Yesterday saw chancellor George Osborne make his third budget announcement since the current Coalition government took power. The Chancellor insisted the centrepiece of his new budget is supporting working families by increasing the personal tax allowance by over £1,000, however, many of the budget’s other revelations have been criticised by analysts.

Whilst some businesses welcomed the budget overall, there are aspects that have caused concern. Farming groups have described the package as “a missed opportunity”. The chancellor said the largest increase in personal tax allowance in 30 years would exempt a million low earners from tax. The point at which people start paying income tax will be raised to £9,205 from next April.

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However, elsewhere, the decision to abolish tax allowance for pensioners will see more old people taxed, who may struggle. Critics in the Labour party and several interest groups suggested this would see poorer pensioners paying more, whilst richer people would be largely unaffected.

Furthermore, the decision to change the 50p tax rate has drawn criticism. The top rate of tax will now be reduced from 50 per cent to 45 per cent. Labour leader Ed Milliband asked the cabinet members who would benefit from this decision to raise their hands when the move was announced. None acquiesced.

Osborne claimed this tax cut would only lose the treasury £100m, though this figure has been hotly contested.

The Labour opposition accused the chancellor of being a “friend to the millionaires, not the millions” over his policies, which he defended by claiming they would attract ‘wealth creators’ or encourage them to stay in Britain. However, a New Economics Foundation report has shown that nurses, childminders and others add more to society’s wealth than those governments have referred to as ‘wealth creators,’ including business leaders and bankers.

Mr Osborne announced that his new measures would ensure Britain is on track to becoming a lucrative option for businesses, saying he wanted the country to have the most competitive business tax regime of any major industrial country. He introduced a one per cent cut to corporation tax, effective from April, and promised further cuts in 2013 and 2014, which would see the tax rate dropping from 24 per cent to 22 per cent.  

Tax for small businesses to be ‘simplified’

He also announced that there will be a consultation on simplifying tax for small firms with a turnover of up to £77,000; small companies will be taxed on the amount of cash passing through them rather than more complicated methods used for large companies. He said vehicle excise duty will be frozen for road hauliers, and stated that, beyond planned tax increases for petrol duty, there would be no further changes to fuel duty.

The chancellor went on to say he intends to support a doubling of British exports to £1trillion by the end of the decade. He proclaimed, "The UK will not be left behind China, Brazil and India."

However, critics of the government’s budget have insisted the devil will be in the details; in order for the government to meet its targets of eliminating the deficit by mid-way through the next parliament, more tax increases and spending cuts will be necessary.

The Guardian’s Economics Editor, Larry Elliott, offered a scathing summary of the government’s policies, “The politics of the budget were immediately apparent: try to secure broad support for the big concessions to business and the rich by helping those on lower incomes through an increase in the personal tax allowance.”

Farming unions respond to budget announcements

Farming unions welcomed the policies that would benefit businesses, with NFU president Peter Kendall saying he was “Pleased to see measures that could create a more competitive business environment in the UK.”

He said he particularly welcomed “the Chancellor’s ambition to increase UK exports over the next decade to £1 trillion should benefit farmers who are the backbone of a food and drink industry which constitutes our biggest manufacturing sector.”

However, food policy experts have questioned the drive for “naïve competition” in the face of greater challenges such as climate change, finite and consistently more expensive oil resources and a growing population; they claim that a paradigm shift must occur in a number of sectors if the UK is serious about food security and future prosperity.

In a call for government and industry to act responsibly, eminent food policy professor Tim Lang this week said of government policy, “These goals don’t add up. Take competition. The notion that British food commerce should ‘compete’ is empty rhetoric. We need to bend competition around sustainability. This requires new frameworks, some of which need co-operation, not naive competitiveness.”  

The NFU chief went on to express disappointment in aspects of the chancellor’s statement, as he claimed the policies would not “encourage and incentivise private sector investment in farm businesses, and build on the relative stability farmers have experienced since the economic crisis of 2008”. He said changes to the tax treatment of farm reservoirs, which are crucial at a time when farmers need to prepare for scarcer water resources in some parts of the country, would hamper investment, as would the change to corporation tax.  

Mr Kendall said, “The Chancellor’s focus on giving Britain the lowest corporation tax rate in the G20 ignores those businesses which are not incorporated. This includes a majority of farms – and it is they who will be discouraged from investing by the reduction in the AIA.”

Nevertheless, others have praised the government’s announcement of enterprise loans for young people and support for apprenticeships which are set to benefit rural businesses.

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