Sarah Green column

Mar 27 2007 By Sarah Green, The Journal

Having spoken to a number of businesses after last week's Budget - it seems for many it was instantly forgettable - albeit in terms of simplifying business tax, it could be seen in the long term as a small step in the right direction.

The cut in the headline rate of corporation tax is hopefully a recognition of the need to restore the UK's international tax competitiveness. By making this move the Chancellor has acknowledged the need for the UK to compete with the tax regimes in other developed countries in order to secure jobs and investment for the future.

However, when combined with the new capital allowances, the changes appear only revenue neutral in the early years. With tax competition becoming an ever more influential factor determining company decisions, the CBI believes we will need to see a reduction in the corporate tax burden across the board in coming years if companies are to view the UK as a truly attractive place to locate and invest.

Increases in the science budget provide good news for the strong science base in the region. We particularly welcome the new Technology Strategy Board initiative which will work to bring business and the research community together to generate new innovative solutions to policy challenges.

For the increasing number of highly innovative start-ups in the region, the Chancellor's extension of the R&D tax credit will be welcome.

Raising the rate for SMEs will significantly increase the value of their credit, reducing their R&D costs by 15%. This will for many SMEs, along with the changes in capital allowance, help neutralise the unwelcome increase in small companies' rate of taxation.

However, the North-East business sector as a whole will not be popping the Champagne corks.

These changes will not initially reduce the overall burden of business taxes, and there will be losers as well as winners. Some big companies that for one reason or another don't pay much tax will lose out. So will small companies that don't invest much and so will not be able to benefit from the new capital allowances.

The challenge for government now is to get a grip on public spending so as to create the headroom that will be needed for further tax cuts in the years ahead.

Sarah Green is regional director, CBI North East