At a broad level, the announcement of further reductions to the corporate tax rate were welcomed, as was the plan to make the annual investment allowance of £200,000 permanent.
But, as the Coalition of British Industries director-general, John Cridland, pointed out, this enthusiasm was tempered by the announcements around the increase in the minimum wage.
“The further reduction in corporation tax is a welcome surprise but tax reductions for employers don’t appear to match the businesses most affected by a rise to £7.20 in the National Minimum Wage next April – a 7% increase.” He said.
Adding: “The CBI supports a higher-skilled, higher-wage economy, but legislating for a living wage does not reflect businesses’ ability to pay. This is taking a big gamble that the labour market can absorb year-on-year increases of an average of 6%.”
Paras Anand, head of European equities at Fidelity Worldwide Investment, agreed adding: “The Chancellor’s announcement of a new compulsory living wage of £9 by 2020, while delivered with some triumphalism, will pose a challenge to some parts of the corporate sector such as food retail where competition is acute and where labour represents a high proportion of the cost base.
But, he said: “Overall, the Budget – while not being presented as such – clearly indicates a move to a more overtly pro-business position relative to the position taken under the Coalition.
Liberum’s Sebastian Jory, agrees that the roughly10% increase in wage costs for companies employing on the minimum wage will most likely affect low-margin, labour-heavy businesses such as outsourcers and supermarkets.
But, the firm’s retail analyst Tom Gadsby said the firm sees little in the Budget to dissuade it from its bullish view on the UK retail sector, especially in light of the Government’s goal to create 2 million jobs over the next five years.
“Cutting taxation for middle income earners is likely to have a positive impact on consumer spending in an environment where consumers were optimistic anyway on the major issues such as security of employment, growth in house prices and real wage growth,” Gadsby said.
