PBR: papering over the cracks

Small businesses were clearly in the chancellor’s thoughts and I broadly
welcome the changes. So, well done, Alistair Darling, for introducing a delay in
the threatened increase in the rate of corporation tax, and ­ perhaps more
usefully ­ an extension in tax relief to allow businesses to carry-back losses!

These measures should help many firms, although the cash impact will be
relatively small and unlikely to make the difference between survival and

The chancellor also listened to our plea not to introduce the income shifting
regime, which would have required volumes of additional record keeping for many
family businesses. However, this is just another temporary reprieve. The draft
legislation really should have been consigned to the bin forever.

While the new small business finance scheme and the additional funds to ease
cash flow are also welcome, they represent only a small proportion of bank
lending. So while they provide some necessary oil to help ‘lubricate’ the
economy, they are not, regrettably, going to transform matters on their own.

The crux of our economic difficulties goes back to the unprecedented lack of
bank lending. While the various tax measures which Darling has introduced may
chip around at the edges, they simply will not get to the root of the matter. As
a result, I fear that fiscal action can only have a limited impact on businesses
in the current climate.

The reduction in VAT is similarly well intentioned, but let’s not forget that
they will cause an administrative nightmare to businesses of all sizes which are
having to amend their systems at incredibly short notice. While this move may
knock a few pounds off my Christmas spending, it is also doubtful just how much
extra finance this move will put into the economy.

The word on the streets is that the chancellor accepted that not all the
savings will be passed on to consumers, and inevitably some of the reduction
would be kept by retailers and suppliers to boost flagging profits.

The proposed changes to the tax of foreign profits are also well intentioned
and should help make the UK a more attractive location for multinationals. But
we must wait until December for fuller details, so let’s not get excited just
yet. As with so much of what comes out of the Treasury, the devil is in the

Richard Mannion is national tax director at
Smith &

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