Midland businesses doubt Alistair Darling can repair the economy

Nov 24 2008 by Alun Thorne, Head of Business

Alistair Darling appears to have found himself securely wedged between a rock and hard place as he prepares for what is undoubtedly the most eagerly awaited Pre-Budget Report in its short history.

Under significant pressure to unveil a package of measures aimed at boosting the UK’s ailing economy, the Chancellor will undoubtedly have to forsake a number of previous proclamations and stand accused of the ultimate political sin - the policy u-turn. Unfortunately for the Chancellor, whatever policies he unveils to lift the UK out of recession, it seems the business community has already lost faith in his ability to bring about change.

According to a website survey by the Birmingham office of accountancy firm Baker Tilly, almost half of the 622 business respondents nationally expect that, like last year, the Government will be forced into at least one public climb-down - suggesting people have long memories regarding changes to the taxation of non-domiciled residents and the reform of capital gains tax.

Less than a quarter expect the Chancellor to announce a measure that will adequately address the issue of large companies relocating from the UK to countries with lower tax regimes, while a majority expect this to be a tax-raising PBR overall.

Baker Tilly’s Birmingham-based tax partner Bill Longe said: “In recent years we have seen, most painfully for the Government in the 10p tax band debacle, tax cuts paid for by tax increases elsewhere. It appears that our survey respondents expect this PBR to be no different.”

Richard Rose, Senior Tax Partner at BDO Stoy Hayward in Birmingham, said it was important the Government avoided knee-jerk short-termism in an attempt to boost revenue.

He said: “We strongly consider that the Government should resist any temptation to introduce windfall taxes on utilities such as oil and gas companies. Not only would this be very business unfriendly, it would have unpredictable results, be difficult to enforce as many such firms are multi-national and would set very poor precedents for government and business relationships.”

Richard Mannion, national tax director at Smith & Williamson, also warned against the Government major tax cits if they could not be properly paid for. “If the pre-Budget report turns out to be the ‘spend, spend, spend’ document it is being trailed as, it could prove to be Gordon  Brown’s biggest U-turn of his political career,” he said.

“Economists seem to be in agreement with this approach, but tax cuts ultimately