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Business Unimpressed By Brown's Company-Friendly Budget

by Robert Lee,, London

29 March 2007

While the 2% cut in corporate tax has been generally welcomed by British business and tax experts, a high percentage of company bosses believe that last week's budget will have little impact, either on their businesses, or on the UK business environment as a whole.

According to a survey of FTSE350 and equivalent private companies conducted by YouGov on behalf of KPMG, less than half (only 47%) think the UK a better place to do business as result of the Budget, while close to six in ten (58%) believe the 2% cut in corporation tax is too little.

Over a quarter (28%) believe the budget is too complicated to work out the total impact of tax measures on their effective tax rate. Somwhat unsurprisingly, 85% of the respondents thought that they are still paying too much tax.

Almost eight in ten (79%) feel that the Chancellor has not taken effective measures to improve UK's record on productivity, and about the same percentage do not believe the budget has done enough to tackle skills shortage issues in UK. The vast majority of the respondents (92%) think that the budget has not gone far enough to improve the quality of education/skills among school leavers.

Almost half (49%) gave the Chancellor's Budget a rating of 5/10 or below.

"This survey clearly shows that, although some of the tax measures announced on Wednesday were a step in the right direction, they don't go far enough to restore our competitive edge in the global economy - other countries are simply doing more," commented Sue Bonney, Head of Tax and People Services at KPMG Europe.

"Interestingly on the non-tax front it also highlights the depth of businesses' concern about the level of skills amongst school leavers in the UK which might take longer to fix," she added.

Similar conclusions have been drawn by PricewaterhouseCoopers, after it conducted a straw poll at its Breakfast Briefing event following the Budget. This showed that 45% of the UK’s captains of industry felt that the impact of measures announced in the Budget will have little impact on their businesses.

Views were divided about whether the proposed amendments to the corporate tax system address the issue around the competitiveness of the UK tax system. Just under half (46%) of the respondents agree that it would address the issue when taken together with the reform of the international tax provision due out in the next few months, whereas 50% said that more substantial steps need to be taken.

However, just over half (54%) of respondents felt that Gordon Brown is a good steward of the UK economy, and 81% thought that the UK economy is in relatively good shape.

“While the Chancellor’s announcement of a cut in corporation tax will help boost the UK’s competitiveness position, it appears UK business still needs convincing," observed Richard Collier-Keywood, UK head of tax, PricewaterhouseCoopers.

"More positive action is needed from the Chancellor and attention is now focused on the likely announcement next month of important changes to the UK's international tax provisions to ensure that the UK tax system remains attractive in the changing face of global business," he added.

The Varney Review proposals for improvements in HM Revenue & Customs’ (HMRC) links with larger businesses led half (49%) of respondents to believe that the proposals for implementation will lead to a more efficient system and better relationships between HMRC and taxpayers. On the day after the Budget, while much of the detail of the announcements was still being digested, 40% of respondents said they were yet to be convinced.

Commenting, Collier-Keywood added: “The proposals are welcome and definitely a move in the right direction. However, they put a real emphasis on risk assessment of tax matters by both companies and HMRC."

"Companies will need to focus on their tax policies and processes to provide the assurance that HMRC are looking for. This will take effort and businesses will want to know that there is real benefit from being perceived as low risk.”

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