Budget 2015: Business leaders hail 'welcome' cut in corporation tax but remain lukewarm to 'double-edged' package

Britain’s rate of corporation tax is already the lowest in the OECD

George Osborne announced that corporation tax will be cut again for businesses from 20 per cent to 18 per cent (Getty Images)

Britain’s biggest business organisation described the Budget as “double-edged” despite hailing the “welcome surprise” of moves to bring corporation tax down to 18 per cent.

John Cridland, director general of the CBI, said while businesses would be pleased with the further measures to balance the UK’s books and boost investment they would be “concerned by legislating for wage increases they may not be able to deliver”.

He continued: “The further reduction in corporation tax is a welcome surprise but tax reductions for employers don’t appear to match the businesses most affected by a rise to £7.20 in the national minimum wage next April – a 7 per cent increase.

“The CBI supports a higher-skilled, higher-wage economy, but legislating for a living wage does not reflect businesses’ ability to pay. This is taking a big gamble that the labour market can absorb year-on-year increases of an average of 6 per cent.”

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He added: “Firms want to play their part in training up more apprentices but an apprentice levy is a blunt tool. A volunteer army is always better than conscription but the CBI will work with the Government to make the best effect of this measure.”

Britain’s rate of corporation tax is already the lowest of any large economy in the OECD, but the latest cuts take it within sight of ultra low-tax countries such as Ireland or the Netherlands. Multinationals have caused controversy by using such locations to avoid paying tax in countries where rates are higher.

The Federation of Small Businesses was also lukewarm, describing the Budget as “a mixed bag”. It welcomed the move to increase companies’ annual investment allowance to £200,000 (it had been due to fall to £25,000). But John Allan, the federation’s national chairman, was concerned about the Chancellor’s plan for a “living wage” for the over-25s.

“Even though offset by a welcome increase in the employment allowance, some will find the new national living wage challenging,” he said. “Changes to the treatment of dividends will also affect many of our members,” he added.

But the Institute of the Directors said that it was time to increase pay after several years in which take-home pay had risen slowly, if at all.

Simon Walker, director of the IoD, said: “In today’s Budget, George Osborne has offered business a new deal on employment. Introducing a national living wage at a significantly higher level than the minimum wage was a dramatic announcement; but, in return, companies have been provided with a cut to corporation tax and an increase in the employment allowance. We should not understate the boldness of this move, and many businesses will have been taken by surprise, but the IoD accepts that after several years of slow wage rises, now is the time for companies to increase pay.”

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Bankers, however, rounded on the Chancellor’s decision to impose an 8 per cent tax on bank profits.

Anthony Browne, chief executive of the British Bankers’ Association, welcomed the decision to reform the hated bank levy, saying the move would “reduce the damage it does to Britain’s biggest export industry”.

But he added: “Introducing yet another bank-specific tax will reinforce fears that Britain is becoming a less attractive place for banks to do business. This is the fifth new bank-specific tax measure in as many years following fast on the heels of the big rise in March and will increase banks’ tax burden by nearly £2bn.”