‘Dose of medicine’ looks to improve health of economy
GEORGE Osborne delivered a dose of medicine to an unbalanced, debt-ridden economy in this week’s Emergency Budget, but there were some positives for the private sector.
Despite hiking VAT – which will surely hit consumer-facing businesses when the rate rises to 20% next January – a 10% rise in Capital Gains Tax to 28% for high rate earners, was not as harsh as feared.
Neil Holyoake, tax partner at accountants and business advisers Ernst & Young in Yorkshire said some had been expecting CGT to rise to 50%.
He praised the move to boost investment in the regions, with Mr Osborne announcing National Insurance relief for the first 10 employees in new companies.
Another positive step was the cuts in Corporation Tax over the next four years.
He said: “The Budget was a sombre read as the economy was given its medicine, with the largest rise in taxation and cut in spending since 1997.
“However, despite tax rises such as VAT from the New Year, there was a ‘spoonful of sugar’ for business with the announcement of a programme of tax rate cuts, leading to a corporation tax rate of 24% by 2014-15, the fifth lowest rate in the G20, only slightly funded by reductions in capital allowances.
“There will be some concern over the impact that the increase in VAT in January will have on consumer demand. While a bumper Christmas for retailers can be expected, there is likely to be potentially lower New Year sales to follow.”
Mr Holyoake expressed concern over the “silent elements” of the Budget, adding: “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.
“The Budget left open questions over the controlled foreign company regime, the taxation of intellectual property, foreign branches and R&D tax credits.”
The public sector felt most of the pain as staff earning more than £21,000 were hit with a two-year pay freeze. Government departments will have their budgets slashed by up to 25%
Cuts and tax rises will save the economy £40bn over the next five years.
