Sunday 24 February 2013


Budget tax cuts for business to follow loss of AAA credit rating

George Osborne has vowed not let up in his plan to cut Britain’s deficit as he paved the way to cut tax for businesses in next month’s Budget.

Budget tax cuts for business to follow loss of AAA credit rating
Mr Osborne is expected to use next month’s Budget to do more to help hard-pressed businesses Photo: PA
The Chancellor hit back after the loss of the country’s prized AAA credit rating amid worries about weak growth and rising levels of debt.
He faced political flak after repeatedly stressing the importance of staving off any downgrade, vowing before the 2010 general election: “We will maintain that AAA rating.”
However, Mr Osborne said Moody’s, the ratings agency which took the decision, had sent out a “clear message” that Britain had a debt problem which needed to be tackled “head on” and which required “tough measures”.
He is expected to use next month’s Budget to do more to help hard-pressed businesses.
Conservative MPs expect the main rate of corporation tax, already cut to 21p from 2014, to be further reduced.
The special rate for smaller enterprises could also come down from its current level of 20p as Mr Osborne looks to create the most favourable tax regime for business of all G20 nations.
Further Government spending cuts are also under way as Mr Osborne grapples with the deficit.
He is already looking to achieve at least £10billion extra savings from welfare spending in 2015-16 - and sources close to him indicated this programme would be driven through with conviction.
Mr Osborne will look to use the Budget next month to spell out how much extra savings need to be achieved - and then spell out exactly how this will be done in the Spending Review, which will set detailed totals for government departments from 2015 to 2017, in early summer.
A source close to him said: “If people don’t want cuts to public services such as the police and the armed forces they have to accept that there need to be savings elsewhere.”
Three senior cabinet ministers - Theresa May, the Home Secretary, Chris Grayling, the Justice Secretary, and Philip Hammond, the Defence Secretary - are currently said to be digging their heels in during intense negotiations ahead of the Spending Review.
Mr Osborne appears unlikely, however, to meet the wishes of some Tory MPs who are urging the abolition of capital gains tax.
A Treasury source said: “We must get away from the illusion that there is a silver bullet that would end all our economic problems.”
In a BBC interview, the Chancellor said Britain’s situation would get “very much worse” if the coalition abandoned it efforts to deal with Britain’s debt mountain - a course of action he said Labour were advocating.
Question on the credit rating downgrade, Mr Osborne said: “I think we’ve got a very clear message, a loud and clear message that Britain cannot let up in dealing with its debts, dealing with its problems, cannot let up in making sure that Britain can pay its way in the world.
“What is the message from the ratings agency? Britain’s got a debt problem. I agree with that. I’ve been telling the country for years that we’ve got a debt problem, we’ve got to deal with it.
“What do they also say? That if we abandon our commitment to deal with that debt problem, then our situation would get very much worse and I’m absolutely clear that we must not do that.
“In the end, the test of our credibility as a country is there every day in the markets when we borrow money on behalf of this country from investors all around the world.
“At the moment we can do that very cheaply with very low interest rates precisely because people have confidence that we have got a plan, we’ve got to stick to that plan and we are going to deliver that plan.”
While Labour went on the attack, the party faced questions of its own after Ed Balls, the shadow chancellor, admitted borrowing would now be higher if he were in charge.
Mr Balls told Radio 4: “The economy has flatlined. There has been no growth now for two years, our deficit is getting bigger... the plan has not worked.”
In a separate interview, on Sky News, Mr Balls insisted that the economy would be in a better condition if the coalition had stuck to Labour’s spending plans in 2010.
However, he admitted he would currently be increasing borrowing if he was in charge.
“That is what I would do right now,” he said. “I would slow the pace of deficit reduction. I would have an immediate stimulus in the economy.”
In the wake of the shadow chancellor’s interview John Penrose, the Conservative MP, demanded: “Can anyone think of a question where Ed Balls’ answer would not be 'borrow more money’? No? Me neither.”
Andrea Leadsom, a Conservative member of the Commons Treasury select committee, said: “Labour will no doubt claim it’s all the government’s fault. The truth is Labour brought our country to its knees.
"Labour want us to spend more....it was excessive spending that got us into this mess and anyone who calls for yet more borrowing and spending must be off their rocker.”
Mark Littlewood, director general of the Institute of Economic Affairs, said Mr Osborne should now take “immediate action” to cut the deficit.
“George Osborne should focus on making sufficient savings in public spending to implement a substantial programme of tax reductions,” said Mr Littlewood.
“With the size and scope of the state in Britain at current levels it is no wonder our economy is so fragile.”
Moody’s said it had acted to downgrade Britain for the first time because of “continuing weakness in the UK’s medium-term growth outlook”, the risk that the Government will fail to hit its targets for reducing the deficit and the UK’s “high and rising debt burden”.
However, Moody’s predicted that on its current course, the UK will eventually regain its AAA status.
Danny Alexander, the Liberal Democrat Chief Secretary to the Treasury, said the downgrade was “disappointing news.”
However, he added: “Our credibility as a country is tested every day in the financial markets. We continue to command very low interest rates.
Credit ratings agencies were not the “be all and end all” but “one benchmark among many,” Mr Alexander added.
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