What Osborne’s Budget Means For Business in 2014

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When George Osborne announced the official 2014 budget in the House of Commons on Wednesday 20th March, the much-anticipated plan cemented Britain’s economic outlook for the coming year. In a time when the country is still on the fragile upswing from years of recent fiscal woes, it was met with a predictable mixture of praise and criticism, but on the whole revealed few surprises. The budget came alongside reports that the nation has added about 63,000 jobs since the beginning of the year, dropping the unemployment rate to a nonetheless troubling 7.2%, while average earnings rose a modest 1.4% from their 2013 level. Yet when opposition leader Ed Milliband responded to the announcement by voicing his concerns that the budget favours the rich at the expense of the UK’s working-class, he touched upon the critical question lingering today on the minds of many Brits: Who will benefit from this year’s budget, and who will suffer?

This question of course highlights one of the central issues underlying financial debate in the UK today. What is ultimately best for the economy: policy aimed at supporting workers or policy aimed at supporting the businesses that employ them? A difficult question, to be sure—and one that is increasingly difficult to answer in our rapidly globalising world.

In any event, it seems the budget put forth for 2014 attempts to do a bit of good for both, while leaning heavily toward the side of business. So both the Confederation of British Industry (CBI), which is the UK’s leading lobby for big business, and the Federation of Small Businesses (FSB) expressed their immediate praise for the plan. With its support for investors, reduction of energy costs, and substantial funding for road repairs in the wake of this winter’s flooding; the 2014 budget promises to bolster business nationwide and (if all goes according to plan) keep Britain’s economy on a steady upward climb. To do so, it will

Grant £7 billion in subsidies to manufacturing firms to cut energy bills.Reduce the corporation tax rate to make UK businesses more attractive to foreign investors.Dedicate £200 million to repair potholes and improve highway infrastructure.Extend the freeze on fuel duty.Double the Annual Investment Allowance (AIA) to £500k and extended it through to 2015.Extend the R&D tax credit for small and medium businesses.Extend the Help to Buy scheme to 2020, to help homebuilders sell more homes, and bolster it with a new loan scheme that supports small firms entering the housing industry.Double the Direct Lending Scheme (which provides loans to foreign companies who buy British exports) and lower its interest rates. As energy prices continue to climb (spiking yet again this month due to the crisis in Ukraine), leaving millions of Brits in fuel poverty and raising the cost of doing business ever higher, the £7 billion energy subsidy will bring considerable relief to the manufacturing industry this year. By reducing overheads, the government hopes to fuel expansion and boost employment throughout the manufacturing sector, thereby bringing desperately needed jobs to some of the lowest earning regions of the UK. So this is good news for the British working class, particularly because trade jobs have suffered a decades-long decline as employment opportunities have shifted towards white-collar work in industries like IT and Finance.

A few other measures aimed to support the nation’s workers this year include,

A £2000 childcare tax-break, which also extends to the self-employed.The price of a pint will be reduced by 1p.Minimum earnings before income tax raised from £10,000 to £10,500. Addition of 100,000 grants for new apprenticeships.So while there is certainly reason to be hopeful about the UK’s economy, which is now forecast to grow about 2.7% in 2014, it is clear that we nonetheless have a long way to go on the road to recovery. And while the measures included in the budget this year have been received warmly by businesses nationwide, at least one omitted measure has caused an outcry.

The Enterprise Investment Scheme (EIS), which was extended in some regards, will no longer be available to investors wishing to support companies that benefit from the Renewables Obligation Certificate (ROC) scheme and/or the Renewable Heat Incentive (RHI). This includes scores of prominent green energy companies, who were last year supported by EIS, along with numerous startups who will now face new obstacles in their attempts to develop sustainable technologies—dealing a substantial blow to the nation’s green energy movement.

So for both the industries this year’s budget looks to bolster and those it ignores, 2014 will undoubtedly be a difficult year. Recovery is slow, and the need for austerity lingers—which is a point Osborne made clear in his speech Wednesday. Although governmental measures will bring well-deserved support to hard hit sectors like manufacturing and construction, the effects will certainly not be transformative. But if the nation continues along its steady economic climb, we can all look forward to a slight loosening of our own budgets in 2014.

As Carpenter Box LLP, a leading accountancy and tax advising firm, points out: “The reforms proposed to pensions, reducing the role of annuities, will change retirement planning significantly and have already had an impact on the value of insurance company shares.” The firm also notes that the budget will now allow Brits to earn up to £5,000 tax-free interest from their savings accounts, whereas the former policy taxed 10% for dividends of £2,880 and below, with even more severe rates levied on higher earners. So for those who have struggled for years to keep healthy retirement plans despite the economic downturn, these measures are a crucial step in the right direction.

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