Partner Article

Talking technology: Onyx CEO Neil Stephenson

Neil Stephenson, CEO of North East technology giant Onyx Group comments on the ongoing fallout from the Emergency Budget.

LAST month the Chancellor of the Exchequer George Osborne announced the new coalition Government’s plans for the Emergency Budget in 2010/2011. Significant changes were announced in a desperate bid to contend with the UK’s massive deficit.

Mr. Osborne said in his budget speech that he wants a sign to go up over the British economy that says “Open for Business.” The changes will have interesting repercussions for businesses, many of which are still battling the recession and the economy in general.

Looking at the pros and cons for a small to medium-sized company, this is how I see it:

• In an effort to encourage SME’s to take on employees the National Insurance Contribution (NICs) threshold will be raised by £21 per week from April 2011. New businesses outside of London will save around £5,000 on their first 10 employees. However there is a concern that with 70 per cent of firms already operating below capacity, those businesses trading will not be helped. Ideally, we need to see a full reversal of NICs increases to fully offset the ‘tax on jobs’ which the previous administration initiated.

• Corporation Tax, which is currently at 28 per cent, is planned to be cut and reformed over the next 4 years, reaching an all-time low of 24 per cent. The initial cut of one per cent is good news for businesses that will have less to pay at the end of the tax year and have more to invest in their business and the economy. A measure clearly intended to encourage growth.

• Along similar lines, Small Companies Tax rate is planned to be cut to 20 per cent. Encouraging news for start-ups and those looking to grow.

• On the downside for the big earners, Capital Gains Tax is set to be raised to 28 per cent at the upper level. While it will be held at 18 per cent for those with income and gains below the upper limit of income tax (£37,400).

• The good news is Entrepreneurs’ Relief, which was already recently increased to £2million is now set to be raised to £5million.

• In January 2011, Value Added Tax is set to rise from the current rate of 17.5 per cent to 20 per cent. The impact on business is clear as changes will need to be made once again to pricing structures and VAT calculations .The hike may not cost much money to implement, but there is fear that it may make trading even harder. There is concern that it could hurt small firms who will have to pass the increase on to their customers, unlike big business which can absorb the cost. SMEs are also concerned that the VAT increase will deter consumers from spending, push costs up and make it harder for them to compete.

• Landline Tax to fund the rollout of fast broadband will be scrapped - instead the government plans to support private investment, partly funded by the digital switchover under-spend within the TV licence fee. Perhaps an unwise movie. Investment in next generation broadband is key to the growth in our knowledge economy and will help differentiate the county on a global scale. The funding of this is significant and needs to be born by the government, suppliers and users alike.

According to the Forum of Private Business the overall feeling by small businesses is one of relief. Forty-seven per cent of those who responded to their most recent survey felt that the budget was better than expected with only 11 per cent considering it worse.

Richard Lambert, Confederation of British Industry (CBI) Director-General, agreed commenting that “there was clear recognition in the budget of the role that business needs to play in getting the economy back into shape, and generating the jobs and wealth needed to sustain economic recovery.”

David Frost, director general of the British Chambers of Commercesaid: “The government’s decisive moves to cut the deficit will have positive effects on business and investor confidence. Even more importantly, the Chancellor’s message that Britain is open for business will be welcomed by companies the length and breadth of the country, and across the globe.”

Welcome from the North East has been more muted, with apprehension and uncertainty the dominant mood. Despite the positive measures, the region, whose economy has been much subsidised by the public sector and has a lower number of businesses than the national average, remains acutely aware of the big challenges and upheavals it faces - which have yet to be fully spelled out.

This was posted in Bdaily's Members' News section by Ruth Mitchell .