PBR 2009: the reaction

by Catherine Woods - Monday, 24th November 2008 - (1) comment

Measures in the Pre-Budget Report targeted towards the entrepreneurial community have been welcomed by many business commentators although some have questioned the lack of detail and the timescales involved.

“This Pre-Budget Report is a sign of the importance of small businesses to the UK economy. The Government’s Small Business Finance Scheme, which closely resembles the Small Business Survival Fund the FSB has been calling for, will provide a vital cash boost to businesses struggling with rising costs and a lack of credit.

“Many of these measures, such as giving businesses longer time to pay bills and offsetting losses, will give small businesses a welcome breather from the taxman and allow them to concentrate on sustaining their business, supporting their staff and growing the economy in the long term.” John Walker, FSB National Policy Chairman.

“There are a number of measures in this report that we have asked for that will help cashflow in small businesses and business overall by reducing costs. The £5bn package comprising the small business finance scheme and loans from the European Investment Bank should, if well and speedily implemented, give critical help to small firms in need. Small firms will gain from the deferment of the 1 per cent increase in corporation tax rates, together with new opportunities to reschedule tax payments. The reversal of empty property rate relief changes will be welcome to holders of small properties but regrettably excludes larger factories and warehouses which need similar help." Richard Lambert, CBI Director-General.

“It is no surprise that taxes have been cut in order to provide an immediate boost to the economy. But these will only be temporary and without doubt taxes will have to rise significantly in the future to pay back the massive borrowing.” Andrew Jupp, Tenon Head of Tax.

"The commitment to delay the rise in corporation tax from 21p to 22p in the pound for small businesses is welcome, particularly at a time when these businesses are under extreme pressure." Mary Monfries, PwC head of tax services for entrepreneurs, private companies and private clients.

“Today’s announcement that there will be an exemption from UK tax for foreign profits (with much reduced anti-avoidance provisions) is to be welcome but will it really stem the tide of companies looking to go to less taxed shores? In our experience it is not just the taxation of foreign profits that matters.

"The SME sector is the lifeblood of the economy. The extension to the tax loss carry back period in these unprecedented times is welcome but why cap the level of loss? The move to ease the PAYE, NIC and VAT tax payment deadlines for SME in the short term is also to be applauded. But the fine words needs to be matched by appropriate actions. The extension of the loan guarantee scheme is needed.” Andrew Green, Tax Partner at RSM Bentley Jennison

"Slicing the top rate of VAT from 17.5 to 15 per cent until the end of next year means that certain products and goods charged at the top rate will be cheaper. The hope is that this will kick start high street spending, but business needs to pass on the savings from Monday 1 December when this cut is effective. The question is whether this is enough of a stimulus. Big and effective measures are needed. Will a year be enough? If not, this temporary reduction may need to be extended." Chas Roy-Chowdhury, ACCA Head of Taxation.

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1 Comments

November 24, 2008 7:15pm
Stuart Rock Says:

Cat, here's another reaction, from PKF:

"The 2.5% cut in VAT from 17.5% to 15% by the Chancellor in his Pre-Budget Report today, is not the best way to combat the looming recession, says VAT Director Debbie Jennings of PKF Accountants & business advisers. While it is clear that cuts in interest rates and income tax will give consumers more money to spend, a reduction in VAT will not necessarily encourage people to spend, nor benefit those most in need.

“Experts agree that a cut in the rate of Sales Tax in Canada did not lead to increased consumer spending. Plus, there is no guarantee that all retailers will cut the price of their products.

“For example, this will make pricing difficult for retailers who normally offer goods at round sum prices and, in any case, many retailers are already offering much larger discounts in the run-up to Christmas. So any benefit for the rate cut is likely to be intangible and has to be seen more in the context of creating consumer confidence.

“The other point to make is that consumers will only see a direct benefit from the cut in the rate of VAT if they physically spend their money on VAT-bearing goods and services. If all you require is a home, food, water and heat, then the VAT you pay out will be a relatively small amount because homes, food and water do not carry VAT and heating only a 5% rate of VAT which remains unchanged. Therefore it is the wealthiest consumers that will get the most benefit from a VAT cut, although increases in fuel duties, tobacco and alcohol will negate any benefit of the VAT rate cut on those items.

“On the business front, those that are unable to reclaim their VAT, such as banks and insurers, will benefit directly from the cut as their operating expenses will be reduced. Most other types of business will be unaffected financially, as it is a tax borne by the consumer, although they will incur the administrative costs of changing their systems and invoices to incorporate the new rate.

“Whether this works or not remains to be seen, but it will add to the country’s quickly increasing levels of debt. However, we would expect in future for the rate to be increased, probably to 20%, as the Government seeks to balance its books.”