Business measures unveiled in today's Pre-Budget Report (PBR) gave with one hand and took with the other as increased SME funding was offset by an unexpected National Insurance (NI) hike.
Launched in January, the Enterprise Finance Guarantee Scheme offers loans of between £1,000 and £1m to businesses with turnover of less than £25m. The scheme will now run for a further year beyond its scheduled conclusion in April.
The Government has equated this to an extra £500m in funding being made available. So far, 6734 eligible applications, worth a combined total of almost £700m have been granted or are currently being processed.
One of the PBR's most controversial initiatives is an extra increase to employer, employee and self-employed NI contributions. A 0.5 per cent increase was announced in last year's PBR, and a further 0.5 per cent spike was confirmed today. A one per cent rise is now set to be introduced in April 2011.
The Government has defended the move by claiming imminent economic growth will ensure businesses are well-prepared by the time the hike comes in. Chancellor Alistair Darling bullishly predicted that GDP growth will return this quarter.
He revealed that the UK economy was set to contract about 4.75 per cent this year, but forecast that the country will enjoy between one and 1.5 per cent growth in 2010. He also claimed his plan to slash the budget deficit in half over the course of four years was "sensible".
Darling admitted that UK borrowing will be £178bn this year, exceeding the £175bn projected in April's budget. He also stated that 2010/11 borrowing would also be £3bn more than previously expected.
In better news for UK Plc, a planned one per cent rise in corporation tax has been postponed, and the current level will remain throughout next year. The level of corporation tax is also to be reduced for to 10p for firms engaged in developing new technology.
As expected, VAT's reduction from 17.5 to 15 per cent, introduced a year ago, has been reversed. Retailers had feared it could be further increased to 20 per cent, but this has not materialised.
Darling also unveiled several measures designed to benefit students, trainees and unemployed youngsters. A scheme guaranteeing all 16- and 17-year-olds education or training has been handed a 12-month extension.
Under-24s have also been promised training or employment after six months out of work. About 10,000 low-income graduates are also set to benefit from plans to give them financial support to undertake internships.
In worse news, Darling claimed he would be finding £5bn of savings from downsizing spending programmes. The Chancellor's disconcertingly vague savings plan includes slashing Government spending on IT.
In his speech to the House of Commons, Darling said: "The task today is to secure recovery and promote long-term growth. To promote growth, we need to invest in the dynamic sectors of the future – in digital, bio and low carbon technology. We also need to invest in the skills of young people to prevent a lost generation of youth unemployment."
But Scott Fletcher, chief executive of VAR ANS Group, had little time for the Government's initiatives.
“Today we were all expecting, or hoping, rather, for more of a radical shake-up of the economy, but what we got was more of a tinkering around the edges. (Shadow Chancellor) George Osborne said it felt like a pre-election report, not a pre-Budget report, and I’m inclined to agree.
“What we need is tough controls on spending and tax initiatives to boost investment in enterprise. We needed bold, dynamic changes, what we got were small concessions to a nationwide crisis.
“We have seen nothing from the Government to answer any of the big issues.”
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