Budget reaction

Brian Hilliard, Chief economist UK, Societe Generale

“The budget cuts overall are bigger than expected. Swingeing cuts still to come in the review in the Autumn, which are going to be very, very difficult to meet, but I think the market likes it. The growth numbers are pretty much intact but some very big cuts in the deficit, and it’s the deficit that the markets will focus on.”

Eric Burns, analyst, WH Ireland

“In many ways, we’d been prepared for the worst with this budget. My initial reaction to it is that it’s not quite as severe as many might have feared.

Ross Walker, UK economist, RBS Financial Markets

“The growth projections and borrowing numbers seemed broadly in line with expectations, at the margin there’s a little less fiscal tightening than we expected. I think it should solicit a cautiously positive reaction from gilt markets and sterling markets.”

Markets reaction

Stock markets pared their losses. The FTSE 100 – down about 75 points ahead of the emergency Budget – recovered about ten points while Mr Osborne spoke.

The pound fell about 30 ticks against the dollar, dipping to a session low of $1.4692, before recovering almost all its losses and gaining ground against the euro.

Mark Deans, Dealing Manager, Moneycorp, said: “The pound strengthened by 0.2 per cent against the Euro at the beginning of the Budget announcement, as the Chancellor announced that early, determined action has earned us credibility in international markets.”

However, gilts were chased sharply higher as the Chancellor vowed to slash Government borrowing. The September gilt futures jumped more than a full point to 120.47. In the cash market, 10-year gilts yields were about 10 basis points lower at 3.41 per cent, its lowest since October.

Stephen Hughes, Chief Analyst, Foreign Currency Direct said: “The markets have already factored in the spending cuts and tax hikes announced in this afternoon’s Budget so the new age of austerity won’t fundamentally change sterling’s fortunes over the longer term. That said, the Chancellor’s tough talk and confident delivery has done much to reassure investors and as a result we can expect to see the pound enjoy some modest short-term gains. We’re predicting that sterling could reach €1.26 by mid July.”

Capital Gains Tax increase from 18 per cent to 28 per cent for higher earners

Ernst & Young: “Today’s changes to Capital Gains Tax produce a smorgasbord of a Capital Gains Tax system, with 10 per cent, 18 per cent and 28 per cent rates and no relief for inflation. The increase of entrepreneurs’ relief to £5 million per lifetime will go some way to help entrepreneurs, but will put increased pressure on who qualifies for relief. Overall, the top rate is not as high as many will have feared but the lack of indexation could mean that many will pay tax not on gains but on inflation.”

Stuart Law, Chief Executive of Assetz, a property consultant, said: “The new rate remains lower than the rates we had three years ago, of up to 40 per cent, before Labour introduced the 18 per cent rate. This move is not likely to have a negative impact on the UK property market. Professional property investors are generally looking at the long-term benefits and see the importance of the regular income rather than short term capital gains.”

Nicola Plant, a lawyer for private clients at Thomas Eggar said: “This is something that generally only effects those who are better off and as such, if they’ve missed the opportunity to sell now, provided they don’t need the cash, they can simply hold onto assets until fortunes change.”

VAT rise from 17.5 per cent to 20 per cent

Gary Harley, head of indirect tax at KPMG: “2011 could be a hard year on the high street as prices go up to accommodate the new rate. The UK’s tax competitiveness may have improved on the direct tax front but on VAT we have dropped from the 3rd lowest rate in Europe to joint 12th highest with a rate above key European competitors: France, the Netherlands and Germany.”

Richard Fleming, UK Head of Restructuring at KPMG, said: “Those retailers teetering on the edge may find the VAT rise pushes them over the edge.”

British Retail Consortium Director General Stephen Robertson: “We didn’t want a VAT increase. It’ll hit jobs, consumer spending, the pace of recovery and add to inflation. It’s some consolation that the range of VATable products isn’t being extended.”

Alan Parker, chief executive of Whitbread, the Premier Inn and Costa coffee shop operator, said the group planned to pass on the VAT rise to customers, but added: “When VAT went down to 15 per cent then back up to 17.5 per cent, it didn’t really have any impact. I don’t think we’ll see much impact from a rise to 20 per cent.”

Ernst & Young: “This shift from income tax to VAT echoes the policies of many other governments in Europe, as well as recommendations from the OECD. Many will be relieved that the Chancellor did not address the much valued list of favoured items such as food, children’s clothes and books.”

Alan Pearce, VAT partner at Blick Rothenberg Chartered Accountants estimates that the rise will cost the average household £7 to £8 per week.

Bank levy to be introduced from January to generate £2 billion a year

The British Bankers Association: “The UK is a trading nation and we must ensure bank taxes do not hurt our national interests or provide an unfair advantage for other businesses operating here ... Bank levies need to be co-ordinated internationally: they must not prevent the industry in the UK from being able to compete. It is essential that the international banks do not find themselves taxed multiple times for the same thing.”

Corporation Tax cut by 1 per cent a year for next four years

Chris Sanger, Head of Tax Policy at Ernst & Young: “This will make the UK tax rate the 11th lowest in the OECD, and 5th lowest in the G20. This is clearly an element in achieving the Coalition Government’s aim to make the UK’s corporate tax regime the most competitive in the G20 by the end of the next Parliament.

“This rate reduction will be funded in part by the deferral of tax allowances ... Overall this is a tax cut for business, but one funded out of current cash flow.”

The CBI : “The 5-year route map for Corporation Tax provides much-needed consistency and certainty. Taken together with proposals on foreign profits and intellectual property, these will help prevent and could even reverse the flow of companies overseas.”

Cuts to investment allowances and capital budgets

The EEF, representing manufacturers said: “In recent weeks, manufacturers had been encouraged by strong commitments from the Prime Minister and the Chancellor on the role of manufacturing in a better balanced economy. They will now be left wondering where the necessary growth and investment will come from, given the cuts to investment allowances and capital budgets.”

Toby Ryland of Blick Rothenberg Chartered Accountants said: “The reduction in capital allowance rates means that capital intensive businesses may well be paying more tax than they are currently ... This may impact on manufacturing businesses which are typically capital intensive and may therefore restrict business growth in the precise regions of the country that the Government has stated they wish to help.”

On cutting housing benefits

Liz Peace, chief executive of the British Property Federation, said: “Cutting the housing benefits bill is long overdue and we have long said that housing payments need to be made directly to landlords to avoid the money being taken by tenants and spent on other things.

Start up business exemptions from National Insurance

Toby Ryland, tax partner at Blick Rothenberg Chartered Accountants said: “This is a welcome boost for new businesses but it is disappointing to see the South East of England, East of England and London being excluded.”

Freeze on beer taxes

Brigid Simmonds, chief executive, of the British Beer and Pub Association said this was a welcome relief for struggling pubs in difficult times and would help them create new jobs.