The Chancellor had warned it was going to be harsh and certainly didn’t disappoint. The has capital expenditure falling from £69 billion in 2009/10 to £45 billion in 2014/15 alone. The cumulative fall in spending over this period is a staggering £100 billion. This is likely to have a considerable impact for construction, especially for those contractors heavily reliant upon public sector frameworks.

This, at a time, when forecasts of economic growth were also revised down significantly (albeit from the vastly overoptimistic forecasts of previous Budgets over the last two years) and so private sector construction is unlikely to recovery as quickly as Government could have expected previously. 

The increase in VAT (from 17.5% to 20%) was no surprise and will be expected to have a negative impact upon repair and maintenance. It was a disappointingly broad brush approach to VAT and a more sensible, subtle approach would have been to lower VAT on a small number of energy saving products at the same time and, in general, there appears to have been a concentration on the fiscal issues with the green agenda somewhat ignored in the Budget.

However, given the state of the Government’s finances and the short time the new Coalition Government has had, perhaps that should be no surprise too.  

There was mixed news for companies in general. Corporation tax is going to fall from 28% to 24% over the next four years and will end up marginally lower than the EU average. The small companies’ rate will fall to 20% in April next year. The 10% capital gains tax rate for entrepreneurial business activities will be extended from the first £2 million to the first £5 million of qualifying gains made over a lifetime.

However, at the same time the Annual investment Allowance will fall to £25,000 and the main rate of capital allowances will fall from 20% to 18% with the special rate falling from 10% to 8%. 

Overall, harsh falls in public sector spending are coming, which is no surprise, but the detail is not yet there and won’t be till the spending review (again no surprise!). Contractors can’t have been caught out by the anticipated falls in public sector spending as we’ve been saying it for more than two years now!

The VAT increase won’t be happy news for ‘white van man’, as it were, but there were some measures to help businesses.

Topics