Budget 2013: Ernst & Young expert analysis
SMALL and entrepreneurial companies received help to grow in the Budget according to tax expert Tim West, of Ernst & Young.
And economist Peter Spencer, chief economic advisor to the Ernst & Young ITEM Club said that many of George Osborne’s measures “should help lift the gloom of a very bleak economic backdrop”.
Mr West, tax partner at Ernst & Young in Leeds, said: “The National Insurance cut reduces the cost of employing someone on £22,000 and will be welcomed by smaller employers. The axing of stamp duty on shares traded on growth markets like Aim is also a step forward on the same basis.
“Entrepreneurs in housing and infrastructure will particularly welcome the billions of spending commitments and the mortgage guarantee schemes. Though small steps, every little helps in supporting expansion, fuelling jobs and growth in the UK economy.”
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Peter Spencer of the Ernst & Young ITEM Club, said: “Short term, the Chancellor was let off the hook by a shortfall in public spending that was much larger (at £11bn) than expected, allowing him to maintain that the underlying rate of borrowing would be lower this year than last.
“Longer term, the restraint applied yesterday to current spending plans gives him a lot of leeway to boost capital spending, with the detail to be thrashed out in the spending review in June. This was augmented by another £6bn of savings that the single state pension will bring. Switching from current to capital spending has the effect of reducing the current deficit and helping to ease the pressure on the government’s fiscal target.
“£3bn of these savings will be used to boost infrastructure spending, but the really big boost will come from the housing market package. These funds will be geared up so that they have a major impact in a sector that has a lot of pent-up demand and spare capacity. Housing is very important for demand and employment given its low import content. The £3.5bn allocated to shared equity loans may not sound like very much but the impact on house purchases of the ‘help to buy scheme’ should be five times bigger because the government share of the purchase is at most 20%.
Similarly the mortgage guarantee scheme uses the strength of the government’s standing in debt markets to provide a further boost. These initiatives reinforce the effect of last year’s Funding For Lending Scheme which has already leveraged off the government’s balance sheet to provide major support to housing and the wider economy.
“These financial initiatives and innovations are likely to continue over the summer as the new Governor of the Bank of England arrives and the new monetary policy remit comes into play. The idea of taking a leaf or two out of the US Fed book and promulgating intermediate thresholds for economic growth and employment while preserving the primacy of the inflation target over the medium term is entirely sensible. All in all, this budget should help lift the gloom of a very bleak economic backdrop.”
Mr West added: “Employers can now provide interest free non taxable loans up to the value of £10,000 to employees commuting to work.
“But it doesn’t just apply to season ticket loans, although this is the most common use. It will apply to all loans made to employees by their employer that are below the threshold. This could be used to buy a car or even as a contribution for a deposit for a house!
“Care needs to be taken. If there is more than one loan to an employee, employers would need to ensure it does not exceed the £10,000 limit, otherwise there will be a tax charge.”
