Budget bets on a 'more competitive' Britain

Some help for businesses, manufacturers and exporters, but are the longer-term benefits there?

It was a largely income-and-pensions led Budget, but Chancellor of the Exchequer George Osborne moved to build on promising economic statistics by reshaping the business tax and finance environment.

Osborne (pictured delivering the Budget, above) said the government needs to invest, and it needs to encourage businesses to invest as well. With that in mind, changes to business taxation were announced that the government believes make the regime the most competitive in Europe.

Class 2 National Insurance contributions will now be self-assessed - shrinking a layer of bureaucracy for five million self-employed people including many IT contractors.

"And we've cut business tax rates. Corporation tax was 28 per cent when we came to office," he said. "In just two weeks, corporation tax will be down to 21 per cent, high street stores will get £1,000 off their rates, and every business in the country will get the Employment Allowance - a £2,000 cash-back on jobs."

Next year, corporation tax will go down to 20 per cent. Also, staff aged under 21 will be exempt. In the enterprise zones, business rate discounts and capital allowance boosts will be extended for another three years, he said, and the Seed Enterprise Investment Scheme for start-ups will become permanent.

"I'm raising the rate of the R&D tax credit for loss-making small businesses from 11 per cent to 14.5 per cent," he added.

There will also be a grant for 100,000 more apprentices to be taken on by UK businesses.

In 2012, the Treasury increased the Annual Investment Allowance for businesses ten-fold to £250,000, until the end of this year. It will now be doubled to £500,000 and run until the close of 2015, starting in April.

"So 99.8 per cent of businesses will get a 100 per cent investment allowance," Osborne said.

Tax avoidance schemes will be penalised upfront - considered guilty until proven innocent, in other words. This will apply in future to schemes covered by the General Anti-Abuse Rule too.

"If people feel they've been wronged, they can of course go to court. If they win, they get their money back with interest," the Chancellor said.

According to the OBR, this will bring forward £4bn of tax receipts as well as reducing the temptation to avoid tax. Osborne also said he was increasing HMRC's budget to tackle non-compliance.

"We will block transfers of profits between companies within groups to avoid tax. We will increase tax credit debt recovery rates for those with sufficient earnings. We will give HMRC modern powers to collect debts from bank accounts of people who can afford to pay but have repeatedly refused to, like most other Western countries," he added.

There would also be additional curbs on Enterprise Investment and Venture Capital Trust schemes to combat misuse.

"And we are expanding the new tax we introduced to stop people avoiding stamp duty by owning homes through a company," Osborne said.

He said that the UK was entering a "critical phase", and that the government must steer a straight course - although the deficit would not now be eliminated until 2018-19 even though growth figures have continued to be revised upwards, to 2.7 per cent for 2014.

"The IMF now say that we are achieving the largest reduction in both the headline and the structural deficits of any major advanced economy in the world," he said.

"The Office for Budget Responsibility has revised down the underlying deficit in every year of their forecast. Before we came to office the deficit was 11 per cent. This year they say it will be 6.6 per cent - lower than forecast and down a third."

Businesses wanting to export would get access to greater levels of finance, with the government doubling the pot available to £3bn, with interest rates on that cut by a third. Exports were growing faster than for Brazil, China and the like - but from a low base, he noted.

"Instead of having the least competitive export finance in Europe. We will have the most competitive," the Chancellor promised.

Air passenger duty for longhaul flights was also being equalised to the US rate, making it easier for UK exporters to visit a wider range of business destinations. This should also help tourism, of course.

Manufacturing would get a boost by measures aimed at reducing energy costs - such as investment in renewables and shale gas, and by cancelling the fuel duty rise scheduled for September this year.

Compensation for green levies and taxes would be developed and extended, and the carbon price support rate frozen at £18 per tonne of carbon dioxide for the rest of the decade.

Ed Miliband (pictured, right), leader of the Opposition, however noted in his response to the House that there had been 24 tax changes affecting businesses since the Tories took power in coalition with the Lib-Dems in 2010.

He also pointed out that the debt reduction target keeps moving ahead a year every year - so actual rebalancing of the books looked as far off as ever. "Now it's 2018-9," Miliband said. "Every time he comes here and tells us something, and every time he fails."

What the Government had put in place had failed to demonstrate any difference from the Conservative policies of the past, with the lion's share of the benefits going to the wealthy, with little mention of what Miliband called "the working people".

Rather than a trickle-down of benefits, what the UK was seeing was a downward spiral. "His global race is a race to the bottom," said Miliband.

"Today the Chancellor simply reminded people of the gap between his rhetoric and reality of people's lives."