Budget welcomed by engineering bodies

Corporation tax will be cut to 24 per cent by 2014 – the lowest rate of any major western economy – chancellor George Osborne said today as he announced the budget to the House of Commons.

The government will also increase the loan guarantee scheme for small businesses and provide relief from National Insurance contributions for new firms outside the South East of England.

But VAT will rise to 20 per cent, capital allowances will fall and capital gains tax will increase in an attempt to cut Britain’s record £155bn deficit.

Proposals for a green investment bank, a reform of the climate change levy, and a national infrastructure body were confirmed, as were several specific infrastructure projects.

Unlocking private investment will be crucial to delivering the infrastructure

The coalition government also revealed plans to promote private-sector growth in England outside the South East with a regional growth fund, but Regional Development Agencies (RDAs) will be abolished.

Trade bodies in the engineering sector have largely welcomed the budget for its attempts to rebalance the economy towards the private sector, but voiced some concern over tax rises.

Paul Everitt, chief executive of the Society of Motor Manufacturers and Traders (SMMT), said: ‘Although there are concerns about the rise in VAT, its delayed introduction will give industry an opportunity to prepare and may boost demand in the short-term.

‘The determination to increase bank lending and investment in new low carbon technologies is welcome, but effective measures are urgently required to help sustain a still fragile recovery.’

Derek Marshall, director of policy at ADS, the organisation for AeroSpace, Defence and Security, said: ‘It is encouraging to hear the chancellor’s commitment to research and development, stability and certainty for business.

‘The long-term nature of the sectors that we represent means that this is a vital climate in which to encourage investment in the UK by both multinational and domestic companies.

‘Small firms underpin our country’s innovation and our participation in supply chains for programmes across the globe. The assistance announced to enable them to access credit is good news but reducing the rates of capital allowances offsets the benefits somewhat.’

Raising the entrepreneurs’ relief will help those who create and build small businesses

Under the budget measures, the Enterprise Finance Guarantee (EFG) will be increased by £200m to support additional lending of up to £700m for small businesses.

Corporation tax will be cut from 28 per cent to 24 per cent over the next four years and companies with small profits will be taxed at a reduced 20 per cent instead of an increased 22 per cent.

But capital allowances on plant and machinery will be decreased from 20 per cent to 18 per cent, and from 10 per cent to eight per cent for the special rate. The Annual Investment Allowance will be reduced to £25,000 from April 2012.

Capital gains tax will rise to 28 per cent for people in the higher income tax band but the relief for entrepreneurs will be available for a lifetime limit £5m, increased from £2m.

Richard Lambert, CBI director-general, said: ‘The chancellor has balanced the need for fairness in CGT with a recognition of the need to support entrepreneurship and keep the system simple.

‘Raising the entrepreneurs’ relief will help those who create and build small businesses, and maintaining the threshold should avoid hurting small investors in company savings schemes.’

The government also plans to consult with business to review R&D tax credits, the taxation of intellectual property, and the proposals of the Dyson Review of the high tech industry.

For the areas outside of London, the South East and the East of England, the government will create a regional growth fund in 2011-12 to support projects improving innovation and creating jobs.

New businesses in these regions will also be exempt for one year from paying the first £5,000 of National Insurance contributions for the first 10 employees hired in the first year of business.

In place of RDAs, the government plans to enable locally elected leaders to work with business to better coordinate public and private investment in transport, housing and regeneration.

Osborne also confirmed the creation of Infrastructure UK, a body to enable greater private sector investment in infrastructure projects and improve planning and delivery. A national infrastructure plan will be published in the autumn.

A national infrastructure plan will be published in the autumn

Support was reaffirmed for specific projects including the Tyne and Wear Metro upgrade, the extension of the Manchester Metrolink, the redevelopment of Birmingham New Street station, and improvements to the rail lines to Sheffield and between Liverpool and Leeds.

Paul Jowitt, president of the Institution of Civil Engineers (ICE) said: ‘Unlocking private investment will be crucial to delivering the infrastructure needed to plug potential energy shortfalls and retain the UK’s global competitiveness, so confirmation that strategic body, Infrastructure UK, will remain in place is very good news.’

The chancellor said he would bring forward the creation of a Green Investment Bank, following a spending review in the autumn, to invest in projects to help develop a low-carbon economy. But there was no mention of how much money would be put into the bank.

The government will this autumn also publish proposals to reform the climate change levy and hope to include this in legislation in 2011.

‘The renewed commitment to the creation of a Green Investment Bank and the reassurance that government will consider a range of options for its scope and structure, is also very encouraging,’ said Jowitt.

‘It is estimated that the UK will need to invest £40-50bn per annum in infrastructure to secure the UK’s future economic competitiveness and aid the shift to a low carbon society.’