Autumn Statement: Carrot and stick for business

 
George Osborne holds his Autumn budget as he leaves the Treasury

The two big challenges for George Osborne today were to do something to wake the UK economy from the torpor that has afflicted it since 2008, while also persuading investors of the world that lending to the government remains a prudent thing to do.

How has he set about it?

Well he has another go at trying to restart business investment, which has been so spectacularly disappointing over the past few years.

The chancellor is using the forecast £3.5bn of proceeds from the auction to mobile phone companies of broadcasting spectrum for their 4G broadband services to give some temporary tax cuts to business - of which the most eye-catching is an increase for two years in the annual investment allowance from £25,000 to £250,000.

At a cost of around £2bn, this provides a valuable tax incentive for investment to small and medium size businesses.

There is a further tax cut of greater political symbolism, which is that corporation tax will be cut by one percentage point more than expected in April 2014. That would take the rate of corporation tax to 21% - and makes it almost inevitable that by the time of the 2015 election, the mainstream rate of corporation tax will be 20%.

And as some of you may become tired of hearing in the coming weeks, month and years, a corporation tax rate of 20% would be the joint lowest rate of any of the large G20 economies.

Of course, not all businesses can celebrate a reduction in the tax burden.

The chancellor is trying to make it harder for multinationals to shuffle their costs and revenues around the globe to minimise the amount of corporation tax they pay to him.

And he still regards any tax cuts for banks as toxic. So the bank levy is being increased to sustain the net annual proceeds from the levy at £2.5bn.

Nor is Mr Osborne playing Santa for business leaders as individuals. He is increasing taxes raised from those on high earnings by a £1bn a year, through the device of limiting the tax relief they can enjoy on pension saving.

And what about investors?

Well they won't regard it as good news that it will take a further year for the ratio of national debt to GDP to start falling: on the projections of the Office for Budget Responsibility, debt will reach a peak of 79.9% of GDP in 2015/16, before falling to a still high 79.2% in 2016/17.

But that deterioration is not unexpected.

Which is partly why, for some time now, investors have been expecting the UK to lose its AAA credit rating, the government's cherished kitemark as one of the world's most trusted borrowers

That fear, of a loss of the AAA, has not diminished, and looks likely to happen in early 2013.

Which would be a big political embarrassment for George Osborne and David Cameron, who have spent the past couple of years flaunting the AAA.

But the cost may be largely a political one, for the coalition, rather than an economic one: there has already in recent weeks been a smallish rise in the long-term costs of borrowing for the Treasury, which may be markets discounting the ratings downgrade.

Update 17.05

What the chancellor needs, more than anything else, if he is to hit debt targets that are - yet again - worse than previous forecasts, is an economic recovery.

And for that he needs a private sector that feels more confident and starts investing again.

So, at the heart of his statement today were a series of measures designed to appeal to the fabled business community.

There is £2bn worth of 100% tax relief on investment of up to £250,000 for two years.

There is an extension of relief on business rates for smaller businesses.

And perhaps most eye-catchingly of all, there is a further 1% to be taken off the standard rate of corporation tax - which will fall to 21% in 2014.

Which almost certainly means that by the time of the next general election, the UK will have a 20% tax rate for companies - which would be the joint lowest of all the big G20 economies.

Also, Mr Osborne announced what he hopes will be a significant boost to spending on infrastructure - which many businesses have been calling for.

All that said, many business people will be in two minds whether to crack open the bubbly.

Many of them - especially those in middle management - will be hurt by a £1bn raid on tax relief for those on higher earnings saving for a pension.

And they may worry more than most about the symbolism for the British government of losing its AAA credit rating - which now looks likely to happen in the early months of next year - following the deterioration of growth prospects and public finances.

They may also query whether the chancellor is engaging in the kind of creative accounting that gets some fast-and-loose businesses into trouble - by the way he is banking and spending £3.5bn of proceeds from an auction of 4G broadband spectrum that hasn't happened yet.

 
Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    0

    Comment number 53.

    So where would you put your hard earned savings?

    A new Range Rover?
    Shares?
    Goverment Bonds?
    A private pension?
    Or a very well insulated modest home built out of longlasting materials that will see you into your grave? I,m not so sure there is a housing bubble on all property esp. up north - Check out our Countryside, Restaurants, and overall quality of life up North!

  • rate this
    -1

    Comment number 52.

    Gideon and Little Lord Fauntleroy have got this government malarkey licked.

    The only thing worrying me is what that red glow ahead is?
    Why am I surrounded by so many people?
    Lastly why the hell are we all in a handcart?

    Buckle up!

  • rate this
    0

    Comment number 51.

    Budget is neutral as advertised. GO could be trying to avoid having to make U-turns tomorrow but we'll see.

    Its good to see someone get off the fence and recognize the need to move on investment in energy infrastructure - even if it only addresses medium term. Pity nuclear build has been delayed so long through procrastination.

  • rate this
    +2

    Comment number 50.

    Is this all we have to show for pouring money down the drain that is the financial sector?

  • rate this
    +1

    Comment number 49.

    "Helping those who want to work hard & get on"

    Except jobs not 'afforded'

    De-sensitized by repetition
    Seeking work/rehabilitation
    Pitiful supports cut

    Well-supplied with silver-linings, 1% leaders trick their way, telling of necessity, progress to come, worse elsewhere, opponents & foreigners to blame

    Rich can't 'afford' income sharing
    'Compensation' for not going abroad
    Demand & economy holed

  • rate this
    +2

    Comment number 48.

    Business needs customers.
    Business needs customers with money.
    Customers need disposable income to spend.
    Customers currently propping up banks.
    Banks have customers disposable income.
    How to get customers disposable income from the banks and, into business?

  • rate this
    +3

    Comment number 47.

    UK business is in such a mess - bank lending policies stoked up property values for many years and commercial rents do not fall at rent reviews due to upward only review clauses. This in turn leads to higher business rate assessments as generally based on rental values - leads to higher costs for businesses. Rent and rates are far too high for many business occupiers - high costs destroy UK jobs

  • rate this
    +3

    Comment number 46.

    Robert,
    Too much in awe of the ratings agencies - loss of AAA rating in USA etc minimal effect at present. Suggest we follow lead from Oz and take rating agencies to court for misrepresenting subprime investments as AAA grade.
    Rating agencies are reactive followers and hardly disinterested parties taking fees for their work.

  • rate this
    -2

    Comment number 45.

    After starbucks, google, amazon et al., getting a thrashing at the Public Accounts Committee it feels like even the Tory media are starting to look at how much revenue could be raised if appropriate corporation tax where paid.

    So why is Mr Osborne cutting this source of income rather than trying to pay for vital services out of huge corporate profits?

  • Comment number 44.

    All this user's posts have been removed.Why?

  • rate this
    +1

    Comment number 43.

    It had to come out. It's all very bleak.

    All we can do is get used to it and try to plan with what we have.

    He did all he could to keep the economy on a stable footing but the big problem ahead is controlling inflation.

    Any further depreciation of sterling and it could sky-rocket.

  • rate this
    0

    Comment number 42.

    Possible sovereign wealth fund? Pension tax allowance cuts?

    Come on George, do it, and more.

    You'll soon get the hang of this socialism lark.

  • rate this
    0

    Comment number 41.

    It's not long till May 2015 now, salmond wants more money now but he can wait too. I wonder what out credit rating will be when Mrmilbean and mr balls present their first review BBC-?

  • Comment number 40.

    All this user's posts have been removed.Why?

  • rate this
    -3

    Comment number 39.

    InterestedBystander @34
    "same people who fund"
    Not just parties
    Academia

    Utterly ridiculous, 'on right track', pretending 'progress' depends on exclusion from employment & income, for thousands, millions, worst of the young, ditching the values - at our best - thought 'British', inclusion, fairness, solidarity

    How should we be recovering? By sharing income and work.

    "Game over"

  • rate this
    0

    Comment number 38.

    Re. 13 tweetiepooh:

    That is par for the course. Labour come in, bribe people with their own money and then worse, bribe them with money they have to borrow, wreck the economy and leave it to the next lot to sort out the mess. 1997 - 2010 was Labour's longest spell in office, ergo, the mess was much worse than in their previous attempts.

  • rate this
    +2

    Comment number 37.

    "another go at trying to restart business investment."

    Government indecision on things like energy policy banking reform & taxation means he can go on "having another go" till hell freezes over & it will still not make any difference to business investment. They will not invest until they know the government will not change it's mind half way through like they did with solar power subsidies.

  • rate this
    0

    Comment number 36.

    We hit the wealthy so we can hit the poor must be one of the weirdest linkings of all time. The capping of welfare increases at 1% is irrespective of inflation but will almost certainly be well below the annual figure. Reducing tax relief on pension to £40K is trivial for most people on incomes below £200,000.OBR gets its growth figures wrong again. No mention of unemployment or underemployment.

  • rate this
    +1

    Comment number 35.

    Basically were are all stuffed. I have retired from one public service job and am trying to get set up as a building company... I want to employ people I want to grow the business but the red tape is just strangling us at conception...If small business growth is meant to get us out of recession forget it.:(

  • rate this
    +1

    Comment number 34.

    @24: "Witless self-delusion"

    I don't doubt it. However, consider this: the people who fund GO's party are the same people who fund the competition...

 

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