We’ve had many pro-business budgets in the past, but this one truly went out of its way to suck it up to them. After all, when was the last time you heard the CBI gush with such force about a government:
The Chancellor has achieved his twin objectives of setting out a credible plan for the public finances and producing a convincing growth strategy for the longer-term
Oh, yes, George! And all this before anything has actually changed yet.
It’s simple. There isn’t a single thing in the Budget that would have any negative impact on the business community. What’s that about VAT, you say? But most businesses, certainly the ones that employ people, claim back all input VAT anyway. And giving them till next January to plan for it eases the burden even further.
It’s those businesses that are more than one-man bands that are going to revel most in the plan to cut small companies’ corporation tax to 20%. And those medium and bigger businesses will also benefit from the year on year falls in corporation tax.
Then there is the changes to NI, which included a minor change to the thresholds, a reversing of Labour’s planned NI rise on employers, and an incentive scheme to encourage businesses to employ people outside the South East and London by reducing employers’ NI to zero on the first ten employees.
Meanwhile, the Capital Gains Tax rise on those who enjoy these kind of things was much less than it should have been, and George Osborne greatly improved an allowance for “entrepreneurs”, now allowing them to dispose of businesses at a very generous CGT rate of 10% below £5m.
Yes, banks are being hit… but even they didn’t seem too bothered. Very small ones will be exempted, and to them it may be a small price worth paying for the fact that they wouldn’t be in existence today but for the government. Furthermore, many of them are likely to play ball, keeping their powder dry for the bigger battle regarding breaking them up into smaller entities.
In other words, the totality of this package is the coalition saying to the private sector: we’ve done our bit, now get us out of this mess.
The question really is whether private sector growth is going to come roaring back to such an extent that it will make up for the withdrawal of 25% of the budget in all departments bar health and international development. It is also whether those cuts, which will affect public sector jobs, public sector wages and many private sector contracted-out jobs which rely on the public sector, will affect people’s spending and consumption. Coupled with the VAT rise, it simply has to.
George Osborne’s gamble appears to be that the public and private sector are in a zero-sum game. That’s a big enough risk on its own, without even considering the fact that the private sector is really not ready, willing or even able to prop up this stagnant economy.
Hold onto your hats…