The chancellor giveth and taketh away

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Abracadabra! Wow, that’s amazing! But hang on Mr Brown. That’s not really a white rabbit you’re brandishing, is it? It’s a guinea pig wearing false ears stuck on with glue. And you wangled him out of your breast pocket, not that top hat.

Unkind to compare the chancellor to a washed-up conjuror failing to deceive a kiddies party. But apt. The centrepiece in this Budget for business was an unexpectedly generous 2p cut in corporation tax to 28 per cent from April 2008. This will be financed by such measures as cutting capital allowances on plant and machinery from 25 to 20 per cent. Which means the reduction was not really generous at all.

The chancellor giveth. Mostly to services businesses, such as management consultants and estate agents, who have no immediate need for sewage pond stirrers or laser cutters. And he taketh away. Principally from utilities and oil companies, entities as lacking in public charisma as Mr Brown. But also from manufacturers so inured to soaring energy prices and lacerating foreign competition that they will probably take a certain perverse pride in being kicked by the chancellor too.

Most importantly the changes will improve the UK’s standing in some international rankings of business competitiveness. Mr Brown has been dodging a lot of incoming from the likes of the CBI on this issue. He is also under pressure from the Tories, who proposed their own modest tax cuts in what is degenerating into a misers’ auction for the business vote (“You’re bidding tuppence? Well I’ll offer tuppence happeny!”)

If all other countries held their headline rates of corporation tax steady, the UK would skip up a league table of 24 Organisation for Economic Co-operation and Development nations published by KPMG from 17th position to joint 8th. The UK would not necessarily be any more competitive, since the overall business tax burden would remain the same. But it would look better and that’s the main thing.

Traditionally it has been the role of the Labour party to fleece the rich and shower largesse on the poor. So it was intriguing to see the chancellor redistribute in the other direction. He hammered the vestiges of manufacturing that cling on in the Midlands and North in order to win friends and influence business people in the services-driven South. It is a good job for Labour that rustbelt voters are mostly die-hard supporters.

Mr Brown surprised small business owners by spanking them too, raising their tax rate in stages from 19 to 22 per cent from April 2009, even as he cut the tax of big ones. This reflects a dislike for the tax-sidestepping self-employed that has faint echoes of Stalin’s treatment of the kulaks, an analogous class of small entrepreneurs. Not that the chancellor resembles that other saturnine socialist strongman in any way.

By setting basic rate personal taxation lower than the small company rate, the Treasury hopes to staunch the flow of incorporations by window cleaners, hairdressers and other counter-revolutionary running dogs. Sorry. Tax avoiders, I mean.

A new annual tax-free investment allowance of £50,000 will be of greater proportionate value to smaller companies than large ones. A higher research and development tax credit will benefit high-technology corporate minnows. But the bulk of private businesses, which are not growing fast and investing heavily, are likely to be worse off. If you own and run a lifestyle business, your lifestyle is set to become less luxurious.

Sir Michael Lyons, concluding a Treasury review as interminable as Wagner’s Ring Cycle, meanwhile suggested giving council bosses the power to impose a local tax on companies. The tax would be subject to nationally-imposed limits, suggesting that Sir Michael does not entirely trust the breed of politician that once included Derek Hatton and Dame Shirley Porter. If so, why cut them any extra slack to raise revenues? Sensible councils would find other resources with which to improve local competitiveness, thereby attracting footloose businesses. Foolish ones would tax local companies as highly as allowed, deterring incomers.

Mr Brown has produced few Budgets containing significant new business measures. Hoping to make up for previous damp squibs, he larded his last one with tax cuts, along with trademark tinkering. Yet the impression it left, like the sum of its financial impacts, was neutral. The broad-brush picture of steady growth and unspectacular inflation remains what matters most to business.

Another constant is the puzzlement middle-income Britons feel when contrasting the unbroken economic growth the chancellor boasts of with the realisation that they are little better off than a few years ago. Their patience will be stretched further by unfavourable tax changes on Wednesday.

Chris Sanger of Ernst & Young, surveying the effect of the Budget on individuals and companies, said: “The chancellor has given the pack a good shuffle, but it still contains the same number of cards.” As magic tricks go, it was an underwhelming one.

jonathan.guthrie@ft.com

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