Budget: Chancellor takes ‘decisive action’ in Emergency Budget

CHANCELLOR George Osborne took an axe to Government spending, public sector pay and pensions and raised VAT 2.5% in an Emergency Budget of “tough choices”.

Capital gains taxes are also going up, as expected, by 10% to 28% for higer-rate taxpayers, while from next January a levy will be imposed on banks and building societies, which will raise £2bn a year.

TheBusinessDesk.com’s Emergency Budget coverage is sponsored by accountancy firm Ernst & Young across our three websites.

In what was an assured performance during a 54-minute-long speech before a packed house, George Osborne promised “decisive action to deal with the debts we inherited,” but support for business and entrepreneurs.

Stressing the need for a private sector led-recovery, the Chancellor announced National Insurance relief for people starting businesses outside London and the South East in a bid to renbalance the nation’s economy.

Corporation taxes will be reduced to make Britain a more competitive location for business, Mr Osborne said.

Small companies’ corporation tax will be cut to 20% next year. Corporation tax will be cut by 1% per year for four years from next year, bringing it down to 24%.

He said workers in the public sector had to share the pain felt by many in the private sector, who have had to take wage cuts or pay freezes.

To this end there will be a two-year pay freeze for public sector workers, although the 1.7 million lowest paid will get a flat £250 pay rise.

Despite the feared hike in Capital Gains Tax, it wasn’t all bad news for entrepreneurs and wealth creators, as Mr Osborne said the 10% capital gains tax rate for entrepreneurs – which currently applies to the first £2m in qualifying gains – will be extended to the first £5m.

Mr Osborne said the coalition government was planning for a sustainable private sector based on economic growth, rather than “pumping the debt bubble back up”.

Everyone would be asked to contribute to reducing the record deficit, but pledged that everyone will “share in the rewards when we succeed”.

“I’m not going to hide hard choices from the British people or bury them in the small print of the Budget document,” he added.
 

Neil Holyoake, tax partner at Ernst & Young in Leeds, said: “The VAT increase was no surprise and helps pay for the deficit.

“The announcement today of a reduction in the corporation tax rate by 1% a year for the next four years will make the UK tax rate the eleventh lowest in the OECD, and fifth lowest in the G20.

“This is clearly an element in achieving the Coalition Government’s aim to make the UK’s corporate tax regime the most competitive in the G20 by the end of the next Parliament.”

Mr Holyoake said the help announced for small businesses outside London should be welcomed and the increases announced in Capital Gains Tax were “22% short” of the 50% bracket many had expected to be announced.

He said Mr Osborne did a “good job” delivering the Budget and added: “At the end of the day we all have to pay in some way and VAT is a way to do that.”

Mr Holyoake added: “Having noted the focus of the Emergency Budget on the tax rises of VAT and the rate cut in Corporation Tax, businesses will now be looking for the detail. Today’s Budget left open questions over the controlled foreign company regime, the taxation of intellectual property, foreign branches and R&D tax credits.

“Those following these continuing areas of discussion will now need to wait until the Autumn. Since these are all important areas for stimulating investment, the sooner information is produced the better. Business abhors a policy vacuum.”