Business: Small firms baffled by the small print

Chancellor targets fund for high-tech businesses plus relief on capital allowances
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The Independent Online

Alistair Darling last night claimed to have launched a £2.5bn attempt to help British business weather the downturn and invest through the recession. With 120 small businesses folding each day and forecasts that around 40,000 British companies could collapse in 2009, the Budget focused on throwing money and tax breaks at the problem.

Mr Darling said that the package would "encourage investment in the industries and high-paid, high skilled jobs of the future". However, British business questioned how the package could add up to £2.5bn.

"We have tried to establish some kind of audit trail for this figure and we are hitting a brick wall," said Stephen Herring, a tax partner at the accountant BDO. The CBI was also trying to evaluate the package last night.

Mr Darling's business centrepiece was a £750m Strategic Investment Fund, which will back companies investing in advanced technology projects. A third of the money will be channelled into low-carbon business opportunities, including wind and marine energy, and early funding is likely to be invested in constructing facilities to test prototypes. Money will also be injected into initiatives for environmentally-friendly vehicles and into the nuclear industry.

A further £50m has been made available to the Technology Strategy Board, which provides support to business research programmes. UK Trade and Investment will be given £10m to help exporters. The fund will be available over the next two financial years, with the majority spent in 2009-10.

"Backing green, low-carbon businesses and technologies will be a priority for the new fund," said business secretary Lord Mandelson. He added that the Government was determined that Britain should become a "world leader" in energy efficient technologies.

The British Venture Capital & Private Equity Association, which counts technology and renewable energy start-ups among its members' interests, was unimpressed by the lack of detail on the fund. "[We are] deeply disappointed by the decision to create a vague Strategic Investment Fund," said chief executive Simon Walker. "[This] looks like a return to the public sector seeking to 'pick winners', but ultimately subsidising losers."

In a measure intended to help small businesses balance their books, the Chancellor extended the period for which loss-making companies can claim back tax paid on profits made during the last three years, to November 2010. Anita Monteith, a tax expert at the Institute of Chartered Accountants, said some firms that were excluded from the original policy would now be able to claim back money.

But Phil Orford, chief executive of the Forum of Private Business, said the Chancellor had missed a real opportunity to aid struggling businesses. "In reality the measure offers a maximum saving per company of £10,000 a year," he said. "If the Chancellor had wanted to give this some teeth to this then he should have doubled the allowance to £100,000 from the current £50,000."

BDO's Herring went further. "I can see no sensible reason why the Chancellor has stuck to the £50,000 limit," he complained. "I would have liked to have seen an allowance of £1m."

In what the Federation of Small Businesses argued was a disappointing budget for its members, the body at least found some cheer in an increase in the main capital allowance rate for one year. Starting this month, the allowance has been doubled to 40 per cent for firms investing £50,000 or more on plant and machinery. The Government hopes this will help kickstart investment, as more of that spending can be offset against taxable profits.

The Government argued that the Budget measures come on top of a series of recent policies to help businesses, including a £2.3bn auto industry rescue package announced by Lord Mandelson at the start of the year.

Case Study: 'Utterly ludicrous'

Harry Murray, 63, Owner of medium-sized business

Mr Murray set up HMS Joinery 19 years ago and employs 20 staff in a factory in Newcastle-under-Lyme, Staffs. His turnover has fallen from £1.7m in 2007 to a forecast £1m this year.

"I recognise the Government has very little room for manoeuvre, and supported their stimulus even though it's going to get us in trouble with debt and inflation. I also supported the nationalisation of the banks, though it irked me that they were using our money to pay off their debts rather than to lend. What I heard from Mr Darling yesterday is some utterly ludicrous borrowing figures that will put off business confidence for a long time. I'm not convinced they'll be able to re-energise the housing market. But what I disagree most strongly with is the punitive tax rises on fuel, alcohol and tobacco. We've decimated the trade of publicans, and if we don't revive pubs our social fabric will be damaged irreparably."