Tories following Brian Lenihan’s example?

Today we are bringing you a summary of the relevant economic and business information that was announced yesterday in Chancellor George Osborne’s first Budget.

This will be of interest for those already trading in the UK, or planning to do so.

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Chancellor George Osborne delivered his first Budget yesterday, which he said was “tough but also fair”. He also called it “unavoidable”.

Mr Osborne said the UK government’s target was to reduce the structural deficit so that it is balanced by 2015. He announced that economic growth for 2010 had been revised down from 1.3% to 1.2%, and growth in 2011 was predicted to be 2.3%, down from the 2.6% that was forecast by the newly established Office for Budget Responsibility. He concluded that the Budget was a “progressive” one, had “paid the debts of a failed past” and was one that meant “prosperity for all”.

Responding to the Budget, acting leader for Labour, Harriet Harman, said the UK government had “revised the growth for next year down because of the harm that [George Osborne’s] Budget does”. She said the Chancellor had not been honest on the issue of jobs, and said that tens of thousands of people would be out of work as a result.

Some of the key points affecting business and enterprise from the UK Emergency Budget 2010 include:

Help for business

  • An increase of £200 million to the Enterprise Finance Guarantee (EFG) scheme, which will support small business lending of up to £700 million to 31 March 2011. Additionally, lenders participating in the EFG will have a target of 20 working days in which to process loans.
  • The creation of a £37.5 million Enterprise Capital Fund, which will provide equity finance for small businesses. The UK government will provide £25 million and private investors will provide the rest. The Fund will form part of a programme of Enterprise Capital Funds.
  • The abolition of Regional Development Agencies (RDAs), which will be replaced by local enterprise partnerships. These will lead local economic and business development.
  • A Green Paper on business finance, which will look at the finance options available to all businesses and how to improve access to finance for credit-worthy businesses. This will be published before Parliament’s summer recess.
  • A scheme to help support employment and growth for new businesses. New businesses that start up in specific areas of the UK (not including London, the East of England and the South East) will be exempt from paying the first £5,000 of Class 1 employer National Insurance Contributions due in the first 12 months of employment. This applies to the first ten employees taken on in the business’ first year. The scheme is expected to start no later than September 2010 and new businesses that start up now and meet specific criteria should be eligible for the scheme.
  • The creation of a Regional Growth Fund in 2011 that will provide support to English regions that rely heavily on public sector employment and encourage support and growth in the private sector. UK governments in Scotland, Northern Ireland and Wales are expected to provide similar schemes.
  • The publishing of central UK government tenders online and free of charge from the end of 2010.

Banks

  • A levy on banks will be introduced from January 2011, affecting UK-based banks, building societies and UK operations of foreign banks. The levy will be based on banks’ balance sheets and is expected to raise £2 billion a year.

Tax and VAT

  • Mr Osborne announced that next year the corporation tax rate will be cut by 1% to 27%, then by 1% each year for the following three years, to a record low of 24%. The rate for small companies will reduce from 21% to 20% next year.
  • The standard rate of VAT will increase by 2.5% from 17.5% to 20% from 4 January 2011. The zero rate for food and books remains in place while the lower rate for other items, such as fuel and power, remains at 5%. In line with the VAT increase, the higher rate of insurance premium tax will increase from 17.5% to 20% while the standard rate will increase to 6% from 5%.
  • The Chancellor confirmed the UK government’s commitment to increasing personal income tax allowance, which will be raised by £1,000 (from £6,475 to £7,475) from April 2011. Additionally, the higher rate income tax threshold (40%) will remain frozen at £37,400 until 2013/14.
  • The Chancellor has lowered the threshold for the Annual Investment Allowance for qualifying capital expenditure on plant and machinery to £25,000 from April 2012. This had been increased in April 2010 by the previous Chancellor to £100,000.
  • The UK government has announced plans to bring in legislation that will provide a temporary increase in the level of small business rate relief for one year from October 2010. This will provide relief to eligible businesses in premises with a rateable value of up to £6,000 and tapering relief to £12,000.
  • The Capital Gains Tax (CGT) rate for basic rate taxpayers will remain at 18%. The CGT rate for higher rate taxpayers increased to 28% from yesterday, and the CGT relief for entrepreneurs is extended to the first £5 million of lifetime gains, up from £2 million.
  • The 50p tax on landlines proposed by the previous UK government as part of plans to raise money to fund investment in super-fast broadband will not go ahead.
  • A review of IR35 and small business tax, details of which will be published by the UK government in due course.
  • The main capital allowances rate for plant and machinery will reduce from 20% to 18% while the special rate will reduce from 10% to 8% from April 2012.

Alcohol, tobacco and fuel duty

  • The UK government has announced that it will look at the possibility of introducing a duty rebate on fuel in remote rural areas, with possible pilot schemes in Scotland.
  • There will be no duty increases on alcohol, cigarettes and fuel but the UK government will review this decision in the autumn.

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The full Budget report and associated notices are available from HM Treasury at:
http://www.hm-treasury.gov.uk/junebudget_documents.htm

HM Revenue & Customs (HMRC) has a summary of the measures introduced by the Budget in terms of tax, National Insurance and VAT at:
http://www.hmrc.gov.uk/budget2010/index.htm

Source of press release www.cobwebinfo.com