Will business repay the chancellor's generosity?

 
Chancellor of the Exchequer George Osborne holding the Budget box Measures in the Budget, such as the cut in corporation tax, will help business.

If there is such a thing as a collective business view, then business got as much as it could have hoped from this Budget.

There is an extra one percentage point off the corporation tax rate, which will now be 24% on 6 April - one of the lower rates in developed economies, and down from 28% at the last election.

The cash benefit of that additional cut will be more than £800m a year in two years, says the Treasury.

And in confirming that he will reduce the rate to 22% by 2014, George Osborne also signalled an intention to bring it down further to 20% - where it would be aligned with the basic rate of income tax and the tax rate levied on small businesses.

Business leaders also love the cut in the top rate of income tax from 50% to 45%.

And who can be surprised, given that HMRC estimates that it hands over £3bn a year to those earning more than £150,000 a year.

But HMRC also believes that those on highest incomes will change their tax avoiding ways as a consequence of the tax cut - and will therefore voluntarily or semi-voluntarily hand back most of that to the Exchequer.

And here is the risk for the government in these important tax changes - they are designed to spur changes in behaviour that may not materialise.

The BBC's Robert Peston said the Budget had been well-received by business leaders

Some will wonder whether those with big incomes who have found devices to reduce their tax burden will abandon those devices simply because their tax rate has dropped by five percentage points.

Of course the chancellor may be assuming instead that Her Majesty's Revenue and Customs will take advantage of his new General Anti Avoidance Rule to crack down much harder on tax avoidance schemes: maybe HMRC will bully hedge fund managers, oligarchs and footballing stars to pay more tax.

But what the chancellor can't do is bully companies to reward him and the British economy for the lower corporation tax rate.

If the economy is to sustainably break free of its current bout of stagnation and resume better-than-anaemic growth, the private sector has to spend some of their record cash piles, by investing more and hiring more.

He perhaps could have ended his Budget speech by turning to his business audience and saying "I've done what you wanted, now it is your turn to do what's right for Britain".

 
Robert Peston, economics editor Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    +4

    Comment number 1.

    I think the tax cut for businesses does make a difference - but the effect will take time. Being lower taxed than elsewhere *will* give us a competitive advantage because businesses will gradually migrate our way. It also helps businesses that are thinking of leaving think again. Of all the changes, it's the one I applaud most.

  • rate this
    +6

    Comment number 2.

    What's the betting that all those who brought their massive payments forward to avoid the 50p tax rate in the first place put every penny they could into pension plans while the rate was at 50p so that they could claim the higher rate tax relief while it was that high!! Heads they win, tails the ordinary rate taxpayers end up paying for their comfy retirement. Trebles all round George what!!

  • rate this
    +4

    Comment number 3.

    Oh wow, businesses big enough to get the highest corporation tax threshold got a whooping 1% off their tax rate!

    How about if they removed the huge weight of overregulation, mostly rules that distort the market in favor of large companies, or maybe even stopped subsidizing their buddies in favored industries?

    It's all about helping big corps, even the SME loans plan is designed to helps banks!

  • rate this
    +3

    Comment number 4.

    The business lobby has been whingeing for some time about the government not being `business friendly'. Now the government has given business something friendly then it is up to business to respond favourably.

    Is business up to doing the job of turning the economy around? The jury is still out on that one but their bluff has been called.

    Time for that delivery, guys!

  • rate this
    +4

    Comment number 5.

    I see the first steps in a crack down on personal tax avoidance but I don't see anything that targets business practice which can be a lot worse.

 

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