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HomeBudget 2013 - How to Win Friends and Employ People?

Budget 2013 - How to Win Friends and Employ People?

Against the backdrop of Moody's downgrade of the UK's AAA status and the fresh revelation that unemployment rose to 2.5 million at the end of 2012, the Chancellor had a politician-in-a-weak-economy's chance of making anyone happy in his Budget speech on the 20th but, against all the odds, did he manage it?

So the day of the speech didn't start too well; the papers were full of tales of unemployment, George Osborne became Twitter-famous as the #downgradedchancellor, and everyone knew he'd have to start by cutting his growth estimates dramatically but, judging by the 1p reduction in beer duty, Mr Osborne was clearly out to make some friends. As expected, it was all still about austerity measures and there were still the usual empty-sounding promises – the 'Business Bank' for example, was talked of again with no firm details (it strikes People4business that if the Chancellor spent less money setting up brand new publicity-friendly funding schemes he might have more to put into the ones that already exist).

However, there were some genuinely positive announcements for UK businesses, particularly Small and Medium Enterprises. On top of scrapping planned rises in fuel duty, which is a relief for many businesses as well as motorists in general, there were two significant business-friendly announcements.

The first is a reduction in the headline corporation tax rate to bring it down to one single tax rate for every business – regardless of size. Reduced in instalments, the plan is to have all businesses paying a flat corporation tax rate of 20 percent by 2015 – a move of which the UK hasn't seen the like since 1973 – and will, the Chancellor explained, give the UK “the lowest business tax of any major economy”. Hopefully, this will bring money into the country not only by making it easier for large UK-based companies to grow but by also tempting other organisations to set up shop on our shores.

The second business-related announcement was the introduction of the Employer Allowance, a national insurance contributions (NIC) holiday that is available to 450,000 UK companies. Set at a limit of £2,000 the exemption will mean a company can employ one person at an annual salary of £22,000 or four employees at adult national minimum wage without paying their NIC. John Walker, National Chairman of the Federation of Small Businesses explained:

This will help businesses that are wary of the cost of employment to take on staff and help those that currently employ free up funds to expand their business...the FSB asked for a budget for small businesses and this is what has been delivered. This Budget opens the door for small firms to grow and create jobs. The Chancellor has pulled out all the stops with a wide-ranging package of measures to support small firms.”

George Osborne voiced his hope that the allowance would also help the self-employed “for the person who’s set up their own business, and is thinking about taking on their first employee – a huge barrier will be removed”. This reflects another important feature of the 2013 Budget as the speech signalled the Government considering the fate of the UK's record number of freelancers more seriously than before.

The potential for growth in this group is clearly a Budgetary focus as, although no changes were announced to the thorny issue of IR35, Osborne announced several points that would affect freelancers this year for the better. Promises have been made to consult over how to make the tax process simpler for freelancers (in the merger of NICs and PAYE Income Tax, and simplifying taxation on partnerships) and details of the introduction of the cash basis accounting system were confirmed (see more on this). The increase in the Personal Allowance to £10,000 was brought forward by a year, hopefully reducing taxes for freelancers a little. Disincorporation relief was also introduced, meaning that, as of April this year, Limited Company owners can move to self-employment without suffering tax disadvantage.

Admittedly none of these changes are exactly ground-breaking and some won't even be effectual until much further in the future but at least the self-employed can take comfort in the fact that the Government is aware of their struggles and willing to at least consult on their solutions.

OK so maybe the Chancellor isn't quite at the top of all our Christmas card lists yet but, considering we are battling with high unemployment, deficit, borrowing and lower growth than expected, it was a relatively positive Budget! What do you think? Let us know at press@people4.com.

 

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