Divisive Budget 2014 Focused on Upping Business Investment: MBA News

The UK government’s Budget 2014 is likely to be welcomed by the nation’s older citizens. In what looks a clear attempt by the Conservative Party to win over a demographic labeled the ‘grey vote’ ahead of next year’s elections, pensions and annuities reform were central to the chancellor’s plans. Young people, on the other hand barely got a mention in George Osborne’s speech at all, at a time when youth employment is estimated to be as high as 900,000.

While the merits of the budget will be debated ferociously in the UK’s often tribal press, businesses may well be pleased with another issue at the heart of Budget 2014: business investment.

A ‘wind in the sails’ for business investment

Annual investment allowances have been doubled to £500,000 (c. US$825,000) until the end of 2015 in an attempt to encourage spending among small and medium-sized businesses. In addition, the Seed Investment Enterprise Scheme (SEIS), allowing entrepreneurs to drum up investment up to the value of £100,000 through tax reliefs, was made permanent.

“It will put the wind in the sails of business investment. I struggle to find anything I am disappointed by,” said John Cridland, director-general of the CBI (Confederation of British Industry) in The Guardian.

There was also much encouragement for exporters and manufacturers. There will now be twice as much government lending available to exporters (a total of £3 billion, or just under US$5 billion), and there are plans to cut the energy bills of UK manufacturers – although reliefs for heavy energy users did not go down well with environmental groups, who argue that Budget 2014 is decidedly anti-green.

The business losers in Budget 2014, however, were insurance firms with a strong stake in the sale of annuities, now that pensioners in defined contribution schemes are no longer compelled to purchase them. Indeed, yesterday large firms such as Legal & General and Aviva saw their shares fall by 8% and 5% respectively.

Manchester Business School reaction to Budget 2014

As Budget 2014 was being announced yesterday, faculty, alumni and students at Manchester Business School posted their reactions to the new measures.

Michael Luger is director of Manchester Business School’s Centre for Infrastructure Development. He said, “In general, it's a good budget for business. The increase of the annual tax-free investment allowance to £500,000 and other tax credits are meant to increase business investment.  I worry, though, that adding tax credits and deductions will complicate the British tax system and create inequities between large sophisticated firms that have taxes to offset and can figure out how to benefit from the incentives, and smaller companies that do not.”

Glyn Powditch, a Manchester Business School MBA alumnus, who co-founded the marketing and web development startup Dream Agility, spoke highly of the SEIS. “The SEIS is a fantastic initiative and I was delighted it has been made permanent. It's enabled a billion pounds in small business investment already, which my business - one of the biggest growing websites in the UK - has benefitted from.”

Senior lecturer in banking at Manchester Business School, Ismail Ertürk, noted a lack of specifics in Chancellor George Osborne’s measures. “You would expect specific businesses and industries to be targeted for export support. I'm not sure this will go far enough to encourage businesses to make things and export as he said.” He added that productivity was not dealt with effectively in Budget 2014, in his opinion. “This is very important for the UK's competitiveness but the Chancellor didn't mention why it's low and how he will tackle the problem,” Ertürk said.