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Last Updated: Wednesday, 22 March 2006, 16:58 GMT
Cool business reaction to Budget
Liquid being poured into a test tube
R&D tax credits will be expanded

Business groups have given a mixed response to the measures unveiled in Gordon Brown's latest Budget.

Measures to improve education, expand the research and development tax credit and help overseas trade were welcomed.

But business organisations criticised the lack of detail given by the chancellor, and were disappointed to see no cut in business taxes.

The CBI said the Budget did little to help "hard-pressed businesses who are currently under the cosh".

'Opportunity lost'

Mr Brown said that new targets would be set for expanding trade with China, India and emerging economies, and that the UK Trade & Investment body would be revamped to help this.

He also unveiled a new City of London taskforce to promote British financial services around the world.

This was very much a 'pick and mix' Budget - strong on rhetoric but light on detail with plenty of window dressing
Martin Temple, EEF

Among other measures was a new board to analyse the burden on business of tax measures, while the scope of the research and development (R&D) tax credit for small and medium-sized enterprises (SMEs) to be expanded, to increase the size of firms eligible from those with 250 employees to 500.

Mr Brown also said 100m of new money would be made available to double enterprise capital funds, and announced a new programme of summer schools for budding entrepreneurs. .

However, on the matter of corporation tax, the chancellor left rates steady, saying only that the government would "continue to discuss with business and keep (the system) internationally competitive".

CBI director general Sir Digby Jones said: "Steps to reduce red tape, expand R&D tax credits and boost UK Trade & Investment have our wholehearted support.

"But business will be disappointed that the opportunity truly to improve UK competitiveness has been lost.

"UK firms have watched while other countries have reduced business taxes to help their companies compete in this era of globalisation. Yet the UK continues to do the opposite."

Tax credits

The head of the EEF manufacturers' group, Martin Temple, said the Budget lacked detail.

The changes announced today (to R&D tax credits) will make a significant difference to innovative businesses in the UK
Tom Wills-Sandford, Intellect

"The best thing about this Budget was that it did not add significantly to the already substantial business tax burden," he said.

"However, this was very much a 'pick and mix' Budget, strong on rhetoric but light on detail with plenty of window dressing."

Hi-tech industry body Intellect welcomed the news of the expansion of the benefits of the SME R&D tax credit to larger companies.

"This will help SMEs who originally fell out of this bracket to now benefit," said Tom Wills-Sandford, Intellect's deputy director general. "Software companies will particularly benefit, as a large number currently fall in to this category."

"The changes announced today will make a significant difference to innovative businesses in the UK."

Ernst & Young said the change should represent 40m of benefits in 2008/09.

Education approval

The one area which got broad approval from business groups was the news of extra funding going into education.

The government said it planned to recruit 3,000 science teachers, raise the level of annual investment in state schools from 5.65bn to 8bn over the next five years, and allow free further education up to A-level standard for anyone up to the age of 25.

"We welcome extra spending on education, as long as it delivers improved results and young people with the necessary literacy and numeracy skills," said the CBI's Sir Digby.

BUDGET 2006
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Carol Undy, national chairman of the Federation of Small Businesses, also welcomed the move - as long as it delivered results.

"Small businesses need employees that have basic levels of education as well as valuable business skills," she said.

Alan Hall, director of EEF Northern, said companies were very concerned over the quality of education, and giving people opportunities up to the age of 25 was a "very astute move".

Climate 'sting'

However, measures to encourage energy efficiency in the business sector, by increasing the climate change levy rate in line with inflation from 1 April 2007, were greeted with dismay.

"There is a massive anomaly in continuing to penalise manufacturers with planned increases in the Climate Change Levy and a failure to extend Climate Change Agreements, whilst petrol duties continue to be frozen," the EEF said.

The CBI described the move as a "sting in the tail... when manufacturers have seen recent major energy price hikes not shared by their continental rivals".

Property firms

In his Budget speech, the chancellor announced a review into whether there was a case for "better alignment of the national insurance (NI) and income tax systems" for low-paid workers.

The British Chambers of Commerce said businesses would be "delighted" with the review.

"The administration of NI causes particular difficulties for businesses, accounting for 40% of the annual 2bn compliance costs that the payroll system imposes on businesses," the BCC said.

"The time for simplification of NI is long overdue and we hope that today's announcement will lead to substantial and lasting reform."

The Budget also gave long-awaited details of the charges that will be levied on property companies if they want to become Real Estate Investment Trusts (Reits), which allow individuals to invest in the property market without the risk of direct ownership.

Property firms will be charged 2% of the gross market value of their investment properties if they want to convert into a Reit.

The government said that this should allow Reits to be launched from 1 January next year without any loss of government revenue.




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