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.
21 November 2014 06:44 PM
Your children have it all, your partner gets nothing
21 November 2014 07:12 PM
Halfords is gearing up for Christmas
21 November 2014 06:54 PM
Fields of dreams: venture capital trusts help young companies to grow, potentially delivering big returns for investors
21 November 2014 06:32 PM
There are many reasons for people to turn to high-cost credit, but being turned down by their banks for a loan is one
21 November 2014 07:15 PM
The £150 incentive from Yorkshire and Clydesdale runs from now until 28 February next year, but you must use the official Current Account Switching Service (CASS) and close your existing account to qualify
14 November 2014 04:42 PM
For the rising number of homeless women, the struggle is compounded by health problems and by losing their children
14 November 2014 05:37 PM
Research from Sainsbury’s Bank Credit Cards this week revealed that 15 per cent of people making a large purchase on their plastic didn’t use one with 0 per cent interest on purchases
14 November 2014 05:23 PM
Last week was hangover time, when Stock Spirits, a vodka producer, distilled a profit warning that sent its shares crashing more than 25 per cent
14 November 2014 05:17 PM
Investment melting pot: the price of gold may have fallen but Artemis Strategic Assets believes its value cannot be debased
14 November 2014 05:05 PM
Interest rates are currently as low as 0.1 per cent
14 November 2014 05:01 PM
The energy watchdog Ofgem has slammed Scottish Power, while Citizens Advice reports a string of complaints about it
14 November 2014 04:57 PM
John Lush from Hampshire got into debt with payday lenders and had the help of a debt management adviser to clear the £20,000 he owed
08 November 2014 12:00 AM
01 November 2014 12:00 AM
01 November 2014 12:00 AM
Simon Read: There may be trouble ahead for cohabiting couples who don’t make a will
Mark Dampier: Strong returns can be found if you go the opposite way to the crowds
Money Insider: Would £150 make you switch banks?
Bargain Hunter: Find the deals that have real value beneath the Black Friday hype
Gold-plated pensions – the key to retirement freedom?
- 2 Tower Bridge glass walkway 'smashed' by night-time visitor dropping bottle of beer
- 4 Woman opens professional cuddling shop – gets 10,000 customers in first week
- 5 Grayson Perry: London needs affordable housing because 'rich people don't create culture'
Rochester by-election: Ukip gains second MP as Tory defector Mark Reckless holds seat
'Beast of Bolsover' Dennis Skinner takes Ukip MP Mark Reckless to task moments after he is sworn in
Rochester by-election: Labour MP Emily Thornberry resigns after posting white van and England flags tweet
France 'blocks' Russian sailors from boarding a warship
Revealed: How the world gets rich – from privatising British public services
Rochester aftermath: Sacking of Emily Thornberry will make work of Labour MPs '10 times harder'
iJobs Money & Business
Voluntary Only - Expenses Reimbursed: Reach Volunteering: Age Concern Slough a...
Voluntary Only - Expenses Reimbursed: Reach Volunteering: Crossroads Care is s...
£20000 - £25000 per annum + OTE £35,000: SThree: We consistently strive to be ...
£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...
Day In a Page
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
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
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