Outlook: The Budget's hidden cost to business

HOW DOES the Budget look to business the day after the night before? Rather worse, is the honest truth.

Business has born the brunt of the Government's fiscal tightening over the last two years, so it might have been reasonable to expect, now that there is to be a pounds 6bn loosening over the next three, that business would benefit, at least correspondingly. No such luck. For most businesses, this Budget is pretty much fiscally neutral. But for a sizeable minority, it contains another little kick in the goolies.

The hidden tax this time is an apparently unilateral decision by Customs and Excise to start charging VAT on outsourced service provision. Most profoundly affected will be the City, where all kinds of back office services from billing to custody are outsourced between organisations in an effort to cut and share cost. Also affected will be specialist outsourcing companies such as EDS, Unisys and Andersen Consulting.

Presumably the Chancellor knew of this move - which was buried almost to the point of invisibility in the Treasury's pack of Budget press releases - when he said in his speech on Wednesday that there were no plans to increase the scope of VAT. Given that the extra revenue raised through the ending of this exemption could run to hundreds of millions of pounds a year, it would be odd if he didn't.

At a business breakfast yesterday with the Chancellor organised by Deloitte & Touche, there was guarded praise for Mr Brown's third Budget. If nothing else, it was being said by industrialists and company directors, there were no nasty surprises for business this time round, unlike the others, and we should at least be thankful for that. That judgement may need to be reassessed.

But there is a deeper concern about this Budget, one of whose themes was meant to be "enterprise" - of laying the foundations for the Microsofts of tomorrow. There were lots of gadgets, gimmicks and any number of business friendly noises. Plainly Mr Brown was intent on walking his talk; some of his measures were certainly better than a poke in the eye. But somehow or other, it all fell a bit flat.

This was not the stuff from which the next generation of Microsofts is going to spring, that's for sure. For that, a much more radically tax- cutting budget for business is required. Some of the tax breaks he did announce were not, in any case, all they seemed. The new 10 per cent starting rate for corporation tax doesn't, on close inspection, apply to the first pounds 50,000 of profit, but is tapered after the first pounds 10,000.

And while this plainly benefits that vast hinterland of small, generally family owned, businesses that provide the bulk of employment in Britain, these are not the sort of entrepreneurially driven, aspirational companies that have spawned the high-tech revolution of America's West Coast. Most of these businesses are quite happy to chug along with their fewer than 10 employees and profits of less than pounds 50,000 a year. They either can't be bothered with, or don't want to be, the next Microsoft.

Mr Brown is showing all the right intentions, but in the end he's bottled out of the radical measures necessary to create a fully fledged free market, enterprise culture. His other priorities too much prevent him from following those pro-business instincts to their logical conclusion.

There is, however, one measure which does seem to promise genuine progress - the proposed new employee share scheme. This is precisely the sort of radical approach that is needed, assuming the Government's proposals live up to their promise. The details of this scheme are at this stage deeply confusing, and what little literature is available on it, apparently contradictory. But on the face of it, the intention is to offer employers a major tax incentive to pay their staff in shares, as well as employees a big tax break in buying shares in their employers.

Such an approach, once again assuming it is not made impotent by its terms and conditions, offers the opportunity of real workplace reform, of genuine partnership between employer and employee, and of proper worker participation and involvement in the affairs of their companies. It is a splendid thing; ministers and industry must work hard to ensure the ideal is not undermined by the process of consultation and implementation.

Start your day with The Independent, sign up for daily news emails
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Treasury Assistant - Accounts Assistant - London, Old Street

£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Business Analyst - Financial Services - City, London

£50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...

SThree: Trainee Recruitment Consultant

£18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...

Day In a Page

General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
How to survive a social-media mauling, by the tough women of Twitter

How to survive a Twitter mauling

Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

At dawn, the young remember the young

A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

Follow the money as never before

Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

Samuel West interview

The actor and director on austerity, unionisation, and not mentioning his famous parents
General Election 2015: Imagine if the leading political parties were fashion labels

Imagine if the leading political parties were fashion labels

Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence
Public relations as 'art'? Surely not

Confessions of a former PR man

The 'art' of public relations is being celebrated by the V&A museum, triggering some happy memories for DJ Taylor
Bill Granger recipes: Our chef succumbs to his sugar cravings with super-luxurious sweet treats

Bill Granger's luxurious sweet treats

Our chef loves to stop for 30 minutes to catch up on the day's gossip, while nibbling on something sweet
London Marathon 2015: Paula Radcliffe and the mother of all goodbyes

The mother of all goodbyes

Paula Radcliffe's farewell to the London Marathon will be a family affair
Everton vs Manchester United: Steven Naismith demands 'better' if Toffees are to upset the odds against United

Steven Naismith: 'We know we must do better'

The Everton forward explains the reasons behind club's decline this season
Arsenal vs Chelsea: Praise to Arsene Wenger for having the courage of his convictions

Michael Calvin's Last Word

Praise to Wenger for having the courage of his convictions