Belfast Telegraph

Mixed response to the dreaded Budget

Proposals to cut corporation tax hailed but concerns still remain that VAT hike will offset gains

By Symon Ross

Protesters dressed as Prime Minister David Cameron, former Prime Minister Margaret Thatcher and Deputy Prime Minister Nick Clegg demonstrate at Trafalgar yesterday

NORTHERN Ireland's business community has given a mixed response to Chancellor George Osborne's emergency budget - viewing it as giving with one hand while taking away with the other.

Business leaders welcomed some measures announced by the Chancellor, such as the staggered reduction in corporation tax from 28% to 24%, but voiced their concerns that positive gains will be all but cancelled out by a rise in VAT from 17.5% to 20%.

Other key announcements affecting local businesses in Mr Osborne's speech included:

  • National insurance thresholds rise from £110 to £131 a week.
  • Small companies rate cut from 21% to 20%.
  • No rise in alcohol and tobacco duty, Labour's planned rise in cider duty reversed.
  • Capital gains tax rises from 18% to 28%.
  • Personal income tax allowances rise by £1,000 to £7,475.
  • Freeze on public sector pay for two years.
  • Introduction of an employer's national insurance exemption scheme for new businesses.

Bryan Gray from Northern Ireland Manufacturing, which represents industrial firms, gave the Budget a little more of a reserved response.

He said: "While we welcome the reductions in corporation tax and national insurance which will help to preserve jobs, only time will tell if the increase in VAT will offset those benefits for companies making consumer goods.

"The measures designed to encourage new business start-ups are to be welcomed, and we eagerly await the Chancellors proposals to further stimulate the private sector in areas such as Northern Ireland, which are heavily dependent on public sector jobs."

CBI Northern Ireland director Nigel Smyth said he believed businesses would welcome the commitment to create more sustainable public finances and provide greater clarity on taxation policy, but would be disappointed by other elements.

"The reduction in the headline corporate tax rate to 24% is clearly welcome, but it is disappointing that some of Northern Ireland's larger companies will lose out from reductions in R&D tax credits and changes, albeit delayed, to capital allowances," he said.

President of the Northern Ireland Chamber of Commerce Francis Martin said the Budget was a "mixed bag" for the SME sector.

"The exemption from National Insurance payments for new businesses is a strong sign of the government's commitment to the sector, however wider problems continue to make business start-up very difficult.

"The increase in VAT however has a negative effect on small enterprise by increasing the cost of doing business, and could stifle consumer demand.

"Combined with a weaker euro, it could also signal the end of any significant benefit from cross border shopping," he said.

Wilfred Mitchell from the Federation of Small Businesses also pointed out that positive moves such as the reductions in corporation tax had been funded by other levies on business, such as the changes to capital allowances.

"Many small businesses in Northern Ireland are not incorporated as limited companies, so the reduction of corporation tax will not be of benefit to them, yet the loss of allowances will hit them," he said.

Northern Bank economist Angela McGowan said the overall impact on Northern Ireland would be negative.

"We have a relatively high proportion of public sector workers, many of whom will endure a pay freeze for two years.

"The local economy will also take a hit from the £11bn shake-up in welfare benefits, particularly as the local economy has a higher proportion of the population claiming Disability Living Allowance relative to other UK regions.

"In addition, the impact of a higher rate of VAT early next year will also impact upon our household spending levels, and further reduce the ability for Northern Ireland to attract those cross-border shoppers and tourists who are already trailing off with the weakened euro."

Lyn Hagan, tax partner at Golblatt McGuigan agreed that Northern Ireland would certainly feel the impact of the Budget.

"On the face of it the reduction in Corporation Tax from 28% to 24% over 4 years, and the Smaller Companies' rate from 21% to 20% from next year, looks like a benefit for the local business sector.

"However, most companies in Northern Ireland will see any benefit negated by the reduction in the rate of Capital Allowances, and the reduction from £100K to £25K of the Annual Investment Allowance, which is being introduced in April 2012."

Colin Neill from Pubs of Ulster welcomed the announcement that there would be no new increases in wine, beer, and spirit duty, but still remained cautious given the Chancellor confirmed a further review of taxation, and the pricing of alcohol, which he will report back on in the autumn.

"There is still a great degree of uncertainty as to the Government's commitment to introducing measures which support rather than penalise the future of the industry," he said.