Download - Fleishman Hillard Budget Insights Special, March 2011

8/7/2019 Fleishman Hillard Budget Insights Special, March 2011

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Key Measures

2011 forecast downgraded to 1.7%

Inflation to fall to 2.5% in 2012

Borrowing forecast to be 146bn this

year, falling to 122bn next year and

29bn by 2015

National debt to be 60% of national

income this year

Fuel duty to be cut by 1p per litre from

6pm tonight

Planned inflation rise in fuel duty to be

delayed until 2012

Fuel Duty Escalator to be scrapped

Tobacco duty rates up 2% above

inflation

No changes to alcohol duty other than

those previously announced

Personal tax allowance to rise a further

630 in April 2012

Consultation to be launched to merge

income tax and National Insurance

50% tax will remain, but will be

reviewed

Direct taxes to be indexed to

Consumer Price Index from 2012

Council tax to be frozen or reduced in

every council in England

The Government will freeze Air

Passenger Duty rates for 2011-12, with

the RPI increase assumed in the

forecast deferred to April 2012.

Private jet users to pay passenger duty

Inflation rise in road tax

Levy of 50,000 on non-doms resident

in UK for 12 years

Support for SW families with water

bills

Tax avoidance clampdown to raise

1bn

Corporation tax to be cut by 2%

43 tax reliefs scrapped No new regulation for businesses with

10 or fewer staff for three years

100m for science facilities

21 new enterprise zones

Reform of Gift Aid

Extra 40,000 apprenticeships

Funding for 100,000 new work

experience placements

Plans to reform state pensions to

single rate of 140 a week

100m for repairing potholes

200m for regional railways

Green Investment Bank to launch in2012, carbon price floor introduced

Lord Young health and safety

recommendations to be implemented

Crackdown on no win, no fee lawyers

Osbornes March of the MakersWednesday 23 March 2011

Last years post-election emergencystatement was famously dubbed theUnavoidable Budget by theChancellor, George Osborne MP. Hecould have used the same sound-bitethis year, as never before has a Budgetbeen so repeatedly trailed in themedia.

Gone seem the days when the Conservatives cried foul at Governmentannouncements being made to the media before Parliament. The media activityaround this Budget, masterminded by new Tory Comms chief Craig Oliver, has

provided an interesting pointer to where Downing Street communications may bemoving and the direction of travel seems to point toward the Blair way of doingthings.

Moving the Story

With little room for manoeuvre, Osborne nonetheless managed one set-pieceannouncement that is likely to resonate politically a cut in fuel duty of 1p, partlypaid for by the oil industry.

He also announced a new document, Plan for Growth, published at the same timeas the Budget Red Book. The Plan details the four overarching themes of todaysannouncement:

Creating the most competitive tax system in the G20

Make the UK one of the best places in Europe to start and grow abusiness

Encourage investment and exports as a route to a more balancedeconomy

Create a more educated workforce that is the most flexible in Europe

It was another assured performance by the Chancellor, who long ago answereddoubts in some Conservative MPs minds that he was too inexperienced for the job.

Defying Labour attacks that the cuts are too many and too fast, Osborne said hehad had a plan and was sticking to it.

For Osborne, this Budget was about how the country would recover. And withdifficult local elections coming in a few months and the Mayoral race next year, the

Chancellor will be as keen as Craig Oliver to move the Governments story on fromcuts to a positive one about opportunity and investment, his march of the makers.

Economic Analysis

On the macroeconomic front the news disappointed once more. The Office ofBudget Responsibility (OBR) revised its forecasts for GDP growth down for boththis year and next, predicting 1.7% (2011) and 2.5% (2012), the gloom attenuatedonly in part by the prospect of higher growth during the rest of the forecast period.

The inflation outlook is also higher than the Chancellor would wish, forecast at 4%-5% during 2011, before easing back to the Consumer Price Index target (reaffirmedduring his speech) of 2% in 2013. Public borrowing figures for 2011 are nowexpected to reach 146bn, 2.5bn lower than the previous estimate, but still higherthan many independent analysts had hoped.

Within financial services, the expected increase in the Bank Levy was confirmed,but with an additional increase from 2012 to offset accelerated corporate taxreductions. There were further announcements of the intention to legislate onSolvency II, the formation of an industry working group from April 2011 to exploreany tax issues associated with the development of new bank capital instruments in

Insight SpecialInsight Special


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Basel III, and new regulations to introduce direct tax rules for sharia compliant variable loan arrangements and derivativesfollowing consultation in 2011.

Tax Reform

On tax reform, the Chancellors longer term goal of simplification was signaled by thecommitment to consult on merging National Insurance and Income Tax. This is a long-term goal, but other measures including limiting the scope of Low Value ConsignmentRelief, meant that the Chancellor could state that the measures announced in the Budgetwould abolish 43 tax reliefs, and remove 100 pages from the UK tax code.

Although the UK oil industry is unlikely to be happy with a supplementary charge onprofits at 32%, other measures are likely to cheer the wider business community,especially small business. These include: a faster reduction in corporation tax from 28%to 26% this April; a doubled lifetime limit for Entrepreneurs Relief to 10 million, and theintroduction of a moratorium exempting micro-business and start-ups from new domesticregulation for three years from the 1st April 2011.

The Business Vote

This Budget unashamedly pitched for the business vote, with further nods in the Plan for Growthpublished alongside theBudget for: construction, retail (where the small business rates relief holiday is extended), tourism (where a 100mcampaign will be launched) and advanced manufacturing amongst other sectors. This is a clear attempt to show that thegovernment is interested in more than just the south eastern corner of the country.

Osborne concluded his speech by saying that he wanted to back enterprise and help families with the cost of living. Theseare laudable aims, but in order to support them fully, he must surely hope that the UKs economic performance has improvedby the next time he stands at the dispatch box.

Local Government

Todays statement included a significant focus on reforming planning regulation,reflecting the fact that Councils are spending significantly more on planningapplications than five years ago, despite the decrease in the number of applicationsby around a third.

The Chancellor pledged to give communities more say in planning, as well as a raft ofmeasures for reform including: the introduction of a new presumption in favour ofsustainable development; removing the nationally imposed targets on the use ofpreviously developed land; allowing certain use class changes, introducing timelimits on applications and pilot for the first time ever auctions of planning permissionon land. Councils also stand to benefit from the new Enterprise Zones, of which 21

around the UK have been announced with a further 10 to be announced in the Summer. Within these zones, local authoritieswill be able to keep all business rate growth for a period of at least 25 years to spend on development priorities.

Finally, Osborne was able to confirm to the House that since his Emergency Budget last year, every local authority in

England has chosen to freeze council tax in the coming year.

Apprenticeships

The Chancellor announced further Government investment for apprenticeships andtechnical colleges. Currently, 20,000 work experience places for young people receivecentral government funding; this number is to be increased fivefold to 100,000 over thenext two years.

The Chancellor also announced 180m of funding for an extra 50,000 apprenticeshipplaces over the next four years. Of these, 40,000 will be targeted at some of the nearly1m young people who are not currently in employment or training, and will in particularbe for young people progressing from the work experience scheme. SMEs have

traditionally found it difficult to access the apprenticeship scheme, and so theGovernment will provide grants to support SME business consortia to set up andmaintain advanced and higher apprenticeship schemes for a further 10,000apprentices.

This is Del-Boy economics -

the Chancellor has not

rescued this country, the

country needs rescuing from

this Chancellor.

Labour Leader, Ed Miliband

MP

His headline grabber [taxing oil

companies to pay for a fuel taxcut] looks to have been inspired

by his great political enemy -

Gordon Brown.

BBCs Nick Robinson

The Chancellor has once again

chosen to raid the banks to pay

for the cuts in corporation tax..

By increasing the burden faced

most by banks headquartered in

the UK, the Chancellor continues

to increase the incentives for

banks to migrate.

Chris Sanger, Ernst and Young


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The Government has also pledged to expand on their existing plan for new University Technical Colleges, doubling thenumber from 12 to 24. These new colleges will be partnerships between universities, colleges and businesses, and will

provide technical training for 11-19 year olds. The curricula of the colleges will be influenced by businesses in order torespond to local skills sector needs and shortages, and in return students will gain access to the businesses specialistfacilities.

Energy and Environment

The Liberal Democrat coalition members should be happy with theGreen announcements made by George Osborne. Norman Lamb MP,PPS to Nick Clegg tweeted during the budget, Strong green measures!Labour benches silent!.

His delight will partly be because the UK will become the first country inthe world to introduce a carbon price floor for the power sector. The pricewill start at around 16 per tonne of carbon dioxide in 2013 and move to

a target price of 30 per tonne in 2020. This will not just impact energyproviders but also manufacturers as well. An HMT spokesperson wasnoted saying in the lobby that this budget will hit, oil companies, taxavoiders and carbon intensive energy providers. Osborne said this willprovide the incentive for billions of pounds of new investment in ourdilapidated energy infrastructure.

On Carbon Capture and Storage, 1 billion has already been provided and Osborne commented that future projects will befunded out of general spending rather than a complex new levy.

The second major piece of energy news was about the Green Investment Bank (GIB) which will aim to support low-carboninvestment where the returns are too long-term or too risky for the market. Osborne went on to commit a further 2 billionfollowing the one billion than he had already planned and therefore its operation will start next year as opposed to 2013. JoSwinson, the Liberal Democrat MP tweeted her delight on the GIB, Great news on Green Investment Bank- 2billion extra,

borrowing powers too by 2015!

Defence

Prior to the Budget announcement there was some speculation that continued UKintervention in Libya may lead to an increase in the Defence budget. However, whileOsborne praised the courage of the Armed Forces serving to enforce the no-fly zone overLibya, he pledged that the additional cost of military operations will be met entirely fromthe Treasury reserve. Thus, spending allocated to Defence for 2011-12 has remained at40 billion, and is unchanged from the 2010 budget.

With the Treasury absorbing the Libya bill, the MoD is spared any further strain on itsfinances. However the MoD is still under enormous pressure to cut costs. To put it into

context, this Budget comes six months after the Strategic Defence and Security Review (SDSR) announced, in October

2010, a series of hard hitting cuts. The previous Government left a projected budgetary black hole of between 35-8 billion(depending on sources), which has meant a series of project cuts, and job losses. A number of legislative reviews arecurrently being undertaken, notably the Lord Levene review (Defence Reform Unit) and Lord Currie review of Single SourceProcurement.

One proposal to raise capital for the MoD announced in the Budget is to accelerate the release of public sector land tosupport homes and jobs. The Government will work with local authorities to expedite planning decisions for surplus militaryland and other public sites suitable for housing. The proposal will potentially allow the MoD to make 350 million in estatedisposals.

Public Health

In his speech the Chancellor dispensed with the long list of changes to the price of a pint of beer and packet of cigarettes.Instead, he confirmed that the 2% general increase in alcohol duty rates above the RPI will take effect on Monday. This will

add 15pence to the price of a bottle of wine, and 54 pence to the price of a bottle of spirits. The previously announcedchanges to the beer duty regime will see a larger differential between beers of different strengths and will impact as follows:

The good news for Mr Osborne is that, despite

the Office of Budget Responsibility downgrading

its growth forecast, he is still, on balance, likely

to win his bet.

The bad news is that if growth stalls and

inflation rises further there is not a great deal

he can do about it.

Julian Astle, CentreForum

"The Chancellor has made

clear the UK is open for

business."

John Cridland, CBI director-

general


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Strength of beer Increase/decrease per pint(pence)

Typical brand

1.2 2.8 abv2.9 7.4 abv> 7.5% abv

-18+ 4+28

Carling C2Budweiser, Stella Artois

Tennents Super

As announced in the March Budget 2010, tobacco duty rates will increase by 2% above the RPI. Duty on hand rollingtobacco will increase significantly to close the price differential with cigarettes. In an unexpected move, cigarette duty will berestructured with VAT being reduced and specific duty increased. Overall, this will see the price a packet of economycigarettes increase by 50 pence and a packet of premium cigarettes by 33 pence.

NHS Global

It would be a surprise for the NHS to appear in this Budget speech but as ever, the devil is in the detail. Buried away onpage 97 of the 131 page Growth Strategy are plans to, establish a proactive, entrepreneurial NHS Global to make the mostof the NHS brand internationally and to offer support and advice to NHS trusts. Privatization it isnt, but commercialisation it

is.

Life Sciences

In line with the overall theme on growth, the Chancellor confirmed thatthe Government will introduce a reduced 10 % rate of corporation tax forprofits arising from patents. The so called Patent Box will encourage UKbusinesses to retain high-value jobs associated with commercialisationof patents and also promote further investment in innovation. Thescheme will take effect from 1 April 2013, although a consultationdocument setting out details on how the regime will operate will bepublished in May 2011. Draft legislation will be published in autumn2011.

In addition to the Patent Box, the Government reaffirmed its commitmentto research and development (R&D) tax credits. Again, in line with other announcements, the Chancellor went above andbeyond what had been expected or in this case recommended and announced an increase in the SME rate of R&D taxcredit to 200% from April 2011, and 225% from April 2012. Moreover, there was a continued commitment to science with anadditional 100 million in 2011-12 in science capital development to provide facilities for the commercialisation of research,accommodation for innovative SMEs and new research capabilities.

The Government will also fund by 2012, nine new university-based Centres for Innovative Manufacturing. They will feednew ideas and discoveries through to business and Technology and Innovation Centres, helping to open up new industriesand markets in growth areas. This year, a further 45 million will be committed to establish the nine new centres in areassuch as biological pharmaceuticals, novel composite technologies, and intelligent automation.

The Growth Review identifies that research and innovation is being stifled by delays in decisions around clinical trials. Inresponse, the Government will establish a new health research regulatory agency to streamline regulation and improve the

cost effectiveness of clinical trials. Future funding by the National Institute for Health and Research (NIHR) will be conditionalon meeting a 70 day benchmark to recruit first patients for trials.

The Budget provides a greater degree of

stability for small businesses by announcing

moratorium on business regulation for three

years and by tackling the high price of fuel.

However, we are disappointed that the

Government has not done more to incentivise

job creation.

Chief Spokesman for FSB


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Coming Up at Fleishman-Hillard PA Corp29th March: Are you ready for the Main Event that has had the PA world - and the House of Commons Lobby -talking? RSVP [email protected] spaces strictly limited.
mailto:[email protected]:[email protected]:[email protected]:[email protected]


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Business Breakfasts April & May 2011

We are delighted to today announce that Matthew Doyle, Tony Blairs OfficialSpokesperson will join us for aBusiness Breakfast in April on A Day in the Life of Tony Blair. Doyle was a media Special Adviser to Blair inDowning Street and is considered one of the best media operators in the UK. He will be discussing Blairs postPrime Ministerial years, including his role as a peace envoy in a changing Middle East.

We are also pleased to today announce that we will be welcoming back a former Fleishman-Hillard colleague,Guto Harri, Director of External Affairs to the London Mayor, Boris Johnson to our offices to discussSpinning the City Hall. Guto will be discussing the local elections and how City Hall is preparing for theOlympics and the Mayoral elections next year.

Further details to be announced.

FOR FURTHER DETAILS FROM FLEISHMAN-HILLARD

Contact Nick Williams, Director of Public Affairs and Corporate Communications on:020 7395 7160 or e-mail:[email protected] us on Twitter:http://twitter.com/FleishmanLonPA
mailto:[email protected]:[email protected]:[email protected]://twitter.com/FleishmanLonPAhttp://twitter.com/FleishmanLonPAhttp://twitter.com/FleishmanLonPAhttp://twitter.com/FleishmanLonPAmailto:[email protected]

Download - Fleishman Hillard Budget Insights Special, March 2011

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