During the 2014 Budget announcement, Chancellor George Osborne has revealed the introduction of a number of tax breaks as a means of boosting investment in UK companies.
Under the new tax system businesses will receive an allowance of up to £500,000 against corporation tax until at least 2015; double the amount by which the measure was increased in 2012.
The move has come after The Economist Magazine ranked the UK’s investment performance as lower than Mali and Guatemala, prompting the Chancellor to extend the measures following increased pressure from business groups.
Mr Osborne has explained that the upfront credit system was designed to encourage UK companies to prioritise “investment in the future”, resulting in the removal of upfront tax for 99.8 per cent of companies when funds were used to finance growth.
Business lobby CBI has already expressed its support for the new Budget, claiming that it would “put the wind in the sails of business.” Commenting on the budget, Director General of the CBI, John Cridland, said: “This was a make or break Budget coming at a critical time in the recovery and the Chancellor has focused his firepower on areas that have the potential to lock in growth.”
The manufacturing sector has seen the most benefits from the 2014 Budget announcement, with energy bills set to fall significantly in what has been labelled by some as a “£7 billion package of measures”. The measures also include a cap on the carbon price floor, which taxes electricity generated from fossil fuels, at £18 per ton of carbon dioxide from 2016 onwards.
On a similar note, the Chancellor has extended the current compensation scheme for energy-intensive industries to 2020, with £1 billion added to the measure to protect against the cost of renewable energy requirements.
Commenting on the positive measures introduced into the sector, Terry Schuler, chief executive of the Engineering Employers Federation, said: “The Chancellor said this would be a Budget for manufacturers and he has delivered on his word. We argued strongly for the need to reduce the rising cost of energy faced by many companies, and he’s acted on that.”
The UK’s lack of export business was also addressed in the Budget, with Mr Osborne announcing the doubling of a loan scheme aimed at supporting UK companies that sell overseas to £3 billion.
The Direct Lenders Scheme, which was introduced in 2012 during the Autumn Statement, was initially capped at £50 million. However, following a struggle by UK exporters to secure loans from banks and other traditional sources, the Chancellor has increased the loan amount, prompting Steve Varley, managing director of London accountant service EY, to praise the government for having “lots of ambition for exports”.
However, the Chancellor has met some opposition since the Budget announcement, with a number of groups suggesting that frequent changes to the UK’s tax regime could derail the country’s economic recovery.
Despite being welcomed by businesses, the changes have prompted tax experts to suggest greater stability is needed to encourage investment. Paul Johnson, director at the Institute for Fiscal Studies, has argued that companies need more clarity on tax policy, rather than annual alterations. He said: “Whatever the right policy, the degree of chopping and changing we have seen is not sensible.”
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