George Osborne said his Budget was meant to signal that Britain is open to business. It certainly achieved that for me, scoring on a number of points on which the CBI had lobbied the new government. I attach our full press release in which we say that the twin objectives – a credible plan for the deficit and a growth strategy for the longer term – have been addressed.
I am particularly pleased with the Corporation Tax changes. The CBI has been pressing on tax competitiveness for around 3 years. This is the first time that we have got a commitment to a real reduction in the level of CT, instead of just a reduction in headline rate entirely funded by reduction in allowances. Today’s announcements of a 24p rate in 2014-15, with some reduction in allowances, is a net gain to business of £2 billion during this Parliament.
We are also encouraged by the decision to revisit the proposed changes to high rate pension tax relief. The Government is consulting on our much simpler proposal to focus on the annual allowance. This will be a big gain for companies.
The National Insurance news is much better than the previous Government had intended, and after all the speculation on CGT a headline rate of 28 per cent and a lifetime entrepreneurs limit of £5 million will relieve many, but not all. And we will keep up the battle on both Air Passenger Duty and on the R&D Tax relief on which we have consultations rather than fixed decisions .
Inevitably business has to take a share of the pain in dealing with the deficit, and the VAT increase and the bank levy are not welcome but part of the whole. The detail needs to be right on the bank levy, given that we need bank finance for growth. We urged the Chancellor to go for an 80:20 ratio of spending cuts to tax increases, and he has more or less achieved that difficult target.
Overall, the public spending decision are what we called for. Dealing with the structural deficit by 2014-15, and doing it primarily through spending cuts rather than tax increases. Action on public sector pay and at long last a start on public sector pensions. Also a key decision not to reduce public sector capital spending any further. By the comprehensive spending review on 20 October, we need to make the case to begin to restore levels of public capital investment.
My favourite chart of the day is tucked away on page 88 of the Treasury’s Red Book. It shows how public spending as a share of GDP has shot up from a low point of under 37 per cent at the beginning of this decade to its current level of around 48 per cent. By 2015-16, it is forecast to be back down around the 40 per cent mark, which is a much healthier place to be.
Overall we think the Budget is a step in the right direction for the nation and for business. Next comes what is going to be an extremely difficult spending review. We are by no means immune from the pain, and there is plenty of detail for us to get right in your behalf. We will keep up the work, starting with the Finance Bill.