This afternoon’s Summer Budget has been described a s a ‘mixed bag’ by more than one commentator, with George Osborne’s National Living Wage proposals causing concern among some smaller businesses and the groups that represent them.
John Longworth, director general of the British Chambers of Commerce, said: “"George Osborne has delivered a genius balance of politics and economics that provides stimulus for the economy while continuing the tough task of eliminating the deficit. Steady deficit reduction means the economy still has the oxygen it needs to grow.
“The Chancellor has confirmed that Britain is open for business. Firms across the UK will cheer not just the new permanent Annual Investment Allowance, further Corporation Tax reductions, and lower National Insurance for small businesses, but also commitments to childcare and higher education that help them employ Britain’s best.”
On the new Living Wage announcement, he said: “Most Chamber member companies already pay their staff at or above the Living Wage. They will want assurances, however, that moves to create a National Living Wage follow an evidence-based approach, and minimise impacts on smaller firms, for whom adjustment will be harder.”
The Federation of Small Businesses agreed, describing the Budget as a “potentially challenging, mixed bag for business.”
Chairman John Allan said: “Even though offset by a welcome increase in the employment allowance, some will find the new National Living Wage challenging. Changes to the treatment of dividends will also affect many of our members.
“The introduction of a new National Living Wage for over 25 year olds, set at £7.20 an hour from next April, will pose significant challenges for many small firms, particularly those in the hospitality, retail and social care sectors.
“We have been supportive of gradual increases in the National Minimum Wage in recent years, to reflect the improvement in the economy. However, we believe annual increases should be set according to the recommendations of the independent Low Pay Commission.
“We support the idea of giving employers a clearer indication of where minimum wages are heading in the medium term, but we note this move risks undermining the independent status of the Commission.”
The body also expressed concern about the relaxing of Sunday trading laws, saying: “As well as assessing the potential impact of these measures, the Government should be taking a wider holistic view to see what else can be done to support [smaller retailers].”
Business West also called the Budget a ‘mixed bag’. MD Phil Smith said: “The first budget of a new government will be seen as a mixed bag for South West firms.
“In a speech that will be remembered in the history books as one of deficit reduction and a surprise compulsory Living Wage, there were both highs and lows.
“Before the budget we called for a focus on infrastructure, exports and the skills gap, and whilst our nation’s roads and apprentices got a cordial mention, international trade was almost utterly absent.
“Also missing was a mention of the West when it came to the devolution stakes, showing that we need to raise our game.
“And the lack of exporting initiatives was a major disappointment. A brief statement from the Chancellor that ‘we need to see investment at home matched by exports abroad’ wasn’t backed up by any detail of incentives to ensure we pull this off.”
In Swindon, accountants Banks BHG said the Conservatives’ targeting of welfare payments was good news for working people.
Director Richard Mathews said the effect of the Budget on owner managed businesses needed careful studying.
“Raising the Annual Investment Allowance to £200,000 and cutting Corporation Tax to first 19 per cent, then 18 per cent, is very good news for businesses,” he said.
But he said that business owner-managers who had incorporated to take advantage of lower tax on dividends payments would be ht hard. Under the current system, many take a wage of their tax allowance, and the rest in dividends, which attracts a lower rate of tax.
“The new rates of tax on dividend income above the allowance will be 7.5 percent for basic rate taxpayers, 32.5 percent for higher rate taxpayers and 38.1 percent for additional rate taxpayers.
“Whilst the devil is in the detail and we need to see exactly how this will work, initial calculations suggest on drawings of £39k additional tax of £1,732 will arise, whilst on drawings of £70k the tax increases to £10,995, which is £4,646 more than under the current rules. Anybody currently drawing dividends from their business will need to to take advice on what to do for best in the future.”
He said introducing a Living Wage was a positive step, as was the change to Inheritance Tax, raising personal allowance and higher rate tax thresholds, and the freezing of fuel duty.
But he added: “There may be cause for concern over the mortgage interest relief changes to property landlords, and this will need careful examination.”
At Thrings, tax advisor and solicitor Malcolm Emery said the Chancellor had missed a trick in not lowering VAT.
“With one of the highest rates of VAT in Europe the Chancellor missed the opportunity to reduce the current rate of 20 percent.
“A flat rate reduction of 2.5 percent would have been a welcome relief to businesses since it is their customer base which is ultimately responsible for this cost at a time when the effects of the austerity measures put in place by the coalition government are still being felt.”
“The reduction in the rate of corporation tax rate from 20 percent to 19 percent in 2017 and down again to 18 percent by 2020 is clearly good news for business and will help companies rebuild their reserves and bolster their ability to reinvest.”
“Unincorporated businesses will welcome the increase in the 40 percent income tax threshold, so too the increase in personal allowances. There were concerns that the freezing in tax rates might be mirrored by freezes in the bands and perhaps only very modest increases in personal allowances, so this aspect of the Budget is encouraging, not least in its effect on spending.”
And wealth managers Brewin Dolphin, with an office in Marlborough, said George Osborne had delivered a carefully thought-through Budget that balanced the need for spending restraint with measures designed to deliver economic growth.
Stephen Ford, head of wealth and investment management, said: “Osborne’s ‘Security First’ Budget walked a careful tightrope, balancing carefully-considered welfare cuts with the introduction of the living wage along with other measures that signify Britain is open for Business.
"The Chancellor gets a thumbs up for deftly crafting a Budget for British growth, lowering corporation tax, introducing the national living wage and righting perceived inequalities with a change to the non-dom regime.”
More reaction as we get it.