FSB attacks small business tax charges

Plans to boost private sector investment in the regions, where the economy is more dependent on the public sector, formed one of the set pieces of the budget.

Several regional transport projects will go ahead as planned, the chancellor said, aiming to help boost areas outside London and the south-east that could be hit hardest by moves to slash public spending.

The chancellor also announced a package of measures to help small and medium-sized businesses, especially away from the south.

Between 1998 and 2008, for every private sector job generated in the North and Midlands, 10 were created in London and surrounding regions, he said.

The government will publish a white paper later in the summer on how to deal with these issues, but in the interim it said it was committed to four important transport initiatives: the upgrade of the Tyne & Wear metro; the extension of the Manchester Metrolink; the redevelopment of Birmingham New Street station; and improvements to the rail lines to Sheffield and between Liverpool and Leeds.

There are also plans to create a large regional growth fund.

Small Business start-ups outside the south are to be offered a £5,000 tax break on national insurance contributions for each of the first 10 people they employ.

But the Federation of Small Businesses said the NI move could have unintended consequences with companies in the south relocating north, penalising the south of the country. "A more uniform approach would have been preferred," it said. The FSB added it was "regrettable" that only start-up operations could take advantage of the scheme.

Mike Cherry, who runs a timber products operation in the Midlands says: "Firms already up and running that want to diversify or expand will be unable to exploit the initiative. That's a pity."

Cherry also highlighted an increase in the insurance premium tax from 5% to 6% which he described as "an added burden".

The FSB added to criticism of the planned rise in VAT. It claimed the increase to 20% from next year would hit small businesses disproportionately as larger firms can "easily afford to absorb the increase".

Gary Wright, who runs a family antiques business in the Cotswolds says that the rise in VAT will "hit our profits line. As far as we are concerned, it's an added expense".

But other measures were welcomed. The small companies corporation tax rate is to be cut to 20%. The move will benefit 850,000 companies. Small businesses throughout the country will benefit from an increase in the national insurance threshold, which will rise from £110 to £131 a week. There will be an extension of the enterprise guarantee scheme, providing a boost for 2,000 small businesses.

Under the scheme the government offers to guarantee of 75% of loans to small firms with turnover of £25m or less. It allows small companies to spread tax payments over a longer period. Since it was introduced a year ago, more than 150,000 businesses have deferred £4bn of tax.

Osborne said that the cost of hiring people on incomes lower than £20,000 a year will be less than it is today. One result of his measures to help small firms will be to take 650,000 companies out of national insurance tax altogether.

There was also broad support for the move to increase personal allowances by £1,000, which should reduce pressure on businesses from wage demands and give employees more cash in their pockets.

In addition, the government is offering help for small groups involved in tourism, reinstating the favourable tax rules for furnished holiday lettings. It is also increasing the entrepreneurs' relief threshold to £5m from £2m.

To help pay for these concessions, the chancellor is making a small reduction in rates for capital allowances that will affect larger groups. For major plant and machinery assets, the rate will fall from 20% to 18%. He will also cut the annual investment allowance to £25,000 to ensure that support is focused on investment by smaller firms.

Across all businesses there was disappointment that the chancellor failed to scrap entirely plans by the previous government to levy a higher rate in national insurance contributions from April 2011. The British Chambers of Commerce said: "No firm should be penalised for retaining or taking on staff through increased payroll taxes. Employers NICs should be scrapped in full."