Apprenticeship Levy = A New Payroll Tax

Businesses see strong public finances as the basis for sustainable economic growth, and will welcome Osborne’s confirmation today that he aims to run a budget surplus by the end of the Parliament.

The Chancellor was dealt a remarkably strong hand by the Office of Budget Responsibility, which is predicting stronger growth, lower than expected borrowing costs and significantly higher tax receipts.

He’s chosen to play this hand with more spending than expected.

Although departmental budgets outside the ringfence are seeing significant reductions in expenditure, overall the Chancellor will continue to preside over a rising real terms budget this Parliament.

There will be plenty of complaints about individual cuts, but it’s important to remember that total debt will still be colossal, over £1.715 trillion (70% of GDP), by the end of the spending review period.

The Chancellor will know that if the economy chills and tax receipts disappoint, his plans will suddenly become much harder to achieve.

With over a dozen tax consultations launched since the election, there is a real worry for businesses that next year’s Budget will see further tax increases.  

The major business tax announcement of this Autumn Statement was the Apprenticeship Levy, which can only be described as a new payroll tax.

At 0.5% of payroll it will be a big new cost for many companies, including medium-sized ones.

We are very concerned by the Government’s assumption that a quarter of the money collected will be spent on just administering the levy.

Firms have been promised they will get back more than they put in, but it’s not clear how this will happen if so much is being lost in bureaucracy.

The IoD supports the aim of deficit reduction, and recognises that this means cuts to business support.

UK trade and investment, one of the most effective schemes, has taken a hit.

The focus now must be getting the biggest bang for the taxpayer’s buck by concentrating on the export support that delivers the biggest growth in trade.