Member Article

Summer Budget: Reactions from across the North East

Today the Chancellor of the Exchequer, George Osborne, unveiled the first Conservative Budget in 19 years. In his first statement without the Liberal Democrats, Osborne covered a variety hotly-discussed topics including inheritance tax, non-doms and the minimum wage.

The Chancellor has maintained his stance on eradicating the deficit by 2018 by putting caps on benefits and promising to crack down on tax avoidance. However, with “just under half” of the planned cuts unveiled, the media has been left guessing as to where the government will source the remaining £20bn needed to bring the UK back into the black.

We spoke to businesses across the North East about today’s Summer Budget, and what the new measures will mean for the region.

Northern Powerhouse

Paul Woolston, North East LEP Chair

“Our goal is to help the North East create more and better jobs for all to drive economic growth and we support any measures which help us achieve that aim. Cutting corporation tax and National Insurance bills for businesses and creating three million new apprenticeships by 2020, are all measures which we support in their intention to boost competitiveness and encourage companies to employ more people.

“We also welcome the Chancellor’s announcement that the Government will invest £23m in six Next Generation Digital Economy Centres, including the North East. The Chancellor also announced further progress in devolving more powers to Greater Manchester, and other city regions agreeing to an elected mayor.

“This announcement again highlights the importance of the North East embracing this opportunity to shape our own destiny by uniting behind the call for an elected mayor sooner rather than later. Without it, there will be no devolution and the North East is at risk of being left behind.”

Jonathan Walker, Head of Policy and Campaigns at NECC

“Today’s Budget continues a clear direction of travel started by the Conservatives in the last government. However, it sees other parts of the country move ahead of the North East in securing a devolution settlement and we need to know why this is the case. It is of the utmost importance that the region makes significant progress in this area as soon as possible to avoid being left behind.

“The business community is united in its desire to see the North East prosper. We are therefore keen to explore all options that would enable a meaningful deal to be secured, including the possibility of an elected mayor. This deal must equip the North East with the necessary tools and responsibilities to shape its own economic future.”

Leigh Taylor, Area Director for SME Banking in the North East, Lloyds Bank Commercial Banking

“Transport and infrastructure investment is absolutely key to the future prosperity of the north east. The Northern Powerhouse project in particular has the potential to be a catalyst for the kind of long-term growth that can help balance the UK economy, and it is reassuring that the chancellor seems determined to make sure that the project stays on track.

“The proposed Intercity Express Programme, which includes plans for 140mph trains from Newcastle to York, combined with the potential HS3 scheme, could cut journeys between Newcastle and Manchester by up to a quarter. This kind of investment will accelerate economic development across the north, but the government must commit the cash that is needed to upgrade the rail infrastructure without undue delay. North east businesses are poised to take advantage of new growth opportunities and Lloyds Bank is committed to supporting them in achieving their full potential and helping Britain prosper.”

Andrew Moorby, Managing Partner at Tait Walker Chartered Accountants

The scope of the changes planned for the coming years is so wide reaching that at this stage it’s difficult to assess who the winners and losers are. That said, the Budget was distinctly lacklustre when it came to the issues pressing to the North East.

Any discussion of the Chancellor’s “Northern Powerhouse” was distinctly lacking in mentions of our region, whilst Yorkshire and Lancashire featured heavily. I have real concerns that our influence as a key player in the UK’s economy is being overlooked and that we are being left behind. With the interaction of Corporation Tax changes, wage increases, income tax, dividend taxation and welfare cuts, it will be difficult for SMEs and other businesses to assess the impact on them and their employees until everything is in force.

“As a region we have high numbers of workers on benefits, so the cuts will be more keenly felt across the North East. If the government is able to pass welfare costs on to the employer with wage rises etc. then businesses need to plan for increased cost.”

Jeremy Middleton, Chief Executive of Middleton Enterprises

“From the Budget speech, it just confirms what some of us have been warning, that the North East has been left behind in terms of devolution. It appears even Cornwall are ahead of us. How much longer do we have to wait for our political leaders to seize the opportunities that the rest of the country have taken?”

Tax

Angela Murfitt, Chartered Financial Planner at Newcastle-based Fairstone Financial Management

“The changes announced by the Chancellor to the dividend tax system will create more complexity, so individuals who are remunerated by way of dividends will need to consider whether this shape of remuneration is the most tax efficient.

“As a result of today’s announcement, high earning buy-to-let investors will be hit by the tax changes to the interest rate offset. This will make property investment much more complex than it appears on paper, and it certainly isn’t going to be as lucrative from a financial point of view in the future. Those with property investments may want to unravel what they have started in light of this and will find that one of the pitfalls of property investing is liquidity.

“There was good news today regarding the inheritance tax threshold changes which have increased to £1 million, but the devil will no doubt be in the detail. On the face of it looks to be limited to parents and specific to the main residence, so it may not end up being quite the gift we expected. IHT plans already in place will now need reviewing to ensure that clients are taking best advantage of the new limits that will soon become available.

“High earners will suffer a reduction in tax relief for pension contributions with another raft of complex tapering bands which will reduce the annual allowance. Making more changes to pensions adds weight to the argument that pensions seem to be a “political football”. The question is, will this latest change undermine the public’s confidence in this important area of financial planning once more?”

Brad Groves, Chief Executive and Chairman of Seaham-based GAS

“These measures will help businesses in what is still a challenging trading environment. The corporation tax cut in particular was a welcome rabbit out of the hat for businesses of all sizes, while the u-turn on the Annual Investment Allowance, which was due to fall to £25,000 from next January, will give entrepreneurs more incentive to invest. That in turn can only benefit industry and the economy. Overall, given the precarious state of Britain’s finances, this Budget was about as good for business as could have been expected.”

Malcolm Massey, Owner of TaxAssist Accountants in Durham

“The new compulsory living wage of £7.20 an hour from next year and £9 an hour by 2020 could impact on many small business, particularly at start-up stage, but this is offset by an increase in their Employment Allowance from £2,000 to £3,000 a year, which is welcome news. However, sole director companies are set to lose this benefit next year.

“At a time when many business owners are starting to consider vital investment for growth, setting the annual investment allowance at £200,000 will also be welcomed, as is the reduction in corporation tax to 19 per cent in 2017 and 18 per cent by 2020. Businesses which depend on cars and vans to deliver their products and services will also breathe a sigh of relief that fuel duty remains frozen.

“We will be working closely with our owner-managed company clients to look at the implications of new rules on tax free allowances for dividend payments. The Chancellor called this a Budget for working people and for local small business owners there were some welcome summer tax breaks, which will help many make vital decisions on recruitment and expansion. With small and medium sized firms in this country employing over 15 million people, support for this sector is crucial to the growth of the UK economy.”

Robyn Peat, Managing Partner at George F White

“Like many business leaders in the North, I have welcomed the Conservatives first Budget in almost 20 years. The inheritance tax system, meaning that a couple can hand a £1m estate onto their children without being taxed for the privilege, will only lead to positives changes in the property market and for families across the region.

“As a business, we have a dedicated Land and Farms team who can assist in the sale or purchase of farms, estates and agricultural land. It is common for farms and estates to be worth substantially over the previous threshold value and therefore there is the potential for very large tax bills on death.

“As a managing partner, I understand the issues farming families have faced when circumstances like this has occurred. The Budget can only be welcomed by farmers and landowners within the region who will be able to downsize their property without fear of their children missing out on the inheritance tax break promised by the Conservatives.

“Finally, the Chancellor has also stated that employment is at an all-time high and with interest rates being at a record low, meaning mortgages are currently much more affordable than rent, this creates an ideal climate for buyer confidence and movement within the market. We welcome those who are in a position to buy or upgrade their property to view our residential and commercial portfolio.

“The effect of the 2015 Budget will result in more activity in the property market. This is especially important if you are looking to move or buy. From reviewing George Osbourne’s budget, I’d recommend taking advantage of this brief period of normalisation in a market and affordable mortgage rates are readily available.”

Anthony Andreasen, Director of corporate tax at Gosforth-based RMT Accountants & Business Advisors

“Minimising the amount of personal and corporate tax revenue that is unfairly evaded has been a strong theme of George Osborne’s recent Budgets, as well as an important political issue, and providing HMRC with an additional £750m to put towards achieving this goal shows that it very much remains in his sights.

“The permanent increase to £200,000 of the Annual Investment Allowance and the phased introduction of new lower Corporation Tax rates should give North East businesses greater capacity and flexibility towards planning their finances over the longer term, while the region’s smaller owner-managed firms will welcome increased allowances on employee National Insurance.

“It will be interesting to see the tax implications of the changes announced around mortgage interest relief being restricted to the basic rate for buy-to-let landlords, as this is a market that has thrived in the North East over the last couple of years, and the new measures will therefore impact on many first-time landlords who’ve not previously had great experience of managing tax-related issues on their properties.”

Property

Fran Mulhall, Regional Operations Manager at GFW Letting, North East property rental specialists

“The government’s move to cut housing benefits to high earners living in housing association homes signals a huge opportunity for professional landlords across the North East. Those living in social housing across the region, earning at least £30,000 per year, will no longer be eligible for benefit entitlement. Those affected therefore might look to move into the private rented sector.

“Given that 63% of homes across the North East are social housing properties, this benefit cut will affect quite a large number of working professionals. As such, it won’t be a great surprise if the region experiences inflated growth rates in the private rented sector - an opportunity that North East landlords, or those looking to get into the property development sector, would be imprudent not to capitalise upon.”

John Dickson, Chairman of the Owen Pugh Group

“In recent months the Chancellor has made a lot of noise about the Northern Powerhouse but in yesterday’s Emergency Budget he did not reveal any details of how this would specifically affect the North East region. Handing out more devolved powers to Manchester and talking about high speed rail connections in Leeds and Sheffield doesn’t fill us with confidence that our region will benefit from the infrastructure improvements it needs to generate jobs and wealth.

“Owen Pugh is working on some fantastic projects at the moment but we need more assurances from the Chancellor to maintain confidence that the North East is moving in the right direction. I was pleased to see the announcement of a levy on large businesses to help fund apprenticeship growth. This supports our commitment to investing in young people and helping to future-proof the North East construction sector.”

Angela Russell, Deputy Chief Executive and Finance Director, Newcastle building society

“The Government focus in recent budgets to improve the ISA landscape for savers is encouraging. It was confirmed in the Budget that First Time Buyers will be able to take advantage of the Help to Buy ISA from 1st December this year. The Help to Buy ISA is a positive step forward to support people saving for a deposit for their home.

“The Society has had a similar product to the Help to Buy ISA; Our Big Home Saver is a market leading product and encourages regular saving, while rewarding savers with a cash back sum if they have successfully saved with the Society and gained a mortgage with us. This has proved very popular.”

Apprenticeships

Darren Hankey, Principal at Hartlepool College of Further Education

“The target of three million more apprenticeships in this parliament is an ambitious one based on previous delivery and the fact that public finances are still under some considerable strain. In the last couple of weeks we’ve seen a report by BIS which focused on the positive financial return investment in apprenticeships makes and Professor Alison Wolf recommended a levy on employers to ensure the government’s apprenticeship ambitions could be funded.

“As one of the largest providers of apprenticeships in the North East and one of the best in England in terms of quality it will be interesting to see the details of the announcement made in the latest budget. Ultimately, whatever the detail is, Hartlepool College of FE looks forward to working with its existing and any new employers to ensure apprenticeship opportunities are provided, especially for young people.”

Look out for further Budget reaction from across the region later this week. Our thanks to all who commented.