Business Reaction: Chancellor's 'credible first step' on the road to regain trust

Business leaders last night said the Chancellor would have to go further to repair the Government's relationship with the enterprise community, but said his Budget represented a "credible first step on the road".

"The Chancellor didn't set the Thames alight, but then he didn't have anything to set it alight with," said Richard Lambert, director general of the Confederation of British Industry (CBI).

"On the surface there are no nasty surprises, but his growth assumptions are optimistic and leave him with no room for manoeuvre should things take a turn for the worse," said Mr Lambert. "Borrowing also looks set to rise by a further £20 billion over the next four years, which is a cause for concern. And by 2010/11, the impact of this Budget will be to raise total tax take by nearly £1.9bn."

David Frost, director general of the British Chambers of Commerce, said the Budget "will be seen as one that saw a number of tax increases which failed to help businesses overcome the difficult conditions they currently face, rather than one that restored the relationship between the Government and the business community".

"The pre-Budget report last October brought in a series of changes that complicated the tax system, increased taxes and made the UK a less attractive place to come and do business," he said. "Unfortunately the Chancellor has not repealed the bulk of these measures and the business community will still feel that the Government has used them as an easy target for the Treasury."

Relations with the business community have been fractious since Mr Darling announced a single 18 per cent rate for capital gains tax (CGT) in the Pre-Budget report and proposed a £30,000 charge to be paid by wealthy foreigners living in the UK. The CGT proposals will go ahead as proposed, but with "entrepreneurs' relief" of 10 per cent on the first £1m of lifetime gains. The non-dom measures have also been retained, but watered down.

"The Government has much to do if it is to win back its enterprise credentials, but the measures announced today are a credible first step on the road," added Mr Lambert.

"For business, although there may have been no further big shocks in the speech, we mustn't lose sight of the whole raft of tax rises announced in the previous Budget and the pre-Budget report. These are scheduled to kick in from April, putting a further squeeze on firms at this already turbulent time."

The Institute of Directors (IoD) expressed relief at the "low-key nature of the Budget" following "recent ill-thought through announcements on capital gains tax and non-doms".

Miles Templeman, the IoD's director general, welcomed the assumption of 1.9 per cent public spending growth after 2011 and the decision to postpone the proposals on income shifting by owners of small family-run businesses. "The policy needs a fundamental re-think," he said. "More generally, the tax regime still needs to be simplified and made more business-friendly. The new enterprise agenda is taking us in the right direction, but, as ever, everything depends on delivery."

Michael Izza, chief executive of the Institute of Chartered Accountants in England and Wales, said he had hoped the Budget would go further in helping businesses and taxpayers across the country at a time of economic downturn. "Given the economic climate, the Chancellor was always going to struggle to deliver a Budget which did anything more than try and maintain stability," he said.

"The Budget does nothing to address the falling competitiveness of the UK nor to restore confidence overseas in the UK as a place to invest and do business."

Manufacturers were more positive. Martin Temple, chairman of the Engineering Employers' Federation, said: "The innovative package of measures designed to promote enterprise will tick many of the boxes for manufacturers and will go some way towards restoring the Government's reputation in this area. We will, however, want to see clear evidence of delivery."

There was also praise for a new £12.5m investment fund which will specifically target women entrepreneurs. Pam Alexander, co-chair of the Women's Enterprise Task Force, said: "We have advocated the creation of such a fund for women as one of our top five priorities. This fund presents an opportunity to create a bridge between aspiring entrepreneurs and capital."

However, the Federation of Small Businesses said the Budget would do little to change "a series of damaging tax rises in the last year".

'We have four sets of auditors asking the same questions' - James Greenham, small business owner

For private business owners, the Budget was a damp squib that did nothing to alleviate one of their biggest hindrances: red tape.

James Greenham, managing director of EMS Physio, a medical equipment firm in Oxfordshire, said that the box-ticking required by a complex web of government regulations has become stifling. The time required to ensure that his 43-employee company is complying with everything from health and safety and accounting standards to whether it has the right insurance has risen by 300 per cent in five years.

"We have four sets of auditors who come around our offices now, and they all ask the same questions. It has passed from being an irritant to being a problem," he said. "We spend most of our management's time responding to auditors."

In a Budget littered with salutes to Britain's small business base and promises to stoke it further – there are 750,000 more small business than there were a decade ago – next to none of it will change things, for better or worse, for Mr Greenham's business.

He may be hit slightly by the gas-guzzler tax, as the business owns a fleet of 11 cars. The previously announced corporation tax reduction from 30 per cent to 28 per cent will have no effect on his company, as it falls under a different tax band. He is unaffected by the £60m increase to the small firms loan guarantee scheme.

Mr Darling's plans to increase funds for adult training are also unlikely to affect another key shortage hindering manufacturers: lack of skilled workers. "It is a real concern, but that's not going to be corrected by a Budget," said Mr Greenham. "The levels of skills for business like maths, the ability to write well, is woefully lax. It needs to improve because we are competing on a global basis with countries that are very slick and flexible in terms of what they can deliver."

The skill shortage will only be solved, he said, by better schooling standards; Mr Darling did set aside £200m to improve GCSEs.