Brown's Budget for business

Alex Brummer12 April 2012

IT HAS been a rough few days for Gordon Brown. While he was putting the world to rights in Ottawa - where Britain and other leading industrial countries pledged to keep recession at bay - speculation about a deep policy rift between the Chancellor and Tony Blair has re-emerged.

The spat in the headlines comes as Brown puts the final touches to his pre-Budget report (PBR) to be delivered to the Commons a week today.

Last year, in the run-up to the election, the report contained big changes to deal with the aftermath of the fuel dispute and Labour's perceived meanness to pensioners in its first term.

This time around, the economics of the Budget will be as important as the proposed changes in tax. Britain has come through the downturn relatively unscathed. It has been assisted by seven interest rate cuts by the Bank of England since the start of the year and by a counter cyclical upturn in spending on education and health. Despite this, growth will come in lower than expected this year and next, with the International Monetary Fund slashing its projection for 2002 to 1.8% from 2.4%.

Brown, too, will need to revise growth downwards. But he is said to be confident that this can happen without breaching the fiscal rules the government has set itself.

He believes that it can weather the present downturn - and the extra spending as a result of war, security and foot-and-mouth - without having to resort to higher taxes.

Despite the tendency of the public finances to deteriorate rapidly during a slowdown, Brown seems confident that he will not have to raise taxation further in the foreseeable future.

This is partly because he was able to cut the national debt from 44% of gross domestic product to 32% after the sale of mobile phone bandwidths.

In fact, Brown would like to push on with some of the tax-friendly policies towards enterprise that he tried to spark in Labour's first term. Showing himself sensitive and friendly to business is particularly important at present, given the Railtrack debacle.

The PBR will seek to tackle criticism from business head on in several areas. It aims to combat the charge that Labour has imposed disastrous levels of red tape by a simplification of VAT, introducing a single rate.

There is to be more favourable tax treatment for share options in growing businesses - so- called enterprise management incentives. Requests for improved tax relief on research and development have been heard and could be implemented.

There is no indication that Brown intends to be diverted from his anti-poverty agenda, spearheaded by the Working Family Tax Credit. The Chancellor is so convinced this is a policy winner that has benefited 1.3m families that he is determined to broaden it.

He hopes a whole new layer of people including households without children and older, lower-paid workers can escape the poverty trap by receiving a more generous income.

At a time when there is so much pressure on the government to deliver on health and education, Brown plainly takes the view that his tax credit system - administered by the Inland Revenue - is transforming the lives of millions and has addressed an issue which has been on the political agenda since Edward Heath was Prime Minister in the early 1970s.

Being Chancellor may be frustrating in wartime when the Prime Minister takes on the role of de facto chief of defence staff. Yet there are no indications in the Brown camp of retreat from its core agenda of encouraging an enterprise economy and creating incentives for the poor to work rather than receive benefits.

Ellwood goals
LLOYDS TSB may no longer be the most exciting play in British banking since it was prevented from transferring its cost-cutting skills to Abbey National.

But, in difficult global markets, when other similar- sized banks are struggling with credit quality problems, it is able to report that bad-debt charges held steady in the second half of the year, though group loans were up 11.1%.

Despite the stock market setback, which cost it investment business, it still sees scope for more cross-selling of products. Overseas expansion is still a strong ambition, hence the group's decision to go for a New York share quote this week.

But, after the Abbey experience, chief executive Peter Ellwood believes Lloyds should not waste its energy on going hostile, and only friendly deals can offer the opportunities it is seeking.

The shrinkage of bank valuations in Europe and the US could help.

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