Alistair Darling appears to have found himself securely wedged between a rock and hard place as he prepares for what is undoubtedly the most eagerly awaited Pre-Budget Report in its short history.
Under significant pressure to unveil a package of measures aimed at boosting the UK’s ailing economy, the Chancellor will undoubtedly have to forsake a number of previous proclamations and stand accused of the ultimate political sin - the policy u-turn. Unfortunately for the Chancellor, whatever policies he unveils to lift the UK out of recession, it seems the business community has already lost faith in his ability to bring about change.
According to a website survey by the Birmingham office of accountancy firm Baker Tilly, almost half of the 622 business respondents nationally expect that, like last year, the Government will be forced into at least one public climb-down - suggesting people have long memories regarding changes to the taxation of non-domiciled residents and the reform of capital gains tax.
Less than a quarter expect the Chancellor to announce a measure that will adequately address the issue of large companies relocating from the UK to countries with lower tax regimes, while a majority expect this to be a tax-raising PBR overall.
Baker Tilly’s Birmingham-based tax partner Bill Longe said: “In recent years we have seen, most painfully for the Government in the 10p tax band debacle, tax cuts paid for by tax increases elsewhere. It appears that our survey respondents expect this PBR to be no different.”
Richard Rose, Senior Tax Partner at BDO Stoy Hayward in Birmingham, said it was important the Government avoided knee-jerk short-termism in an attempt to boost revenue.
He said: “We strongly consider that the Government should resist any temptation to introduce windfall taxes on utilities such as oil and gas companies. Not only would this be very business unfriendly, it would have unpredictable results, be difficult to enforce as many such firms are multi-national and would set very poor precedents for government and business relationships.”
Richard Mannion, national tax director at Smith & Williamson, also warned against the Government major tax cits if they could not be properly paid for. “If the pre-Budget report turns out to be the ‘spend, spend, spend’ document it is being trailed as, it could prove to be Gordon Brown’s biggest U-turn of his political career,” he said.
“Economists seem to be in agreement with this approach, but tax cuts ultimately
have to be paid for. The pre-Budget report may therefore prove to be a ‘Robin Hood’ event where the government tries to redistribute wealth. Common sense tells us there must be tax increases for certain groups of taxpayers.”
Terry Cooper, director in the private capital group at Cobbetts LLP, was pessimistic about the Government’s ability to make sugnificant changes.
“Given the state of the economy, it’s doubtful that the Government will be able to do anything favourable at all,” he said. “If they want to do something really beneficial, the Government should make as few changes as possible in order to maintain the status quo and help everyone ride out the storm.”
Owen Trotter, investment partner at Key Capital Partners in Birmingham, was equally unsure of Government’s ability to lift the economy out of recession.
“If the Chancellor is planning to introduce any significant measures in his Pre-Budget Report, they must be aimed at easing cash flow pressures for smaller businesses. For instance, a VAT or PAYE holiday would be a very welcome introduction. But while such proposals would help growing businesses to survive the recession, the challenges facing our economy are tied up with investor and consumer confidence, neither of which will be altered by the decisions that Alistair Darling announces on Monday.”
Richard Harpin, CEO of Walsall-baseddomestic emergency insurance business Homeserve Plc, believes the government should radically overhaul the R&D tax credits scheme and broaden its scope to create an ‘innovation tax credit’ system.
“A major issue is how to give real incentives to large businesses to invest more in innovation. A more tax-efficient regime could do this, or a system that enables listed companies to invest in innovation without stifling their profit growth,” said Harpin.
Christine Oates, head of tax at Ernst & Young’s Birmingham office, said the availability of cash was still the key issue. “The Chancellor could focus this PBR on addressing the timing of tax payments rather than just rates of tax, for example the Chancellor could defer VAT payments for a period so businesses hold their cash for longer.”
John Truslove, a commercial property consultant from Redditch, said if the Chancellor did nothing else, he must reintroduce empty property rates relief. He said: “The abolition was highly unpopular when it came into force and the subsequent recession and collapse of the construction market has made it the equivalent of kicking the dog when it’s under the table.”