A Budget for voters – not for business

Chancellor Gordon Brown’s bête noire Peter Mandelson was hailed as the “marketer of the last decade” for steering New Labour to its stunning landslide victory in 1997.

Yesterday, Brown unveiled his very own plans to take Labour on to its next election victory in 18 months to two years’ time, with his fourth Budget. It was widely seen as having “election plan” written all over it.

He went for the big headlines – with a round £1bn extra to be spent on education, and a six per cent yearly increase on health spending over the next four years. He announced new tax-breaks for charitable giving, and even found time to tell pensioners over 75 years they would receive money back on their unexpired BBC licences if they run beyond November, after which time their licences will be free.

But he left many economists scratching their heads. Richard Jeffrey, UK economist at Charterhouse Tilney, says: “It’s one of those budgets where you have to study the detail hard before you can come to a conclusion.” He speculates that the Budget may mean there are further rises in interest rates to come.

“I don’t think it is sufficient to bring growth down,” he says.

Investec economist Philip Shaw agrees that interest rates may have to rise. “The Budget is reasonably prudent, but not enough to stop interest rates going up.” He adds that the moves to dampen the housing market by increasing stamp duty on properties over £250,000 would have little effect. “Increasing stamp duty didn’t do anything a year ago, did it?” he asks.

Shortly after Brown sat down following his 50-minute Budget statement, opposition leader William Hague derided him for being “like a mugger who gives you back the money for the bus fare home”.

The marketing industry seems to agree. It condemns Brown’s deafening silence on tax changes to stimulate the spread of the Internet in the UK.

On the one hand, Brown announced tax reductions for small businesses buying computers or investing in technology. He got full marks from the Chartered Institute of Marketing (CIM) for this.

CIM chief executive John Stubbs says: “The exciting thing is his commitment to promoting e-commerce. This is a huge opportunity to get companies who are not effective e-marketers to look afresh.”

At the same time marketers in the betting industry are crying foul over the Chancellor’s failure to cut betting duty. The industry predicts that the failure to address this point will lead to more operations being set up on the Internet overseas, dealing a hammer blow to the UK industry.

Still, Brown and Tony Blair have managed to portray Labour as a government in touch with the new technology, which they believe is part of their election-winning strategy.

Frustration at off-shore betting result

The gaming industry has slammed the Chancellor for failing to stem the flow of betting money to off-shore “tax-free” operations.

UK businesses, which have lobbied the Government hard to cut betting duty from 6.75 per cent to three per cent, are united in their condemnation. They predict up to 100,000 UK jobs are at risk.

Ladbrokes marketing director Andy Walsh says: “This is deeply disappointing – but we won’t give up the fight.”

There is a chink of light in the small print, which says that Customs & Excise will be consulting the betting industry to look into ways of solving the problem. But Walsh says: “It’s simply a case of too little, too late.”

E-commerce

The Internet economy was dealt a blow by the Budget, which failed to deliver much-awaited measures to speed the take-up of the Net.

Brown’s announcement that small businesses would face tax exemptions on all investments in new technology and on online business ventures was welcomed. Plans to give more computers to schools were also well received.

However, e-businesses were disappointed by the Budget’s failure to free the Net to allow the faster introduction of broadband technologies, and force BT to cut the local call charges paid in the UK.

XStream Network sales and marketing director Paul Shalet says: “The word ‘underwhelmed’ springs immediately to mind. It is an opportunity missed.”

Charities

Controversy clouds what is being hailed as “the most radical set of measures ever given” to the charity sector in the Budget.

The Government will add 25p to every pound given to charity, introduce tax relief for donations through pay-roll schemes and company donations, and make ticket sales for fundraising events tax-exempt.

The Charities Aid Foundation, which campaigns for increased charity resources, says the Budget could increase donations by £400m over the next year. But some charities, including the NSPCC and Barnardo’s, accuse the Chancellor of giving with one hand and “clawing back” with the other.

Financial services

Banks’ plans to charge for cash machine withdrawals have filled newspapers recently, so they were naturally a target for the publicity-conscious Chancellor.

The Government has proposed to open UK payment systems – cash machines, direct debit, credit card and cheque clearing – to competition, as recommended in Monday’s competition report by banking regulator Don Cruickshank. They are currently confined to a handful of banks, led by the big four.

Gordon Brown also proposed to maintain the ISA ceiling at £7,000 for its second year, beginning April 6. It was expected to drop to £5,000.

He invited the banks to work with the Post Office to offer a basic banking service to all customers.

Travel

Brown will split up the Air Passenger Duty (APD) on standard-class flights across Europe and within the UK. Flights for Europe will now cost £5; the UK remains at £10. Meanwhile, a new higher rate of £40 is being introduced for business flights across Europe. Brown also announced that the APD on flights from the Scottish Highlands and islands will be abolished altogether.

Tobacco

Tobacco manufacturers predictably slammed the 25p rise in the price of a packet of 20 cigarettes, but they welcomed measures to combat tobacco smuggling, which cost the industry more than £2.5bn last year.

The Tobacco Manufacturers’ Association director of public affairs John Carlisle says: “Although the additional measures to assist Customs are welcome, the root cause of the problem – the disparity between UK and European Union tax – remains.”

Budget highlights

– New rates for Air Passenger Duty and new business class APD of £40.

– Tax on tobacco to increase by five per cent above inflation, putting 25p on a packet of 20 cigarettes, with revenue going to the NHS.

– Wine up by 4p a bottle, beer by 1p a pint. No tax rise on spirits.

– Government to add 25p to every pound given to charity, 50p of tax relief for every pound given through the pay roll and companies to receive tax relief on full amount of donations from April 1.

– Tax reductions for small businesses buying computers or investing in technology.

Brian Stewart, chief executive of Scottish & Newcastle, says: “Given all the costs and regulatory pressures imposed on our industry, we find the further rise in excise duty deeply disappointing.”

Tristram Ricketts, chief executive of the British Horseracing Board, says: “The racing and betting industries will be very disappointed that their strong pre-Budget representations for a cut in general betting duty have fallen on deaf ears. As a result of the Chancellor’s failure to take immediate action, competition from off-shore operators will grow further – and grow quickly. The Exchequer, racing, and the domestic bookmaking industry will all be hit where it hurts – in the pocket.”

Jeff Jeffery, head of corporate affairs for Gallaher, says: “We are extremely disappointed, but not surprised, that the Chancellor has put up tobacco taxes in real terms. This will only serve to encourage the cigarette smugglers. Already about a quarter of all cigarettes smoked in the UK are brought in from abroad without paying UK duty. However, Gallaher welcomes the tough new stance on tobacco smugglers. We await with interest the Paymaster General’s announcement.”

Clive Bates, director of ASH, says “The Chancellor kept his nerve and hundreds of lives will be saved as a result. If tobacco taxes don’t keep pace with rising incomes, then cigarettes become more affordable meaning more people smoke and more people become ill and die early. Tobacco taxes are one of the few Budget decisions with life and death consequences, and the Chancellor’s Budget put health first”.

Richard Hyman, director of retail research group Verdict, says: “The reality is that the ability of our Chancellor to do anything very different – as we do more trade with Europe and are more greatly influenced by European economics – has diminished and will continue to diminish.”

Paul Shalet, sales and marketing director of ISP provider the XStream Network, says: “The Government said it was committed to adopting new technologies and encouraging everyone on to the Internet – this was an opportunity missed.”

Mike Moran, commercial director of Toyota, (left) says: “For a change, it is not punitive against the motorist. The last two Budgets have hit motorists hard. However, in relation to vehicle excise duty, there is still an unclear issue on how it is going to treat unique cars such as the Prius [Toyota’s hybrid electric/petrol car]. We will be lobbying the Government.”

Ray Holloway, director of the Petrol Retailers Association, says: “The news could have been worse, but it isn’t good either. The Irish government announced no increase in its Budget and this will now increase smuggling of petrol from southern to northern Ireland. Smuggling is also on the increase in the rest of the UK at great loss to the Exchequer.”

Quentin Rappoport, director of the Wine & Spirits Association, says: “At this rate, by the next Budget, one in four bottles of wine consumed in the UK will have been bought in France – and that doesn’t take account of bootleggers. The Chancellor is kissing goodbye to substantial amounts of revenue.”

A Food & Drink Federation spokeswoman says: “We broadly welcome the Budget, although the road fuel increase is unhelpful as it increases delivery costs for manufacturers.”