Keeping our capital working for the UK

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Budget commentary

Baroness Jo Valentine, Chief Executive of influential business group London First, gave her initial thoughts on this afternoon’s budget:

Debt
Debt levels are frighteningly high. The Government’s running close to its credit limit and still plans to spend more than it earns over the next few years. Now that might be the right thing to do in these circumstances, but it’s not comfortable for us, and it’s a heck of an inheritance to pass to the next generation.

Nevertheless, there are a few worthwhile things where Government should have spent wisely in this budget:

Rates
The Chancellor should have found room to reduce the damage which big rises in business rates are going to cause – particularly in London next year. Empty property rates are a millstone around business’ neck in a recession. Add that to the hike planned because of last year’s revaluation and it is going to hurt.

National Insurance
Government should have scrapped the planned increase in National Insurance contributions (due 2011). They are a tax on jobs. We welcome the new emphasis given to Job Centres, to concentrate on getting those losing their jobs quickly back into employment, but the national insurance hike will work in direct opposition to that.

50% income tax rate
But perhaps the biggest disappointment is the rise in tax on high earners. The tax rise to 50% (and changes to tax relief on pension payments) shows that it is a political budget, not an economic one. This tax rise, even by the Government’s own figures, raises less than half a per cent of what they plan to borrow – small beer really. Indeed, the Institute of Fiscal Studies estimated that it might raise even less than that.

It may be understandable that some of the Government’s supporters want to punish high earners, but actually these are the very people who we need to stay in London, to drive our recovery. Two thirds of what it costs to employ a company director in London will go not to him or her but straight to the taxman. That might lead some to stay away and others to move away and take their support offices – and hundreds and thousands of jobs – with them.

Efficiency savings
It’s hard to know whether to believe the claimed efficiency savings in the public sector – the National Audit Office finds them difficult to quantify. So it’s harder still to know whether new proposals for £9bn of savings are credible. Certainly there’s lots of waste caused by duplication in London – for instance between Government Office for London and the Mayor’s various bodies.

Regulation
The proposed changes to regulation of the Financial Services sector are no surprise, the test will be in the detail and in how they are implemented. Stronger governance and more transparency are usually good, but being overprescriptive could be unhelpful.

Competitiveness
The Chancellor emphasised the opportunities presented to the UK by global trade. We shouldn’t start by encouraging some of our best people to emigrate to friendlier tax climates – which after this move include Germany and Austria as well as the usual Dubai, Geneva and New York.

We need London and the UK to be more competitive, not less.

ENDS –

Notes to Editors

London First wrote to the Chancellor with a detailed budget submission on 8 April.

London First is a business membership organisation with a mission to make London the best city in the world in which to do business. London First undertakes this by mobilising the experience, expertise and enthusiasm of the private sector to develop practical solutions to the challenges facing London. London First also seeks to persuade central and London government to make the investments that London needs in its infrastructure

London First delivers its activities with the support of the capital’s major businesses in key sectors such as finance, professional services, property, ICT, creative industries, hospitality and retail. Membership also includes all of London’s universities as well as further education colleges and NHS hospital trusts. London First members represent over a quarter of London’s GDP.

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