As the dust settles from the first Tory budget in nearly two decades, the media and analysts are still scrabbling to digest what it all means.
Much of the Budget was focused around creating a ‘lower taxes, lower welfare and higher wages’ state. From a business perspective, the key theme was around boosting productivity.
David Cameron has presided over an economy with the weakest productivity record since World War II, although the government would probably phrase it differently. Plug the productivity hole, and – collectively - we all need to bail a lot less water.
Osborne said that there would be a renewed investment in national infrastructure and strong focus on skills in the form of the apprenticeship levy; two ideas welcomed by the business community.
What was baffling though, was that the Chancellor neglected to mention the role that technology will play, both in terms of productivity and the economy at large. Autonomous technology such as Smart Cities/IoT have featured heavily in past Budgets, and it surprised many that Osborne did not even make a passing mention of the role that digital can play.
“Technology is a fundamental, high growth area for the UK economy, yet it was almost completely overlooked in the UK Summer Budget,” commented Askar Sheibani, chairman of the Deeside Business Forum and CEO of telecoms repair and support company Comtek. “This industry is suffering from a potentially critical skills gap, and a generic apprenticeship levy will certainly not balance the labour market.”
“What’s more, as students are hit by the axing of the maintenance grant, this Budget may have done more harm than good for technological innovation in the UK. The technology industry also has some of the highest R&D costs and, although R&D is critical to the progress of the UK economy, this has been essentially ignored by the Chancellor.”
Sheibani called the Budget a “double edged sword”, concluding that it was “sharper on the negative than the positive side” for technology businesses today.
Not everyone was quite so pessimistic. Another big announcement was the new investment restrictions to both venture capital trusts (VCTs) and enterprise investment schemes (EISs). Osborne and his band of merry men are seeking to cap the amount of tax-advantaged investment that a company may receive and are insisting that investors must be independent from the companies.
“Business innovation is essential to the success of the UK economy,” said David Cobb, TMT Tax Partner at business advisory firm Deloitte. “By taking steps to ensure that the tax incentives associated with venture capital schemes are not open to misuse, the government can continue to provide a healthy investment platform for the UK’s small and growing businesses. Without suitable investment, supported by these sort of tax incentives, Britain’s small and medium-sized businesses will simply struggle to grow.
“Aspiring businesses will be buoyed by this news, which helps to ensure that more of the funds available are directed towards the right sort of businesses. This also follows the recent increase in the benefit that SMEs can realise through research and development tax relief,” Cobb continued. “The UK’s fledging technology sector is just one industry that will surely benefit from these incentives.”
Without a doubt, the biggest crowd pleaser was a further slash in corporation tax. Despite the UK already having the lowest corporation tax in the G20, the Chancellor said that he would reduce the rate from 20% to 18% by 2020, with a 1% interim cut in 2017.
Again, the double-edged sword was unsheathed. Funding this tax cut, will be big business, forced to pay their corporation tax four months early. Any business with profits of more than £20m a year will be required to cough up in the third, sixth, ninth and 12 month of their accounting period. Osborne is essentially borrowing from future parliaments.
Many are warning that the change could have an impact on businesses with cash flow difficulties.
“Larger companies are going to have to look at new ways to manage their cash flow without sacrificing planned investment, especially in the transitional period,” said Tristan Watkins of BNP Paribas.