Will the Budget make life easier for business?

The Chancellor's hinting at lower business taxes and costs. But tax hikes elsewhere could suppress demand.

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Last Updated: 31 Aug 2010

What’s in store for business in tomorrow’s Emergency Budget – possibly the most significant for many years? The good news is that the Government desperately needs the private sector to prop up the recovery while it takes the axe to the public sector – which will probably mean lower corporation tax, concessions on NI and exemptions for entrepreneurs within the new CGT rules. But with public spending cuts likely to drive up unemployment and slash benefits (well, apart from the dole), not to mention a possible VAT hike, there’s surely going to be less demand in the economy – which is likely to dampen any private sector recovery. So it’s likely to be a distinctly mixed bag tomorrow.

The Treasury has been busy dropping big hints about the Budget for the last couple of weeks, apparently with the intention of steeling us for the unpalatable measures therein (or, possibly, lowering expectations so the reality actually seems less painful than it would have done). Chancellor George Osborne was at it again this weekend, with dire warnings about the UK being on the ‘road to ruin’. The public sector looks set to bear the brunt: most Government departments face swingeing cuts, and there are rumours of a one-year pay-freeze – while Osborne is also trying to grasp the painful nettle of our unaffordable public sector pensions, persuading Labour peer Lord Hutton to head up a review body (much to John Prescott's disgust).

For those in the private sector – who have watched the public sector continue to expand even as their own wages and job security have plummeted – it might seem only fair that the pain is being more evenly distributed. And since they’re going to have to pick up the slack in the economy, businesses can also expect some sweeteners tomorrow: apparently there’ll be a plan to reduce corporation tax over the next few years, while Labour’s NI hike will be scrapped and firms with fewer than 10 staff given a one-year NI holiday – although probably only in those regions that are currently heavily dependent on the public sector. We’d be amazed if there weren’t also some concessions for entrepreneurs (a re-introduction of taper relief, perhaps?) if the Chancellor presses ahead with his proposed CGT overhaul.

But it’s pretty clear that these changes are going to provoke some serious disquiet. The public sector unions are already gearing up for a fight, as they face the prospect of thousands of their members being consigned to the dole queue. And with most families likely to see their benefits fall and their taxes rise (probably via VAT or other indirect taxes), there’s likely to be a lot of belt-tightening going on in the coming months and years – which is likely to mean a feeble recovery, at best. So businesses are going to need all the Government support they can get.


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