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Newsletter - March 2007In this edition:
2007 Budget 'must be Chancellor's best' The 2007 Budget must be Gordon Brown's 'best Budget', according to the Federation of Small Businesses (FSB), which has presented its Budget submission to the Treasury. The submission highlights a number of issues of importance to small businesses, including a shortage of skilled workers, and the burden imposed by employment legislation. The FSB is calling for a series of new measures to be introduced, including:
Carol Undy , National Chairman of the FSB, said, 'This final Budget for the Chancellor is an ideal opportunity for him to make a huge difference to the health of the economy by helping small businesses. The majority of private sector jobs are in small businesses and they are waiting for action from the Chancellor following his frequent warm words about entrepreneurship'. Business red tape burden 'exceeds £55bn' A new study suggests that the regulatory burden on businesses is continuing to grow, with the cumulative cost of regulation since 1998 now exceeding £55bn. According to the 2007 Burdens Barometer, which is compiled from the governmental Regulatory Impact Assessments ( RIAs ), the recurring cost of regulation year on year rose from £8.7bn in 2005 to £10.3bn in 2006. The British Chambers of Commerce (BCC) has highlighted the Data Protection Bill and the Vehicle Excise Duty Regulations as 'particularly burdensome' regulations, which have imposed significant costs on businesses. Sally Low of the BCC said, 'The UK's growing burden of red tape is unsustainable and economic success cannot be taken for granted. Unless this increase is curbed we risk significant damage to the competitiveness of UK companies'. However, the Government has disputed the report's findings. MP Pat McFadden said, ' Britain is a good place to do business. We are leading the debate in Europe about competitiveness'. New guidance for employers on age laws New guidance for employers on avoiding age discrimination in the workplace has been published by the Chartered Institute of Personnel and Development (CIPD) and the Trades Union Congress (TUC). The guidance, entitled 'Managing age: a guide to good employment practice', aims to help UK employers develop good practice in order to meet the requirements of the Employment Equality (Age) Regulations 2006. The regulations, which came into force in October 2006, prohibit discrimination in the workplace on the basis of a person's age. The regulations apply to all individuals in work or seeking work or access to training, to all employers, and to all providers of vocational guidance. The 'Managing age' guidance provides information on all aspects of the employment process, including: recruitment, training and promotion; pay, benefits and pensions; health & safety and harassment; and retirement and redundancy, as well as guidance on producing an age equality policy. CIPD diversity adviser Dianah Worman said, 'The guide will contribute to creating age diverse workforces, helping employers to implement the new age regulations without falling into the trap of political correctness while still meeting business needs'. The guidance can be accessed from the CIPD website ( www.cipd.co.uk/guides ). CBI calls for corporation tax cut The Confederation of British Industry (CBI) has called on the Government to rein in public spending and borrowing, in a bid to safeguard the UK 's tax competitiveness and to allow future cuts in business taxes. In its submission to the Treasury ahead of the forthcoming Budget, the business group warned that many companies have already relocated one or more activities abroad, and others are considering relocation. The CBI has highlighted the fact that the UK 's corporation tax rate of 30% has remained unchanged since 2000, and argues that constraining public spending growth to 2.3% rather than 2.7% for 2007/08, and 1.6% thereafter would allow a significant cut in one or more major business tax rates by 2010/11. John Cridland, Deputy Director-General of the CBI, said, 'As the UK 's tax competitiveness continues to slide, companies are waiting for a signal from Government that it is prepared to act and will create the necessary financial headroom'. However, the Trades Union Congress (TUC) has described the CBI's call for tax cuts as 'no more than special pleading from Britain 's boardrooms'.
Small business welcomes Companies Act plans The Federation of Small Businesses (FSB) has welcomed the announcement of a timetable for implementing the Companies Act. The Companies Act 2006 introduces sweeping changes to company law, with the aim of making it simpler, easier to understand, and more flexible for smaller businesses. MP Margaret Hodge said that the implementation timetable will be linked to the existing 'common commencement' dates for new legislation, in order to reduce the burden on small firms. All of the measures will be in place by October 2008, although many measures will come into effect in October 2007, including the provisions relating to the rights of indirect investors, and most of the provisions relating to directors' general duties. However, the FSB has highlighted the importance of providing good and timely advice, so that small businesses know what it required of them, and how they could benefit from the changes. Mike Cherry of the FSB said, 'The Companies Act is a welcome piece of legislation, which should make formal procedures simpler and less burdensome for small businesses. The smallest businesses in particular have been crying out for reform of unnecessary and out-dated company laws. It is important for the Government to get the implementation and timing of this right, but the signs so far are encouraging'.
National Minimum Wage to rise again The National Minimum Wage will rise by 17 pence an hour in October, the Department of Trade and Industry has confirmed. Following recommendations made by the Low Pay Commission, the main adult minimum wage rate will increase from £5.35 an hour to £5.52 an hour from October 2007. The rate for 18-21 year olds will also rise, from £4.45 to £4.60; and the rate for 16-17 year olds will increase from £3.30 to £3.40 an hour. Since its introduction in 1999, the minimum wage has risen by almost 30% more than inflation. The Government expects the changes to benefit more than a million workers, although some business groups have reiterated their concern over the potential impact of the increases on employment prospects. The news follows the recent introduction of tougher penalties for those employers who fail to pay the minimum rates to their workers. Further information on the National Minimum Wage can be found on the Low Pay Commission website ( www.lowpay.gov.uk ). UK economy 'reaches a fork in the road' The Institute of Directors (IoD) has issued its 2007 Budget submission, in which it warns that UK economic policy stands at 'a fork in the road'. According to the organisation, the UK now faces a clear choice: to continue along the current path and 'mirror the economies of other EU countries with large Governments', or alternatively to reduce the size of the state towards the levels seen in the US , Australia , Ireland and Switzerland . Miles Templeman, Director General of the IoD said, 'The optimal size of Government in the UK is well below its current size. It will be a huge political and economic challenge to rein back the size of the state, but in the absence of effective action, UK competitiveness will be undermined'. The IoD is calling for a number of measures to be introduced, including constraining total public spending to 1.5% per annum real growth over the period 2008/09 to 2010/11, and bringing in a new 'Third Fiscal Rule' which commits the Government to reducing net taxes and social security costs as a percent of GDP. The organisation is also arguing that the tax system similarly stands at a fork in the road, and has urged the Government to support businesses by reducing corporation tax from 30% to 28%, and abandoning the proposed planning gain supplement. Government unveils new 'carbon budgets' The Government has revealed details of its plans to introduce new 'carbon budgets', as part of the draft Climate Change Bill. The budgets, which will be legally binding, will cap carbon dioxide emissions, and will be set by an independent body every five years. The Bill contains a number of key proposals on the environment, including:
Commenting on the Bill, Chancellor Gordon Brown said, 'Just as we manage our financial budgets over the economic cycle with prudence and discipline, so we will have to manage our carbon budgets with the same prudence and discipline'. Business groups have broadly welcomed the announcement, but some have called for further information regarding the implementation of the Bill, and its likely impact on businesses. The news comes amid growing speculation about whether the Chancellor will raise green taxes in the forthcoming annual Budget. Skilled jobs 'could disappear', warns business group The UK must double its science and engineering skills base over the next seven years or risk losing skilled jobs to other countries, the Confederation of British Industry (CBI) has warned. According to the employers' organisation, around 12% of graduates currently leave university with science, engineering and technology degrees, but this figure needs to increase to at least 25% in order to the match predicted growth in jobs. The CBI says that a failure to do this could make the UK unable to compete with other countries in the global economy. The employers' organisation has highlighted four key areas which it perceives as weaknesses in the current system:
John Cridland, Deputy Director General at the CBI, said, ' Britain has a world class science base and many world-beating companies but we must build on these strengths, not allow them to wither on the vine'. Chancellor Gordon Brown has presented his eleventh – and what is widely expected to be his last – Budget speech to the House of Commons. The Chancellor delivered an upbeat account of the economy, and made few changes to his economic growth forecasts, predicting growth of 2.5%-3% for 2008 and 2009. This year's Budget contains some significant measures on tax, including a cut in the basic rate of income tax from 22p to 20p with effect from April 2008. However, this cut will be accompanied by a scrapping of the 10p starting rate. The threshold for the top rate of income tax will also rise from £38,000 to £43,000 in 2009. The Chancellor also made a much-anticipated announcement on corporation tax, revealing that the headline rate will be cut from 30p to 28p, with effect from 2008. However, the tax rate for small companies is to be increased in three stages, reaching 22p in 2009. Much of the Budget speech focused on the environment and education, with the Chancellor announcing tax breaks for households employing energy-efficient technology, such as wind turbines and solar panels. Other measures of significance include an increase in Vehicle Excise Duty on large 'gas-guzzling' vehicles which will rise to £400 by April 2008, and a 2p a litre increase in fuel duty which will take effect on 1 October. Business reacts to Budget measures Business groups have given a mixed reaction to Chancellor Gordon Brown's 2007 Budget speech. The Confederation of British Industry (CBI) has welcomed the announcement of a 2p cut in the headline rate of corporation tax, acknowledging that it will boost the UK 's tax competitiveness, but warned that there will be losers as well as winners. Richard Lambert, CBI Director-General, said, '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 Federation of Small Businesses (FSB) reacted with 'dismay' to the announcement that corporation tax will increase to 22p for small businesses. Simon Sweetman of the FSB said, 'On the face of it, the rise in the small companies rate is very disappointing for our members, because it is addressing a problem that I don't think exists, which is the notion that people incorporate for tax reasons'. The Institute of Directors gave a more positive response, however. Miles Templeman, IoD Director-General, commented that 'at last we've seen a Budget which business can be pleased about. It shows that if you shout loud enough and long enough the Chancellor will hear'. Budget 2007: The political response Opposition leaders have given their responses to the 2007 Budget. David Cameron, Conservative Leader, emphasised that borrowing had increased, and said that the Chancellor had 'wasted billions' on public services. Arguing that the Chancellor had increased the tax burden by £1,300 for an average family, he said, 'You are the Chancellor who has taken one tax down but put 99 taxes up'. Meanwhile, Liberal Democrat Leader, Sir Menzies Campbell focused on the Chancellor's political aspirations, commenting, 'It's a wait-and-see Budget from a wait-for-me Prime Minister'. Sir Menzies accused the Chancellor of doing little to address the gap between the rich and poor, and argued that scrapping the 10p starting rate for income tax was 'asking the poor to subsidise the rich'. Raising the education leaving age 'is not enough' Business groups have given a broad welcome to the Government's plans to raise the minimum age at which young people can leave education or training, but have warned that compulsion alone will not address current levels of underachievement. Following the recent publication of the Green Paper on raising the leaving age to 18 by the year 2013, the Institute of Directors (IoD) has warned that young people must want to learn in order for any initiatives to succeed. Miles Templeman, IoD Director-General, said, 'The reality is that many children become disaffected with learning and switch off long before 16. The answer, therefore, is not simply to compulsorily raise the education leaving age'. 'In the first place, young people must want to continue learning – they must believe that acquiring skills is absolutely fundamental to their lives.' The Confederation of British Industry (CBI) also welcomed the proposals, but said that the success of the initiative will depend on getting the details right. Richard Lambert, CBI Director-General, said, 'It is vital employers are able to offer training towards qualifications that meet the needs of both business and young people. High quality careers advice is also essential so that teenagers are fully aware of the options open to them, what is expected of them and the value of training'. The Budget Debate: business winners and losers The 2007 Budget represented a mixed bag of announcements for businesses, with measures aimed at boosting UK science investment and an increase in Research and Development (R&D) tax credits both receiving a broad welcome. However, having delivered his Budget speech, Chancellor Gordon Brown sought to defend some of his more radical announcements on tax, after being accused by the Conservatives of performing a 'con trick'. The Chancellor's decision to cut the headline rate of corporation tax by 2% met with approval from business groups, many of which had previously raised concerns over the possibility that high rates of tax were threatening UK competitiveness. However, some business representatives have criticised the corresponding removal of key business reliefs, together with the news that the corporation tax rate for smaller firms will see a rise of 3%. Carold Undy of the Federation of Small Businesses said, 'This is the Chancellor's eleventh Budget and this year's offering is no different to the others – he gives with one hand and takes with the other. However, this year, after some welcome initiatives for our members he throws it all away with a tax hike aimed at small businesses'. Critics have also argued that a welcome 2% cut in income tax will be largely offset by the abolition of the lower 10% rate of income tax, and an increase in the upper limit on national insurance contributions. What's in the nation's shopping basket? Brussels sprouts, brie and vegetable oil have been removed from the official list of UK consumer goods and services, in favour of broccoli, courgettes and olive oil, the Office for National Statistics (ONS) has revealed. The annual review of spending on around 650 key consumer items is used by the ONS to gauge inflation, and it offers some interesting insights into the UK's changing spending habits. Consumer gadgets feature highly in the new list, with a number of technical goods and services entering the shopping basket for the first time, including DAB digital radios, satellite navigation devices, small flat-panel televisions, mobile phone downloads and digital camera processing. These new arrivals reflect the fast growth of technology, replacing gadgets which a few years ago were themselves considered hi-tech, including 35mm compact cameras, VHS tapes, and video cassette recorders. |
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