy them. Hence the first-year VED policies from 2010 (dubbed a “showroom tax”) are an excellent idea. If gas-guzzlers simply become too uneconomical to make, we’ll all soon be driving eco-friendly cars, and they will become culturally acceptable. This is a smart move all round, and shows that the government is capable of using tax policy creatively to meet specific policy objectives, rather than just milking the motorist.

Overall, this was a Budget designed to minimise political fallout in what are in any case uncertain times. There were never going to be any surprises. But Alastair Darling has come out of it considerably better than I expected. I’m therefore off for a celebratory cigarette, before they go up by 11p a packet.