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The Budget 2011 – a plan for growth, or a hope for growth?

“This is… a Budget that encourages enterprise; that supports exports, manufacturing and investment.” So said chancellor George Osborne in yesterday’s speech.

Whether it transpires to be the “Budget for growth” he hopes for is another matter; time will tell. The coming year may turn out to not be as tough for FDs and their businesses as previous years, but make no mistake – we are not completely out of the woods yet.

The irony of the “growth Budget” including growth estimates that have been revised downwards has not passed unnoticed – but the chancellor is clearly still pinning his hopes on the private sector to save UK plc. To that end, he announced a series of giveaways designed to encourage multinationals to base themselves in the UK, boost investment and create jobs – all paid for by increasing the bank levy, plus a steep rise in the North Sea oil and gas supplementary charge:

1) Corporation tax main rate reduction by two percent

From April 2011, the main rate will drop from 28 percent to 26 percent – a further one percent off the planned decrease. The small companies’ rate decreases to 20 percent as previously announced. Larger businesses will be particularly pleased, especially as it appears not to have been accompanied by significant restrictions/cancellations of allowances to offset their tax saving.

2) Relaxation of the Controlled Foreign Company (CFC) and foreign branch rules

Combined with the corporation tax cut, Osborne is trying to woo large multinationals to the UK – and many back to the UK – by reforming the CFC and foreign branch rules to a more generous regime per the public consultation. FDs looking to either base their organisations in the UK or expand internationally will be boosted by the chancellor’s plans.

3) More generous R&D tax credits for SMEs

The increase to 200 percent for research and development (R&D) tax credits won’t kick in until 2012/13, with the tax credit rate being 225 percent thereafter, along with some simplifications of the scheme. This is a measure aimed at companies in the science and technology sector – although the proposals need EU State Aid approval first.

4) Enterprise Incentives

The lifetime limit of Entrepreneurs’ Relief is being doubled to £10m from April and the EIS and VCT schemes are being reformed in the coming years, although EIS income tax relief rising from 20 percent to 30 percent from April. This provides incentives to business angels and serial entrepreneurs, although advisers have warned SMEs need better access to finance and the new EIS rules won’t encourage investors who weren’t already looking at EIS investment to begin with.

5) Small motoring duty concessions

Paid for by the North Sea oil tax rise, motorists will see a 1p decrease in the rate of fuel duty, and there will be an increase in the Approved Mileage Allowance Payments (AMAPs) for employees. FDs of businesses based in rural areas or those with high road transportation costs are likely to welcome these – albeit small – concessions.

Employers will be disappointed that the 50 percent income tax rate and the current employers’ NI rules remain in place. But still, business will like this Budget – unless you happen to be an oil company or a banker, of course.

There will be many ordinary citizens angry with what they perceive to be a charitable handout for big business and wealthy investors from the government. But the chancellor did not set out to make friends; yesterday’s Budget demonstrated quite clearly that he has a plan and he is sticking to it, come what may.

So, overall, this is definitely a Budget for business, and in turn, the chancellor hopes that growth will follow suit. I hope for the chancellor’s sake that his plan works. But his message is clear: it is now up to business – business investors – to do their part and drive our economy forward.

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Philip Hammond