Corporation tax will be reduced by two per cent next month instead of one per cent, as announced by George Osborne in today’s Budget statement.
The headline measure should raise around £2 billion by 2015/16 according to the Chancellor and make the UK’s rate the most competitive in the G20, with the levy on banks adjusted so they do not benefit from the change.
Although this amendment will certainly please retailers, most of the initiatives unveiled by Osborne offer little for the sector to get too excited about.
Neil Saunders, Consulting Director of Verdict Research, said: “While positioned as a budget for growth, from a retail perspective this is more of a budget of modest means. Indeed, there is very little that changes the relatively sombre outlook for retail across the rest of this year.
“However, given that the Chancellor had very little room for manoeuvre, this should come as no surprise, and it is right that his growth focus has been on medium term job creation rather than on a short-term stimulation of spending.”
What little money Osborne did have to use from the national coffers was reduced by the news that GDP growth for 2011 has been downgraded from 2.1 per cent to 1.7 per cent by the Office for Budget Responsibility (OBR).
Public borrowing is forecast to be around £10 billion higher this year according to the OBR but Osborne said that the shortfall in growth would be made up towards the end of the current parliament.
Other business measures announced today included; the rate relief for small businesses is to be extended until October 2012, 21 new enterprise zones will be created, HGV vehicles will be exempt from an increase in road tax and the 50 per cent top tax rate may be scrapped after investigation by HMRC.
Osborne also said that planning laws would be reformed to make it easier for businesses to grow and that sustainable developments would get preference in law, but Head of Retail Consultancy at property firm CB Richard Ellis Jon De Mello argues that more measures were needed.
He commented: “Falling sales and rising costs have led to a spate of poor results released by retailers in the last few months and I was hoping for greater initiatives geared at providing impetus to the high street.
“Bureaucratic planning policy often impedes the conversion of commercial property to housing; relaxing these restrictions would encourage investment, increase regeneration, and create jobs.”
Another group who may be cursing the red briefcase today are international retailers who imported CDs or DVDs into the UK.
A loophole that previously allowed a tax break for those products entering the UK from the Channel Islands has now been reduced and is likely to be scrapped.
“The Budget is bad news for retailers of CDs and DVDs based outside the EU, who up to now have enjoyed VAT relief on most of their stock,” said Richard Baxter, Managing Director of professional services company Alvarez & Marsal Taxand UK.
“Those businesses now have another headache on top of the increasing trend for digital consumption of music and films.”
Retailers hoping for major assistance today will have been disappointed but Osborne claims that he has “put fuel back in the UK economy” and if that is true the industry should be able to help itself.
“Overall, what the retail sector needs most is longer-term economic stability,” Saunders added.
“Today’s measures go some way to delivering on that requirement as they will help boost employment and enterprise in years to come. However, they will not prevent this year from being a particularly tough and challenging one for retailers.”