The emergency budget laid out by the Chancellor to cut the UK’s £154.7bn deficit down to size has left industry thankful that the promised pain has largely failed to materialise. Much of the burden to cut the UK’s debt mountain has fallen on consumers, with a rise in VAT sales tax and swingeing cuts to public sector workers in the pipeline. ‘We were quite relieved that we didn’t get hit harder – I suppose we could have been,’ says Alan Eastwood, an economist at the Chemical Industries Association. ‘It’s a brave move by the government to hit individuals rather than business for once, because on energy, for example, they have definitely been targeting industry.’
The emergency budget, given by George Osborne on 22 June 2010, offered industry a number of reasons to be cheerful. Corporation tax is to be cut by 1%/year for the next four years, falling to 24% in 2014. This gives the UK the fifth lowest business tax rate in the G20. Eastwood says that this is a way of showing the world that the UK is open for business and demonstrates that the coalition government backs business and industry in general.
The Association of the British Pharmaceutical Industry (ABPI) welcomed the decision to retain the ‘patent box’. The patent box, which was proposed by the Office for Life Sciences, would mean that companies pay only 10% tax on any income from activity based on patents, rather than the current 28%. Richard Barker, director general of the ABPI, says that the patent box would ‘make a significant contribution to the UK’s ability to retain its worldleading position in an increasingly competitive global environment’. Discussions on IP protection and R&D tax credits are still ongoing. The BioIndustry Association, however, said the budget ‘falls short of helping to develop an economy based on innovative business’. It singled out the increase in capital gains for criticism and says it will be a disincentive to invest in start ups.
‘Green’ industries and renewables also did not get the budget they were hoping for. The promised green investment bank, unveiled by the previous government, is in a hiatus, with bank loans for promising low carbon technologies unlikely to be doled out until 2011 at the earliest. A baseline level for pricing carbon emissions and a carbon tax did not emerge either. ‘The Chancellor could have killed two birds with one stone with a green deal for small and medium sized enterprises as well as for households,’ says Richard Gledhill, partner, sustainability and climate change at PricewaterhouseCoopers (PwC). ‘If we are going to meet our carbon reduction targets, we need SMEs to embrace the low carbon agenda just as much as big companies.’
Eastwood says that the one thing that was really missing from the budget, from the chemical industry’s point of view, were policies to cut the Gordian knot of climate legislation in the UK. He adds that legislative overlap between all the different schemes, such as the Climate Change Levy, the EU’s Emission Trading System and the CRC Energy Efficiency scheme, has become a burden on business that needs to be addressed. A poll by PwC of 50 UK companies found that two-thirds felt the country’s environmental policies were unclear.
The upshot of the budget is that by 2014-15 it will have cost the UK economy £113bn in tax rises and cuts to public spending. How these cuts will shape research science in the coming years is still unclear with little in the way of concrete plans announced on how basic research or universities will be affected.
Some government departments have been told their budgets may be slashed by 40% – something likely to affect universities (C&I 2010, 11, 5). ‘Further cuts would be hugely damaging, threatening the UK’s status as home to worldleading universities,’ says Wendy Piatt, director of the Russell Group, which represents the UK’s top universities. Making the case for protecting university funding, Piat says, ‘Russell Group institutions have an annual economic output of £23.5bn, supporting 237,000 jobs, and bring in £3bn of overseas investment each year.’