Government strategy: a plan for growth

The Government has set out its vision for stimulating a broad-based recovery in the UK economy.

The backdrop to the plan was not altogether a comforting one. The Office of Budget Responsibility revised its growth forecast for 2011 downwards to 1.7 per cent, shaving 0.4 per cent off its previous estimate. However, the OBR found itself sufficiently confident about future expansion to predict 2.5 per cent growth in 2012, 2.9 per cent in 2013, 2.9 per cent in 2014 and 2.8 per cent in 2015.

The Chancellor hung his colours to the mast of four fundamental ambitions. These are to create the most competitive tax system in the G20; to nurture a strong and sustainable enterprise culture in the UK; to promote business investment and exports in order to establish an economy that is not so reliant on financial services; and to take action to lift the skill levels of the UK workforce.

The Government intends to centre its plans on the macroeconomic stability that, it argues, the public spending cuts announced last year have helped to achieve.

Taxes and incentives

The first set of policies focus on the tax system. The recommendation by the Office of Tax Simplification that the Government consider merging income tax and national insurance appears to have won favour with the Chancellor. There is to be a consultation on the issue later in the year, the hope being that merger between the two taxes will reduce the administrative burden the two systems impose on employers.

The Chancellor also introduced more immediate policy changes on business tax. Corporation tax will be reduced by 2 per cent as from April 2011. The original cut had only been for 1 per cent. In line with plans set out in last year's Budget, corporation tax will continue to fall by a further 1 per cent annually over the following three years, before reaching 23 per cent in 2014.

The rate of the SME research and development tax credit is to increase to 200 per cent as from April 2011. The plan is that it will rise further, to 225 per cent, as from April 2012.

The R&D credit scheme is also to undergo a simplification process. This will include removing the PAYE/NIC cap on the amount of payable credit that can be claimed and removing the minimum expenditure rules.

To encourage entrepreneurs, as from 6 April 2011, the lifetime limit on capital gains that qualify for the 10 per cent rate under the Entrepreneurs' Relief scheme is going up from £5 million to £10 million.

The rate of income tax relief available under the Enterprise Investment Scheme (EIS) climbs from 20 per cent to 30 per cent from April 2011. The Government is planning to double the amount that any individual can invest through the EIS, to increase the size of company that can qualify for the investment, and to raise the limit on the amount that can be put into a company by 400 per cent.

While to help improve levels of business investment, the limit on the capital allowances short life assets election is to be extended from four to eight years.

As widely expected, the Chancellor opted to delay the planned inflation rise in fuel duty, set for April, until 2012 to help smaller firms in the short term. He also said, for the longer term, the fuel duty escalator, which would have added 1p per year above inflation, has been dropped until 2015 unless oil prices tumble in the intervening period.

Reducing the business burden

The Chancellor also addressed the issue of business regulation, arguing that the burden of administering an ever-increasing swathe of rules is harming the UK's competitiveness. A package of measures will mean that new rules that would have cost an annual £350 million to implement are to be dropped. One of those to be scrapped is extending the right to request time off to train to the employees of firms with fewer than 250 staff. Another to go is the dual discrimination rules.

Micro-businesses (with less than ten employees) and start-ups are to benefit from a moratorium exempting them from new UK regulations for three years as from 1 April 2011.

Creating a more balanced economy

The Chancellor made much of the nascent recovery in UK manufacturing, pointing out that 14,000 jobs have been created in the sector over the past few months.

To help ensure that the whole of the country and each sector have the chance to make their mark on the recovery, the Government is to establish 21 enterprise zones, rather than just the ten previously planned.

The zones will be offering firms that move to them a series of tax breaks, notably a 100 per cent business rate discount worth up to £275,000 over a five-year period and, through Local Enterprise Partnerships, scope for enhanced capital allowances in those areas with a strong emphasis on manufacturing.

Improving the skills of the UK workforce was, the Chancellor said, essential, given that the UK lags behind America, Germany and France in the talents of its working age population. In Germany and Switzerland, one in every four employers offer apprenticeships; in England that ration is barely one in ten. To remedy this, the Government is to help create some 50,000 extra apprenticeship places are to be created over the next four years, bringing the overall total to a quarter of a million. Over 100,000 young people are to benefit from the Government's new work experience scheme

So that SMEs can participate more fully in the apprenticeship programme, the Government will lend grant support to business consortia to set up advanced and higher apprenticeship courses. The University Technological Colleges programme is to be expanded, with at least 24 new colleges up and running by 2014. The colleges will offer training in technical subjects for teenagers. And a further £100 million is to be spent on leading UK science facilities.

There are plans, also, to create new export credits that will help smaller manufacturing firms compete in overseas markets.

Now, it appears, is the time to discover if Britain not only has the strength to bear the cuts but the creative energies needed to restore the economy.