Manufacturers were looking for two things from the Chancellor – clarity on how it would go about reducing the deficit and a plan for rebalancing the economy, while strengthening growth and investment in the longer term. The package made it clear how the Government will eliminate the deficit and business will be relieved to get all the news out of the way in one go.
The numbers speak for themselves on the first objective. Last week the Office for Budget Responsibility forecast an even larger structural deficit in the public finances that previously expected. But significant cuts to welfare budgets, a new bank levy, cuts to investment allowances and an increase in VAT were among the measures to help plug the gap.
On the spending side, the Government is sticking to the savage cuts to capital budgets announced by the previous Government. And while individual department spending totals won’t be revealed until the Autumn, ministers will be spending the summer identifying cuts of around 25 per cent of their budgets.
As for manufacturers they will be pleased to see the Chancellor’s commitment to work closely on a longer-term plan to sort out our corporation tax system and on tax policy more generally. This will address manufacturers’ concerns about how complex and confusing our tax system has become.
They will also be relieved to be spared the worst impact of the inevitable changes to capital gains tax. and will be heartened that Government has listened to concerns on inequities in investment in low carbon energy. The aggressive timetable to deliver reform next year matches the vital need to promote investment in our energy infrastructure.
Industry also recognises that the state pension age has to be raised more quickly than previously planned. However, this must be done gradually to allow those close to retirement sufficient time to make the necessary preparations.
But the Budget fell short of what was needed to rebalance the economy. In particular, the cuts in allowances will remove support for the increase in business investment that is so vital to creating a stronger economy. While reducing the corporation tax rate over time was in principle the right thing to do, financing it, in part, by cuts to investment allowances will be a heavy price to pay, especially for smaller companies.
Martin Wassell is the Midland region director for manufacturing group EEF