The Budget today appears to have been largely leaked to the press over the last few days with much speculation regarding:
The removal/reduction of the 50p rate of tax, probably in April 2013
Above inflation increases in the Personal Allowance, by £630 to £8,105
Introduction of a mansion tax for properties bought for £2,000,000 or more, possibly 7%
Introduction of additional anti tax avoidance measures
Consideration of a regional pay policy for public workers
Using pension funds or sovereign wealth funds to finance UK infrastructure projects
The above all tinker at the edges and move what money is available around, but doesn’t really do anything to get the economy moving. Although George Osborne does appear to have a slightly smaller deficit than first thought however the common wisdom appears to be that this should be saved rather than spent.
What will really help the country get back to work will be increased bank lending. The Government are introducing the National Loan Guarantee Scheme. This scheme is designed to help small enterprises (with turnovers of up to £50,000,000) raise capital at subsidised rates through a group of UK banks. The scheme will work as follows:
The Government are making available £5bn (by underwriting through guarantees) to 5 banks, Barclays, RBS, Lloyds, Santander and the new lender Aldermore. The Government guarantee makes the rate at which these banks are able to borrow money on the wholesale markets more competitive. Interestingly HSBC are not participating in this scheme as they are able to raise money cheaper than the other banks independently of this scheme.
The Banks will be required to provide loans at 1% below the market rates for 3-5 years, this equates to a £50,000,000 p.a. saving for businesses. It is expected that the £5bn will last for 6 months and a further £15bn will then be made available in £5bn tranches over the next 18 months. This could equate to a total saving for UK businesses of £1bn over 7 years.
In order to comply with EU regulations the banks will have to pay 0.3% of the value of the loans back to the treasury to cover the cost of the guarantees.
There is no plan to relax lending criteria for this scheme. However the trend in business at present appears to be to pay debt down. Figures from RBS show that businesses are only utilising 50% of available overdraft facilities.
From a positive perspective the publicity surrounding this initiative may increase businesses appetite for capital.
The budget will be remembered for the headline, reduction of higher rate tax and the increase in the personal allowances.
Wins for business are:
- For the smallest businesses, those with turnovers of less than £77,000 will be the introduction of a new simplified tax regime
- Reduction of corporation tax to 24%, moving to 22% by 2014
- New tax breaks for video game companies, animation and high end television production companies.
- The government considering introducing enterprise grants for young people
- Funding for superfast broadband in the UK’s 10 largest cities
Overall the Government are not in a position to make grand gestures so this budget is making the best of the position. The good news is the UK seems to be ahead of the rest of Europe and some of the economic indicators are starting to look more positive. We are certainly not out of the woods yet but thing are not as bad as they were.
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