Thames Valley & Solent: EY responds to Autumn Statement

Gareth Anderson, tax partner at EY in the Thames Valley and Solent, comments on the Autumn Statement:

Extension of the FLS scheme

“The combination of GDP growth and low interest rates means that the appetite for investment and lending is picking up. The Government guarantee for bank lending, extending the FLS and focusing it on SMEs is a positive step in the right direction. The announcement will see banks being able to draw £5 of cheap credit for every £1 that they lend to smaller firms in the coming year, which should go some way in realigning the dynamic between risk and profitability for banks as they look to lend to smaller SMEs.”
 
One step forward but how many steps back on R&D tax relief

“While the chancellor focused on the good news story of the £40 million increase in the headline rates for both the SME and large business R&D tax credit, the changes to what qualifies for the credit represents a significant turnaround. The industry has worked hard with the Government to ensure that the regime delivers a real incentive and today’s (December 3) change threatens to undermine confidence in the process. However, it is very disappointing that the Government has decided to do a U-turn in relation to consumable items incorporated in products that are sold. Many claimants will recall that the Government widened the ‘production guidelines’ in August 2011 to include consumables as qualifying even if they were incorporated in a product that was subsequently sold. Although the net effect of this reversal and the increase in rate is a £20m net increase in the incentive, the impact of the U-turn may well have the biggest impact.”
 
Draining the well of tax avoidance

“The chancellor’s Autumn Statement will raise almost £9 billion from tackling the so called 'tax avoidance, tax planning and fairness', but over a third of this will come from restricting the ability of the banks to utilise the losses suffered during the financial crisis. This will be a concern for many businesses as it breaches a long-held principle that companies should get relief for the costs they incur as they accrue."

Foot on the accelerator for UK infrastructure but will financing and the supply chain catch up?

“Infrastructure is key to the UK’s economic competitiveness and so the raft of projects announced is long overdue. It is now essential these projects receive long-term support across the political spectrum through the National Infrastructure Plan and the Armitt Review, which calls for an independent National Infrastructure Commission. However, there are two major issues that may prove to be stumbling blocks for the Government in making this ambition a reality. Firstly, the issue of funding still needs to be addressed and the other major issue is with supply chain.

“The Government needs to consider how to maximise the economic benefit for the UK. It could end up shooting itself in the foot if these projects are awarded to foreign contractors because the Government perceives that there is insufficient capacity or skills in the UK construction industry to deliver on the scale demanded.

“There needs to be a renewed focus on supporting all industries in the infrastructure supply chain, from construction to engineering, to ensure the benefits are reaped for the UK plc.”