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EDITIONS
 Tuesday, 26 March, 2002, 14:57 GMT
Government springs Budget leak
Budget bonanza comes early for company research
Business is set to be the first beneficiary of Gordon Brown's sixth Budget, with tax cuts of up to 1bn for big companies.

In an unprecedented move, the Treasury has revealed some details of its 2002 Budget three weeks in advance of Budget day, 17 April.

Among the measures announced is a big tax credit for corporate research and development.

Our energies must continue to be directed to promoting enterprise and investment

Chancellor Gordon Brown

But in an apparent slip-up, the BBC has seen a version of the Inland Revenue press release which says that the tax credit would be paid at the rate of 20% - which could cost the Treasury around 500m annually.

The measures are designed to boost productivity and jobs - and to reassure the City that Labour is still pro-business.

Other new tax changes will cut corporate taxes when companies restructure and buy and sell intellectual property, at an eventual cost of 500m.

"Our energies must continue to be directed to promoting enterprise and investment and raising our country's productivity," said Chancellor Gordon Brown.

Figures released on Tuesday showed that business investment in the UK was 7.4% lower in the last three months of 2001 compared to the same period a year earlier

Business wants more

The changes were broadly welcomed by industry.

"The Government is right to use tax policy to encourage innovation", said David Lennan, director general of the British Chambers of Commerce.

Business will be looking for more from the budget including further changes to the tax system to boost UK competitiveness

CBI's John Cridland

"It is particularly imperative that our manufacturers innovate and close the investment gap with their rivals overseas."

But he asked the Treasury "to be equally as generous in support of small businesses in the forthcoming Budget."

The BCC is to lobby the chancellor this afternoon, and is asking for an additional 500m in assistance.

Further details of Budget plans for small business are expected to be announced soon.

The Confederation of British Industry (CBI) also welcomed the news, and said they would be 'very pleased' by the size of the tax credit on research and development that may have been accidentally announced.

"Taken as a whole these are constructive measures but they shouldn't be the end of the line."

"Business will be looking for more from the budget including further changes to the tax system to boost UK competitiveness," said CBI deputy-director general, John Cridland.

Other political parties were more sceptical.

"We welcome any measures that genuinely help businesses, but since 1997 Gordon Brown has claimed every year his budgets would help, and they haven't," said shadow chancellor Michael Howard.

For the Liberal Democrats, Treasury spokesman Matthew Taylor said it was "outrageous that the Government has slipped out major tax announcements in written answers rather than a statement from the chancellor in the Commons."

Reassurance

The new moves - which will come into effect from 1 April - had been widely trailed, with the research and development tax credit under discussion for more than a year.

But there had been some feeling in the City of London that businesses would be overlooked with this year's Budget focusing more on the future of public services such as hospitals, transport and schools.

It is particularly imperative that our manufacturers innovate and close the investment gap with their rivals overseas

David Lennan
British Chambers of Commerce
The early release of the information could be one way of reassuring business that they are still high on the government's agenda, according to the BBC's Economics Editor Evan Davis.

The surprise announcement comes one day after the government was seen to have given into pressure from the City over the issue of compensation for Railtrack shareholders.

In a statement, the Treasury noted that the announcements were made early so that businesses could be well informed in carrying out transactions in early April.

New tax credit

The new measures include:

  • A new tax credit to boost research and development among larger companies.

    This will benefit 1,500 large companies operating in the UK, spending more than 11bn.

    The tax credit would be based on the total volume of a company's research budget, and will help keep research investment in the UK.

  • An exemption for gains and losses on substantial shareholdings which are subject to capital gains tax.

    This is designed to ensure that decisions of corporate restructuring and reinvestment are made for commercial rather than tax reasons.

    The exemption means that capital gains on sales by trading companies and groups of shareholding of 10% or more in trading companies will not be taxable.

    The chancellor says this will reduce the taxation burden on big business by 150m a year.

  • A new regime for providing relief to companies for the costs of intangible assets such as the value of brands or patents.

    This is hoped to help encourage business to take advantage of new opportunities in the emerging knowledge-based economy.

    The chancellor says this will be worth about 200m to UK businesses, rising to a maximum of 350m in the longer term.

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    "The subsidy will particularly help a few key industries"

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    See also:

    26 Mar 02 | Business
    26 Mar 02 | Business
    07 Jan 02 | Politics
    27 Nov 01 | Scotland
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