Business warms to focus on enterprise

Corporate reaction
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Indy Politics

British business groups responded positively yesterday to a string of measures announced by the Chancellor to boost Britain's competitiveness.

British business groups responded positively yesterday to a string of measures announced by the Chancellor to boost Britain's competitiveness.

Saying he would use tax incentives to "encourage a new generation of entrepreneurs", Gordon Brown announced proposals and consultation exercises in areas such as simpler VAT regimes for small firms, tax relief on share options to foster the e-economy and tax credits for research and development work undertaken by large companies.

Digby Jones, the director general of the Confederation of British Industry, said: "These measures will give a much needed boost and won't pose a threat to economic stability." The Institute of Directors said the Chancellor's proposals did not jeopardise Britain's sustainable growth, low inflation and stable interest rates.

Tax experts said the measures sounded good, though there was concern that the level of change could create uncertainty and undermine the objective of encouraging enterprise.

Lyndsay Armstrong, the European vice-president at Veritas, a US software giant which announced a £250m investment in Britain earlier this year, said she had heard nothing that would persuade her company to choose Britain for the remaining £250m earmarked for overseas investment. The company has held back because of the punitive UK tax regime on share options.

"What I've heard today does not remove the barriers to investment in Britain," she said. "We must cap the tax liabilities on options. It is stopping us from recruiting good people and this is the single biggest concern of US companies investing here."

Mr Brown insisted that part of the Government's plan to achieve "American levels of productivity" was to build an enterprise culture. The Chancellor said he intended to make "Britain the best place in the world for multinationals" and announced a range of initiatives aimed at large corporations.

The Government plans to build on a cut in the corporation tax rate from 33 per cent to 30 per cent after consultations.

It is also looking at a review and simplification of the corporate debt, financial instruments and foreign exchange provisions which have been introduced in recent years. Mr Brown proposed changes to double taxation relief, in an attempt to make Britain more attractive for investment by international companies.

For smaller businesses, the Chancellor confirmed predictions that he would be consulting on a set of proposals for simplifying VAT. The Federation of Small Businesses said it could "build on" the changes in the future. However, it also suggested a 12 month "VAT holiday" for new firms.

Manufacturers will receive further incentives, particularly through the extension of the research and development credits available for smaller companies.

Mr Brown also addressed the concerns of new technology companies, saying that tax relief for share options would be extended. The Government plans to consult on abolishing the limit of 15 qualifying employees and instead just have acap on the total value of shares, which would be raised from £1.5m to £2.5m.

Similarly, the Government plans to extend tapered relief for capital gains tax on business assets to help more employees benefit when they sell their shares. It is consulting on making the relief available to a range of non-trading companies, including venture capital firms, as well as those that are already covered.

"This is a welcome relaxation which will allow many who should have benefited from the relief when introduced earlier this year to get their 10 per cent tax rate without worrying about precisely what their employer is doing," said Mr Henderson.

In the City, the reaction to the pre-Budget statement was muted, with the FTSE 100 index of leading shares closing 10.5 higher at 6477.4.

However, some economists found cause for concern in the Chancellor's spending plans. Adam Cole, an economist at HSBC, said the package for pensioners and the various road and fuel concession amounted to £4bn of fiscal easing next year. That could tip the balance in favour of higher interest rates, he said. "They are not enough to push up base rates on their own but the Monetary Policy Committee will have to start factoring them in to their calculations."

Richard Iley, an economist at ABN Amro, agreed that interest rates may need to rise as consumer spending may not ease as quickly as the Chancellor's forecasts assume.

On the stock market, equity strategists said oil companies may breath a sigh of relief after a mooted windfall profits tax failed to materialise. Otherwise, the report was viewed as "neutral" for shares.

Business groups were positive. The Engineering Employers Federation said it was in favour of the research and development tax credit of larger firms.