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More Austerity, Limited Growth

I listened to the Chancellor deliver his Autumn statement, hoping to find some positive news which I could pass on to you. It was in short supply but amid the gloom there were some nuggets that have been overlooked by many commentators.

For a start, while the Office of Budget Responsibility (OBR) told us economic growth will be weak for the foreseeable future, at least there will be growth.

OK, I know it sounds like I am clutching at straws and I am not for one second underestimating the seriousness of the situation. Indeed George Osborne stated that the period of austerity would continue beyond 2015 and the structural deficit will not be eliminated until at least 2016/17. The fact that this is being announced long before the next election underlines the seriousness of the structural debt issue. We also now know that the public sector will shrink further, and those employed by the state will have at least two years of 1% pay increases, beyond the current two year pay freeze. This leaves the private sector to create jobs and the wealth.

But, while the Autumn Statement was not a full fiscal Budget it did feature some proposals that are worth bringing to your attention.

One is a new Seed Enterprise Investment Scheme (SEIS) from April 2012. This will give 50% tax relief for individuals investing in qualifying companies. Combined with this relief is an exemption to Capital Gains Tax (CGT) on gains realised in 2012-13 if those proceeds are re-invested in a SEIS. We do not yet have the full details (the draft legislation is likely to be published on 6th December), but the relief and the CGT appear to be valuable, and in my opinion will encourage entrepreneurial investments. We will keep you updated of the details, and if you need more information in the meantime, please get in touch.

Subject to state approval, there will also be a National Loan Guarantee Scheme (NLGS) which the Chancellor expects to reduce borrowing costs by 1%.

We know that banks are offering to lend to our clients, but the rates they’re offering in many cases are unreasonable. I’ve just been told of one example where a client has been asked for up to 10% for a small loan and that’s secured by a personal guarantee.

The NLGS is therefore a very welcome move, although the timescales and details are not yet clear. So again, I’ll keep you posted.

There are also some measures announced to provide support for businesses wishing to export their goods and services. The amount of support is very low (£45m), but if you want to know more, contact us and we can provide more information.

Justin Urquhart Stewart, the well-known City commentator, came to our offices yesterday and it’s worth noting that he has a more positive view on the world. He points out that worldwide economic growth is a sustainable 3% per annum. The developing world, which in places like China, India, Brazil and Russia is growing rapidly, needs our economies to purchase their goods, services and resources. They will help us to grow by investing in our infrastructure and buying our technology. Not because they are altruistic, but because they need us.

So yes, 2012 will be difficult. But there will be growth, and we will work with you to take advantage of that, whilst minimising your tax costs.

Our summary of the Chancellor’s statement is available here, and if you wish to discuss anything, please call me on 0161 832 4451.

Umar Memon
Corporate and Audit Partner