Insight Special

Osborne’s ‘March of the Makers’ Key Measures

Wednesday 23 March 2011
 2011 forecast downgraded to 1.7%
Last year’s post-election emergency  Inflation to fall to 2.5% in 2012
statement was famously dubbed ‘the  Borrowing forecast to be £146bn this
Unavoidable Budget’ by the year, falling to £122bn next year and
Chancellor, George Osborne MP. He £29bn by 2015
could have used the same sound-bite  National debt to be 60% of national
this year, as never before has a Budget income this year
been so repeatedly trailed in the  Fuel duty to be cut by 1p per litre from
media. 6pm tonight
 Planned inflation rise in fuel duty to be
Gone seem the days when the Conservatives cried foul at Government delayed until 2012
announcements being made to the media before Parliament. The media activity  Fuel Duty Escalator to be scrapped
around this Budget, masterminded by new Tory Comms chief Craig Oliver, has  Tobacco duty rates up 2% above
provided an interesting pointer to where Downing Street communications may be
inflation
moving – and the direction of travel seems to point toward the Blair way of doing
 No changes to alcohol duty other than
things.
those previously announced
Moving the Story  Personal tax allowance to rise a further
£630 in April 2012
With little room for manoeuvre, Osborne nonetheless managed one set-piece  Consultation to be launched to merge
announcement that is likely to resonate politically – a cut in fuel duty of 1p, partly income tax and National Insurance
paid for by the oil industry.
 50% tax will remain, but will be
He also announced a new document, Plan for Growth, published at the same time reviewed
as the Budget Red Book. The Plan details the four overarching themes of today‟s  Direct taxes to be indexed to
announcement: Consumer Price Index from 2012
 Creating the most competitive tax system in the G20  Council tax to be frozen or reduced in
every council in England
 Make the UK one of the best places in Europe to start and grow a  The Government will freeze Air
business Passenger Duty rates for 2011-12, with
 Encourage investment and exports as a route to a more balanced the RPI increase assumed in the
economy forecast deferred to April 2012.
 Private jet users to pay passenger duty
 Create a more educated workforce that is the most flexible in Europe  Inflation rise in road tax
It was another assured performance by the Chancellor, who long ago answered  Levy of £50,000 on non-doms resident
doubts in some Conservative MPs‟ minds that he was too inexperienced for the job. in UK for 12 years
 Support for SW families with water
Defying Labour attacks that the cuts are „too many and too fast‟, Osborne said he bills
had „had a plan – and was sticking to it‟.
 Tax avoidance clampdown to raise
For Osborne, this Budget was about how the country would recover. And with £1bn
difficult local elections coming in a few months and the Mayoral race next year, the  Corporation tax to be cut by 2%
Chancellor will be as keen as Craig Oliver to move the Government‟s story on from  43 tax reliefs scrapped
cuts to a positive one about opportunity and investment, his „march of the makers‟.  No new regulation for businesses with
10 or fewer staff for three years
Economic Analysis  £100m for science facilities
On the macroeconomic front the news disappointed once more. The Office of  21 new ‘enterprise zones’
Budget Responsibility (OBR) revised its forecasts for GDP growth down for both  Reform of Gift Aid
this year and next, predicting 1.7% (2011) and 2.5% (2012), the gloom attenuated  Extra 40,000 apprenticeships
only in part by the prospect of higher growth during the rest of the forecast period.  Funding for 100,000 new work
The inflation outlook is also higher than the Chancellor would wish, forecast at 4%- experience placements
5% during 2011, before easing back to the Consumer Price Index target (reaffirmed  Plans to reform state pensions to
during his speech) of 2% in 2013. Public borrowing figures for 2011 are now single rate of £140 a week
expected to reach £146bn, £2.5bn lower than the previous estimate, but still higher  £100m for repairing potholes
than many independent analysts had hoped.  £200m for regional railways
Within financial services, the expected increase in the Bank Levy was confirmed,  Green Investment Bank to launch in
but with an additional increase from 2012 to offset accelerated corporate tax 2012, carbon price floor introduced
reductions. There were further announcements of the intention to legislate on  Lord Young health and safety
Solvency II, the formation of an industry working group from April 2011 to explore recommendations to be implemented
any tax issues associated with the development of new bank capital instruments in  Crackdown on no win, no fee lawyers
Basel III, and new regulations to introduce direct tax rules for sharia compliant variable loan arrangements and derivatives
following consultation in 2011.

Tax Reform
On tax reform, the Chancellor‟s longer term goal of simplification was signaled by the “This is Del-Boy economics -
commitment to consult on merging National Insurance and Income Tax. This is a long- the Chancellor has not
term goal, but other measures including limiting the scope of Low Value Consignment
rescued this country, the
Relief, meant that the Chancellor could state that the measures announced in the Budget
would abolish 43 tax reliefs, and remove 100 pages from the UK tax code. country needs rescuing from
this Chancellor.”
Although the UK oil industry is unlikely to be happy with a supplementary charge on
profits at 32%, other measures are likely to cheer the wider business community,
especially small business. These include: a faster reduction in corporation tax from 28% Labour Leader, Ed Miliband
to 26% this April; a doubled lifetime limit for Entrepreneurs Relief to £10 million, and the MP
introduction of a moratorium exempting micro-business and start-ups from new domestic
regulation for three years from the 1st April 2011.

The Business Vote

This Budget unashamedly pitched for the business vote, with further nods in the Plan for Growth published alongside the
Budget for: construction, retail (where the small business rates relief holiday is extended), tourism (where a £100m
campaign will be launched) and advanced manufacturing amongst other sectors. This is a clear attempt to show that the
government is interested in more than just the south eastern corner of the country.
Osborne concluded his speech by saying that he wanted to „back enterprise‟ and „help families with the cost of living‟. These
are laudable aims, but in order to support them fully, he must surely hope that the UK‟s economic performance has improved
by the next time he stands at the dispatch box.

Local Government
“His headline grabber [taxing oil
companies to pay for a fuel tax Today‟s statement included a significant focus on reforming planning regulation,
reflecting the fact that Councils are spending significantly more on planning
cut] looks to have been inspired applications than five years ago, despite the decrease in the number of applications
by his great political enemy - by around a third.
Gordon Brown.”
The Chancellor pledged to give communities more say in planning, as well as a raft of
BBC’s Nick Robinson measures for reform including: the introduction of a new presumption in favour of
sustainable development; removing the nationally imposed targets on the use of
previously developed land; allowing certain use class changes, introducing time
limits on applications and pilot for the first time ever auctions of planning permission
on land. Councils also stand to benefit from the new Enterprise Zones, of which 21
around the UK have been announced with a further 10 to be announced in the Summer. Within these zones, local authorities
will be able to keep all business rate growth for a period of at least 25 years to spend on development priorities.

Finally, Osborne was able to confirm to the House that since his Emergency Budget last year, every local authority in
England has chosen to freeze council tax in the coming year.

Apprenticeships
“The Chancellor has once again
The Chancellor announced further Government investment for apprenticeships and chosen to raid the banks to pay
technical colleges. Currently, 20,000 work experience places for young people receive for the cuts in corporation tax..
central government funding; this number is to be increased fivefold to 100,000 over the
By increasing the burden faced
next two years.
most by banks headquartered in
The Chancellor also announced £180m of funding for an extra 50,000 apprenticeship the UK, the Chancellor continues
places over the next four years. Of these, 40,000 will be targeted at some of the nearly to increase the incentives for
1m young people who are not currently in employment or training, and will in particular banks to migrate.”
be for young people progressing from the work experience scheme. SMEs have
traditionally found it difficult to access the apprenticeship scheme, and so the
Government will provide grants to support SME business consortia to set up and Chris Sanger, Ernst and Young
maintain advanced and higher apprenticeship schemes for a further 10,000
apprentices.
The Government has also pledged to expand on their existing plan for new University Technical Colleges, doubling the
number from 12 to 24. These new colleges will be partnerships between universities, colleges and businesses, and will
provide technical training for 11-19 year olds. The curricula of the colleges will be influenced by businesses in order to
respond to local skills sector needs and shortages, and in return students will gain access to the businesses specialist
facilities.

Energy and Environment

The Liberal Democrat coalition members should be happy with the
Green announcements made by George Osborne. Norman Lamb MP, “The good news for Mr Osborne is that, despite
PPS to Nick Clegg tweeted during the budget, „Strong green measures! the Office of Budget Responsibility downgrading
Labour benches silent!‟. its growth forecast, he is still, on balance, likely
to win his bet.
His delight will partly be because the UK will become the first country in
the world to introduce a carbon price floor for the power sector. The price The bad news is that if growth stalls and
will start at around £16 per tonne of carbon dioxide in 2013 and move to inflation rises further there is not a great deal
a target price of £30 per tonne in 2020. This will not just impact energy he can do about it.”
providers but also manufacturers as well. An HMT spokesperson was
noted saying in the lobby that this budget will hit, „oil companies, tax
Julian Astle, CentreForum
avoiders and carbon intensive energy providers‟. Osborne said „this will
provide the incentive for billions of pounds of new investment in our
dilapidated energy infrastructure‟.

On Carbon Capture and Storage, £1 billion has already been provided and Osborne commented that „future projects will be
funded out of general spending rather than a complex new levy‟.

The second major piece of energy news was about the Green Investment Bank (GIB) which will aim to support low-carbon
investment where the returns are too long-term or too risky for the market. Osborne went on to commit a further £2 billion
following the one billion than he had already planned and therefore its operation will start next year as opposed to 2013. Jo
Swinson, the Liberal Democrat MP tweeted her delight on the GIB, “Great news on Green Investment Bank - £2billion extra,
borrowing powers too by 2015!”

Defence
"The Chancellor has made
Prior to the Budget announcement there was some speculation that continued UK
clear the UK is open for intervention in Libya may lead to an increase in the Defence budget. However, while
business." Osborne praised the courage of the Armed Forces serving to enforce the no-fly zone over
Libya, he pledged that “the additional cost of military operations will be met entirely from
the Treasury reserve”. Thus, spending allocated to Defence for 2011-12 has remained at
John Cridland, CBI director- £40 billion, and is unchanged from the 2010 budget.
general
With the Treasury absorbing the Libya bill, the MoD is spared any further strain on its
finances. However the MoD is still under enormous pressure to cut costs. To put it into
context, this Budget comes six months after the Strategic Defence and Security Review (SDSR) announced, in October
2010, a series of hard hitting cuts. The previous Government left a projected budgetary black hole of between £35-8 billion
(depending on sources), which has meant a series of project cuts, and job losses. A number of legislative reviews are
currently being undertaken, notably the Lord Levene review (Defence Reform Unit) and Lord Currie review of Single Source
Procurement.

One proposal to raise capital for the MoD announced in the Budget is to accelerate the release of public sector land to
support homes and jobs. The Government will work with local authorities to expedite planning decisions for surplus military
land and other public sites suitable for housing. The proposal will potentially allow the MoD to make £350 million in estate
disposals.

Public Health
In his speech the Chancellor dispensed with the long list of changes to the price of a pint of beer and packet of cigarettes.
Instead, he confirmed that the 2% general increase in alcohol duty rates above the RPI will take effect on Monday. This will
add 15 pence to the price of a bottle of wine, and 54 pence to the price of a bottle of spirits. The previously announced
changes to the beer duty regime will see a larger differential between beers of different strengths and will impact as follows:
 Strength of beer Increase/decrease per pint Typical brand
(pence)
1.2 – 2.8 abv -18 Carling C2
2.9 – 7.4 abv +4 Budweiser, Stella Artois
> 7.5% abv +28 Tennents Super

As announced in the March Budget 2010, tobacco duty rates will increase by 2% above the RPI. Duty on hand rolling
tobacco will increase significantly to close the price differential with cigarettes. In an unexpected move, cigarette duty will be
restructured with VAT being reduced and specific duty increased. Overall, this will see the price a packet of economy
cigarettes increase by 50 pence and a packet of premium cigarettes by 33 pence.

NHS Global
It would be a surprise for the NHS to appear in this Budget speech but as ever, the devil is in the detail. Buried away on
page 97 of the 131 page Growth Strategy are plans to, “establish a proactive, entrepreneurial NHS Global to make the most
of the NHS brand internationally and to offer support and advice to NHS trusts.” Privatization it isn‟t, but commercialisation it
is.

Life Sciences
In line with the overall theme on growth, the Chancellor confirmed that “The Budget provides a greater degree of
the Government will introduce a reduced 10 % rate of corporation tax for stability for small businesses by announcing
profits arising from patents. The so called Patent Box will encourage UK moratorium on business regulation for three
businesses to retain high-value jobs associated with commercialisation years and by tackling the high price of fuel.
of patents and also promote further investment in innovation. The
However, we are disappointed that the
scheme will take effect from 1 April 2013, although a consultation
Government has not done more to incentivise
document setting out details on how the regime will operate will be
published in May 2011. Draft legislation will be published in autumn job creation.”
2011.
Chief Spokesman for FSB
In addition to the Patent Box, the Government reaffirmed its commitment
to research and development (R&D) tax credits. Again, in line with other announcements, the Chancellor went above and
beyond what had been expected or in this case recommended and announced an increase in the SME rate of R&D tax
credit to 200% from April 2011, and 225% from April 2012. Moreover, there was a continued commitment to science with an
additional £100 million in 2011-12 in science capital development to provide facilities for the commercialisation of research,
accommodation for innovative SMEs and new research capabilities.

The Government will also fund by 2012, nine new university-based Centres for Innovative Manufacturing. They will feed
new ideas and discoveries through to business and Technology and Innovation Centres, helping to open up new industries
and markets in growth areas. This year, a further £45 million will be committed to establish the nine new centres in areas
such as biological pharmaceuticals, novel composite technologies, and intelligent automation.

The Growth Review identifies that research and innovation is being stifled by delays in decisions around clinical trials. In
response, the Government will establish a new health research regulatory agency to streamline regulation and improve the
cost effectiveness of clinical trials. Future funding by the National Institute for Health and Research (NIHR) will be conditional
on meeting a 70 day benchmark to recruit first patients for trials.
Coming Up at Fleishman-Hillard PA Corp
th
29 March: Are you ready for the Main Event that has had the PA world - and the House of Commons Lobby -
talking? RSVP to Rebecca.young@fleishman.com – spaces strictly limited.
Business Breakfasts – April & May 2011
We are delighted to today announce that Matthew Doyle, Tony Blair’s Official Spokesperson will join us for a
Business Breakfast in April on „A Day in the Life of Tony Blair‟. Doyle was a media Special Adviser to Blair in
Downing Street and is considered one of the best media operators in the UK. He will be discussing Blair‟s post
Prime Ministerial years, including his role as a peace envoy in a changing Middle East.
We are also pleased to today announce that we will be welcoming back a former Fleishman-Hillard colleague,
Guto Harri, Director of External Affairs to the London Mayor, Boris Johnson to our offices to discuss
„Spinning the City Hall‟. Guto will be discussing the local elections and how City Hall is preparing for the
Olympics and the Mayoral elections next year.
Further details to be announced.

FOR FURTHER DETAILS FROM FLEISHMAN-HILLARD

Contact Nick Williams, Director of Public Affairs and Corporate Communications on:
020 7395 7160 or e-mail: nick.williams@fleishmaneurope.com
Follow us on Twitter: http://twitter.com/FleishmanLonPA