Business Reaction: Overhaul aims to simplify unpopular tax credits system

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The Independent Online

Business leaders gave a lukewarm response to the Budget, welcoming measures to improve education and training, help overseas trade and extend research and development (R&D) tax credits but criticising the Chancellor for failing to cut corporation tax, red tape and public spending.

There was also disappointment that Gordon Brown had ignored the damage being done to companies from high energy prices and pension costs.

The Institute of Directors (IoD) attacked Mr Brown for having missed an opportunity to boost UK competitiveness by cutting taxes. The IoD said it regretted that the Chancellor had chosen to adjust a range of reliefs, schemes and exemptions when a simple cut in the main rate of corporation tax would have been more beneficial. Miles Templeman, the director general, said: "The competitive advantages the UK once enjoyed with a 30 per cent rate of corporate tax have been eroded away. We need to reduce this tax in order to boost our competitiveness."

Sir Digby Jones, the director general of the CBI, Britain's largest employers group, also expressed his unhappiness by the lack of action on this front. "Business will be disappointed that the opportunity truly to improve UK competitiveness has been lost. UK firms have watched while other countries have reduced business taxes to help their companies compete in this era of globalisation. Yet the UK continues to do the opposite."

The lack of a serious attempt to rein in public spending was another gripe. According to Bill Midgley, the president of the British Chambers of Commerce, the Budget did not address the excessive levels of public spending and borrowing in the UK. Mr Midgley believes the Chancellor's forecasts for the public finances are too ambitious, particularly beyond the next one to two years. In his view, businesses remain worried that excessive spending may necessitate damaging tax increases in the near future.

In its response to the Budget, the EEF, an engineering lobby group, complained of the damage being done to British business by high energy prices and pension costs. It said Mr Brown had delivered a " pick-and-mix Budget", strong on rhetoric but light on detail and with plenty of window dressing.

The EEF welcomed the enhanced support for science and innovation, R&D and education from the Chancellor. This sentiment was supported by other business groups. Mr Templeman said: "The IoD welcomes the extension of free Further Education up to the age of 25. On the commitment to increase expenditure on schools, the crucial issues is that money is spent efficiently."

The CBI's Sir Digby said: "Steps to reduce red tape, expand R&D tax credits and boost UK Trade & Investment have our wholehearted support." He also welcomed extra spending on education, as long as it delivered improved results and gave young people the necessary literacy and numeracy skills.

In the City investors applauded the Chancellor's proposals for the introduction of Real Estate Investment Trusts (Reits). Property companies featured as the top performers in the FTSE 100 index and FTSE 250. Land Securities shares gained 13 per cent, British Land rose 11 per cent, Hammerson rose 9 per cent and Slough Estates 13 per cent.

City analysts said the proposals were "great news for the property sector". One analyst suggested Mr Brown's proposals will make London the "Reit capital of Europe". Ian Coull, the chief executive of Slough Estates, said he was "delighted" by the Chancellor's plans, adding that he was particularly happy the Government had listened to the industry's concerns and had taken the appropriate measures when announcing its plans.

But Mr Coull warned it was too early to tell whether Slough Estates would take the plunge and convert to Reit status. He said: "We are waiting for more details from the Government. We expect these to emerge in the coming weeks. When we have the full details we will then be in a position to make a decision."

* Treasury Budget site

* Chancellor's Statement in full