Pre-Budget 2003: Reaction to the speech

Scroll down the page and click on the links to read the comments, grouped by subject matter:


Stephen Coleclough, partner, indirect taxes, PwC:

‘The chancellor today announced that there would be no change to the VAT treatment of the management of many different types of retail funds, for example, unit trusts, OEICs (Open Ended Investment Companies), investment trusts, and company pension schemes.

‘Given the regulatory change in the European Union (EU) with effect from 1 January 2004, this is an opportunity lost to make the UK exemptions commensurate with other EU member states and maintain the UK’s competitiveness in this market – especially when compared with Luxembourg and Dublin.’

Francis Ingham, Charity Finance Directors Group’s policy and campaigns manager said:

‘The Government has good intentions for the charitable sector, but this was a wasted opportunity to show that the financial problems which impede charities -irrecoverable VAT for example- are going to be addressed.’

R&D tax credits

KPMG said: ‘The changes to the R&D tax credits, announced today by the chancellor, are to be welcomed.ÿSMEs will clearly benefit from the changes but KPMG questions whether they go far enough to increase R&D spend by large companies.ÿ

‘The changes to the meaning of ‘consumable stores’ will bring much more expenditure into the relief.ÿThese changes follow comments received by the Inland Revenue during the recent consultation process.ÿChanges are also proposed on the definition of R&D itself, with the stated objective of simplifying the definition.ÿThe Government is going to consult with business on this new definition.ÿ

ICAEW’s Tax Faculty: ‘The government has announced further incentives for investment in research and development and plant and machinery. These measures should help maintain the UK’s international competitiveness.’

David O’Keeffe, tax partner and head of KPMG’s R&D tax relief group:

‘Any simplification to this definition would be very welcome.ÿ At present, the combination of DTI guidelines and Inland Revenue interpretation can lead to considerable uncertainty.’

Big Business

David O’Keeffe, tax partner and head of KPMG’s R&D tax relief group: ‘Whilst the changes to the meaning of consumable stores and the simplification of the definition of R&D itself, are very good news, I think large companies are still going to feel that the level of the relief is too small to impact on their decision making with regard to R&D.’


Paul Druckman, ICAEW deputy president, said: ‘We are pleased that the chancellor has asked the National Audit Office to assess the number of people who are likely to be affected by the lifetime cap on pensions of £1.4. Part of that assessment should also consider the number who will be affected in future years.

‘£1.4m may sound a lot in today’s terms, but many middle-income earners who are making regular pension contributions over a 40-year period will be hit by this limit. The real value of this limit will be eroded over time by the difference between inflation and earnings growth.”

‘The institute believes it would be better to relate any investment limit to the contributions made to the fund rather than tie them to investment performance. We remain concerned that a lifetime cap on pensions of £1.4m is likely to discourage long-term saving and penalise people with well-performing investments.’

Tax breaks on employees’ childcare costs

Paul Druckman, ICAEW deputy president, commented: ‘The proposal to allow employers to offer employees £50 a week for childcare costs free of income tax and national insurance should help working parents. The key will be to ensure that the relief is not emasculated by red tape. Many businesses are keen to be family-friendly, but are likely to be put off if there are punitive compliance costs attached to this tax break.’


Paul Druckman, ICAEW deputy president, said: ‘Proposals to improve the flexibility of the UK housing market and maintain a thriving rental sector are much needed. Residential property investment trusts should provide a flexible way of improving the stock of affordable rental properties, therefore benefiting businesses who are finding it hard to attract skilled workers.’

Corporate tax reform

Paul Druckman, deputy president of the ICAEW, said of the chancellor’s apparent decision to leave the headline rates of corporate tax unchanged:

‘Given that many other EU countries are reducing their corporation tax rates below the UK rate, the Government would do well to consider the long-term rates of UK corporation tax.

‘We remain concerned about the impact of EU rules on UK business. For example, the proposals to extend transfer pricing rules to all UK transactions will impose further costs on many UK businesses, with no benefits to UK plc.

“The Chancellor needs to work harder at the EU level to ensure that EU law is not pricing Europe out of the market.’

Paul Druckman, ICAEW deputy president, said: ‘We welcome the government’s confirmation that companies adopting International Accounting Standards (IAS) can use these figures for preparing their UK corporation tax return and also the decision to consult further on the implications of moving to IAS. We need to ensure that the UK tax system is well prepared to cope with the introduction of IAS.

‘It is essential that the tax implications of IAS are addressed at an early stage as moving to IAS is going to be difficult enough for UK plc without uncertainties over the tax position.’

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