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New government promises lower, simpler business taxes

London, UK (20/05/2010)

LONDON (Management Today) George Osborne promises to cut corporation tax - but no answers yet on how to boost bank lending.

Will the new Government be business-friendly? Well, George Osborne ticked a lot of the right boxes in his speech to the CBI last night: he said companies can expect lower corporation tax rates and a simplified system, as well as suggesting that promoting economic recovery in the private sector would be his ‘guiding principle’ as Chancellor. And then there's the latest version of the coalition agreement, published today; as well as the predictable bank-bashing, it also contains some welcome promises to slash red tape, reduce business taxes, protect smaller retailers, and speed up the new company registration process. Although in some areas, notably the bit about improving access to bank credit, they’re still pretty light on detail…

Osborne set the scene last night at the CBI, where he insisted that the UK had ‘spectacular opportunities’. He promised to set out a ‘five-year road map for a big reform of corporation tax’ in next month’s Budget; he didn’t specify whether the Tories would follow through with their manifesto pledge of a three percentage point cut to the headline rate, but the clear aim is to get rates down over the lifetime of this Parliament. This will partly be done by simplifying the complicated current system of reliefs and allowances (though he’s promised not to hammer manufacturers, who are worried about reductions to capital allowances). He also wants to simplify the foreign companies rules, to make it easier for multinationals to set up shop in the UK. ‘Let us tell the world loud and clear that Britain is once again open for business,’ he tub-thumped.

Today’s coalition agreement also contains much to admire. There’s a pledge to cut red tape (for instance by introducing a ‘one in, one out’ rule for new regulations); a review of employment law to ‘maximise flexibility’; an ambition to ‘make the UK one of the fastest countries in the world to start up a new business’ by cutting down on form-filling; and an ‘aspiration’ to give at least 25% of Government contracts to SMEs (that old chestnut). However, the banks look likely to get a hammering: as part of a package of reforms, there’ll be a banking levy, curbs on bonuses, a push for greater competition, and a commission to investigate the separation of retail and investment banking.

The only complaint, at this stage, is that some of these ideas remain pretty sketchy. For instance, although there’s a promise to ‘develop effective proposals to ensure the flow of credit to viable SMEs’, they still haven’t decided whether this should be done via a loan guarantee scheme, a net lending target, or something else altogether. But in some ways that’s no bad thing: this agreement has been cobbled together in nine days, and it’s not necessarily wise to rush big and important decisions like these. The positive news for business is that at least stuff like lower taxes, simpler compliance and banking reform are all near the top of the agenda.

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