Budget reaction

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The OBR confirmed what other forecasts were already suggesting: the economy isn't getting any bigger any quicker, and the deficit is taking longer to come down.

Despite this context, the Chancellor made a raft of announcements targeted at small businesses, large corporates, employees, parents and beer drinkers. There may be some political wisdom in the approach, but there are economic questions about whether reprioritised resources were focused sufficiently on growth enhancing measures.

Summary of key measures in Budget 2013:

Increase in above the line R&D tax credit

The Chancellor increased the headline rate of the above the line (ATL) R&D tax credit for large companies to 10% before tax, from 9.1%. The ATL credit should strengthen the link between the R&D tax credit incentive and the parts of companies where R&D investment decisions are made and enable companies with no corporation tax liability to claim a payable credit.
Corporate tax cutThe Chancellor reduced the headline rate of corporation tax by a further 1p. This means from April 2015 the headline rate of corporation tax will be 20%, the lowest in the G7 and joint lowest in the G20. This will also align the small profits and main rates of corporation tax.
Fuel duty rise scrappedThe Chancellor has cancelled the 1.89 pence per litre fuel duty increase that was due to take effect on 1 September 2013, meaning fuel duty will have been frozen for three and a half years.
Tax avoidanceThe Chancellor announced a further measure to reduce corporate tax avoidance by singling out the practice of companies gaining corporate tax relief by ‘buying' losses from unconnected third parties. The government has signalled that its action on addressing base erosion and profit shifting in corporation tax will be via the OECD-led process and G20 and will not be unilateral.
Capital spending packageNo additional spending announced for this Parliament. From 2015/16, there will be £3billion of additional spending per year on currently unspecified projects. Priorities for the period to 2020/21 will be decided at the next Spending Review.
Climate Change Levy exemptionThe Government will introduce exemptions from the climate change levy for energy used in metallurgical (incl. steel) and mineralogical (incl. ceramics) processes from 1 April 2014. The Government will seek views from industry on these exemptions and will publish draft legislation at the time of the Autumn Statement 2013.
National Insurance Employment AllowanceFrom April 2014 all businesses and charities will be eligible for an ‘employment allowance' a £2,000 reduction in employer National Insurance contributions. This will benefit the smallest businesses the most, with as many as 450,000 firms no longer paying any employer NICs.
SBRI programme scaled upThe government will expand the value of contracts currently awarded through its Small Business Research Initiative (SBRI scheme), which is designed to promote procurement from innovative SMEs. The value of contracts should increase from £40mn in 2012-13 to £200mn in 2014-15, which would represent 0.5% of total procurement budgets.
Monetary PolicyThe Chancellor announced an updated remit for the Monetary Policy Committee (MPC) to make the trade-offs to meet the inflation target more transparent. He also announced a review of the Monetary Policy Framework to assess whether the MPC should publish forward guidance on interest rates.

Actions on the headline rate of corporation tax; the R&D tax credit, innovation schemes and growth vouchers are just about enough to label this a business-friendly budget. These moves will help push the UK up the ranking as an investment location of choice. But the reality of the next couple of years is that business investment growth is again going to come in weaker than expected making the path to better balanced growth an uphill one.

The mix of initiatives in this Budget, given the severe constraints on the public finances, really needed to be tilted much more on those that would deliver bigger growth dividends, such tax cuts on labour and capital and more spending on infrastructure. Next stop for bold decisions … the Spending Review.

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