Grant Thornton's review of the 2014 Budget
The battle for talent
Mr Osborne announced that figures released on Budget Day showed the fastest fall in the youth unemployment claimant count since 1997. Specifically in relation to apprenticeships, Mr Osborne stated:
"To make sure we give young people the skills they need to get good jobs in this modern world, we’ve doubled the number of apprenticeships and I will extend the grants for smaller businesses to support over 100,000 more.
And we’ll now develop new degree level apprenticeships too."
Grant Thornton's Budget 2014 wish list called on for the Chancellor to help companies grow by providing a National Insurance contributions (NIC) exemption for apprenticeships.
While the fall in young claimants is good news, there is the risk that the jobs being created are relatively unskilled. Recruiting apprentices, on the other hand, benefits businesses as new young talent helps create a culture of dynamism, improve productivity and encourage growth. Specifically, work-based training can address skills shortages and help companies win the talent battle.
Mr Osborne's announcements concerning apprentices is welcome, but we feel that the Chancellor should have gone further by removing the financial disincentives created by NIC on apprentices' earnings.
We have estimated a headline cost of some £525 million for 2014/15, but this is before taking account of NIC cuts already announced and, significantly, before taking account of the stimulus to the economy and the longer-term benefits that would result.
Therefore, we urge Mr Osborne to consider this cut in the near future.
Like Grant Thornton, the Chancellor recognises that increasing the UK's exports will be key to achieving future economic growth. He has therefore introduced measures to encourage and enable dynamic UK businesses to take advantage of the opportunities afforded by fast-growing emerging economies as the global recovery continues.
UK Export Finance’s (UKEF) direct lending capacity is to be doubled from £1.5bn to £3bn and the Chancellor also announced that the interest rates applied to this lending will be reduced by one third. This will be accompanied by more proactive support for UK businesses who want to expand globally, including supporting the UK-based supply chains of exporters and intangible exports by expanding the remit of UKEF and changing its underpinning legislation.
Furthermore, to help British businesses strengthen links with high growth markets the Chancellor has announced that the air passenger duty (APD) bands C and D will be abolished from 1 April 2015. This will eliminate the two highest rates of APD charged on flights to countries over 4,000 miles from Britain.
Although these new measures are encouraging, we believe that the Chancellor could have done more to stimulate UK exports such as the introduction of a tax credit based on turnover generated by exporting to specific countries. It remains to be seen how awareness for the mentoring support already available from UK Trade and Investment (UKTI) and ease of access to these funds can and will be improved.
Access to finance
There was little in the way of announcements on access to finance in today's Budget. Nevertheless, some measures were announced which will help businesses to continue to invest. Firstly, the annual investment allowance (AIA) will be doubled to £500,000 from 1 April 2014 until the end of 2015, rather than reducing to £25,000 from 1 January 2015 as previously announced. According to Government figures, this will provide 99.8% of businesses with up-front tax relief on all qualifying investment in plant and machinery. Secondly, there was renewed support for enterprise zones, with business rate discounts and enhanced capital allowances extended by three years for businesses locating in enterprise zones. Thirdly, research and development (R&D) tax credits for loss-making companies are proposed to increase from 11% to 14.5% of the surrendered loss. This will help innovative companies to continue to invest in their products until they reach profitability.
Improving credit flow to encourage businesses to invest and expand is crucial to securing our economic future. While today's announcements on the increased AIA, continued support for enterprise zones and the additional help for loss-making R&D companies are welcome, more needs to be done to improve access to finance for business. In particular, access to longer-term equity finance, which is why Grant Thornton would like to see a return of the corporate venturing scheme (CVS). This scheme, which was abolished in March 2010, was designed to promote venture capital style investment by other companies. Reintroducing the CVS would both improve access to finance and foster strategic partnerships within the private sector.
Support for savers
Several measures were announced intended to support savers, including:
- the introduction of a New ISA (NISA) for cash and stocks and shares (with an increased annual limit of £15,000)
- an increased savings rate income tax band (extending to £5,000), with a reduction of the rate, from 10% to 0%
- the introduction of the new National Savings and Investments 'pensioner bonds'
However, perhaps most significantly, new measures were announced in order to provide individuals with greater freedom to access their defined contribution pension savings.
Changes introduced from 27 March 2014 will allow more small pots to be taken as a lump sum and give greater flexibility under income drawdown.
The Government is consulting on amending the tax rules to remove the existing constraints over what may be done with savings in a defined contribution pension pot. These changes are intended to take effect from April 2015, and will give savers over age 55 the choice of whether to purchase an annuity, make a full withdrawal or, alternatively, consider one of the other products available on the market. What's more, the current rate of 55% for full withdrawals will be reduced under the new flexible drawdown plan, and will instead be taxed at marginal income tax rates.
While the increased flexibility is welcome and will allow people to take control of their own finances like they can in other countries, there is a concern that the removal of the need to take an annuity at retirement could have an impact of annuity rates, as those in ill-health opt to receive their full pension fund rather than take an annuity.
It is also worth noting that, hidden within the published consultation document are further proposals to raise the age at which an individual may take their private pension savings, from 55 to 57 in 2028, with further increases in line with increase in the state pension age.