Budget '97: This is not a good Budget for business
Thursday 03 July 1997
Outside the windfall profits tax and the abolition of tax credits on dividends, which will not have any short-term impact on consumer demand, the degree of fiscal tightening in the economy is peanuts. The measures on stamp duty and mortgage interest relief ought to kill off the resurgent housing boom, but there's not much else to mop up the more than pounds 30bn of building society and insurance company windfalls.
Despite the stock market's rather confused reaction, this was not a good Budget for business. Gordon Brown's business-friendly rhetoric is not matched by the figures, which show that the great bulk of the fiscal tightening comes not from the personal sector but from companies and the City.
The reductions in corporation tax are little more than a smokescreen; the effect is to give back less than half what is being taken away through the abolition of the tax credit on dividends. The Chancellor claimed that taken together, the two measures would discourage companies from paying out their profits in dividends, helping to boost direct investment in the process.
Well, possibly, but it is by no means certain. Another very certain consequence, however, will be to raise the cost of equity capital and pensions provision at a time when borrowing costs are also going to be rising strongly to dampen down the boom. Exporters can expect little relief from the strong pound.
As for more generous capital allowances, Mr Brown is surely old enough to know that this is a measure which in practice will do very little to boost investment. There are no quick fixes here. Only a prolonged record of economic stability and low inflation will change the investment habits of British industry.
The magic wand of capital allowances can sometimes make a difference at the margin, but most of the time they don't. Their greatest benefit is to companies which are going to invest anyway. For them, better tax allowances are just icing on the cake. And for others, they all too often become just a form of tax avoidance.
Then there's the British film industry. Now here's a measure for Labour- voting luvvies if ever there was one. Unfortunately, we've been here before. Last time round the introduction of 100 per cent write-offs for films became a tax dodger's charter.
Nor was this quite the Budget of restraint we had been led to believe it might be on the spending side either. The welfare measures are paid for by the windfall profits tax, but the big surprise is in health and education, where extra spending commitments of pounds 2.2bn a year have been entered into.
Since this new spending is not offset by reductions elsewhere, or not that we know of anyway, it comes pretty close to breaching Mr Brown's pledge to stick to the previous government's spending total for the next two years. The fact that the extra money is to come out of reserves doesn't make it any better.
By opting for a four-year assessment period for levying the windfall tax, the Treasury does seem to have alighted on a reasonably balanced way of distributing the burden. The tax falls disproportionately on the electricity companies, which seems reasonable given that this is where the greatest excesses occurred. The exception is poor old BG Group, which does not deserve the battering it gets.
But then this never was going to be a good tax, however it was levied. Mr Brown and his spin doctors have been clever in massaging expectations of a fiscally responsible, pro-business Budget. He has actually delivered neither, or rather, to the extent that he has achieved the former, it has been at the expense of the latter.
26 December 2014 02:32 PM
The coming year is expected to provide opportunities for patient investors
19 December 2014 07:30 PM
Simon Read: The point of having protection insurance? The right cover can help reduce your financial concerns at a time of extreme worry
19 December 2014 07:30 PM
In May Nicola Groves got a massive shock. The 45-year-old mother of two was told, bluntly, that she had breast cancer. "When I heard the words, 'You do have breast cancer and you are going to lose your breast', I felt as if time stood still," she says.
19 December 2014 07:30 PM
It's that time again when the media looks back over the past year and forward to the next. I am reminded of an old film, The Day the Earth Caught Fire (1961). Near the end of the film a newspaper prints two headlines – which one it uses will depend on whether the world is saved or doomed.
12 December 2014 05:42 PM
The supermarket banks have always excelled at offering simple, no nonsense products, and savings accounts is another area in which they fare well
12 December 2014 06:17 PM
The sun is shining on people who struggle to heat their homes and it’s thanks to a sense of community
12 December 2014 06:23 PM
Struggling people need help, understanding and forbearance, not ill-thought-out pronouncements
12 December 2014 06:20 PM
You won’t find me bashing the banks for the sake of it, but sadly they’ve deserved all the criticism that’s been sent their way in recent years
12 December 2014 06:02 PM
Gillian Guy, chief executive of Citizens Advice: 'The injustice of shock bills for crime victims must end. The Government must stand up for consumers and cap bills from lost or stolen phones at £50'
12 December 2014 05:57 PM
Stirring the pot: the Indian Government’s reforms of labour rules offer hope of a brighter future for businesses
12 December 2014 05:53 PM
Knight of the road, look out: you’ve got a new rival
06 December 2014 12:00 AM
Simon Read: The Chancellor has stamped on an unfair tax. But will the delight of homebuyers mean misery for others?
06 December 2014 12:00 AM
Were you surprised by the sudden reform of the rules for stamp duty on property purchases? I certainly was. I've been calling for ages for a change in the tax to make it more fair – and, at a stroke, George Osborne did just that on Wednesday in his Autumn Statement.
29 November 2014 12:00 AM
21 November 2014 04:33 PM
With some people are weighing up whether they will be better off cashing in their final salary pension next spring, Samantha Downes asks the experts
Questions of Cash: What are my rights if my leak is caused by neighbours’ roofs?
Pension mortgages: 'The advice I was given was wrong and now I face losing my home'
Gold-plated pensions – the key to retirement freedom?
The 10 Best money-saving sites
Bank-beating exchange rates on your international payments
- 1 President of Argentina adopts Jewish godson to 'stop him turning into a werewolf'
- 2 Doctors remove 80 teeth from boy's jaw
- 3 The 'Black Museum': After 150 years, public set to see exhibits from police’s grisly crime museum
- 5 Sir Winston Churchill’s family begged him not to convert to Islam, letter reveals
Millions of Britons struggling to feed themselves and facing malnourishment
British actor Idris Elba cannot star as James Bond because he is black, says shock jock Rush Limbaugh
Germany anti-Islam protests: 17,000 march on Dresden against 'Islamification of the West'
Ukip member gets into Christmas spirit with Union Flag plea to Santa 'for our country back'
Nigel Farage: Ukip leader named 'Briton of the year' by The Times
Immigrants make UK racist, says Ukip councillor Trevor Shonk
iJobs Money & Business
Not specified: Selby Jennings: VP/SVP Credit Quant Top tier investment bank i...
Not specified: Selby Jennings: Quantitative Research | Global Equity | New Yor...
Not specified: Selby Jennings: SVP Model Validation This top tiered investment...
Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...
Day In a Page
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens