Industry reaction to the Emergency Budget

The economic and business measures announced in Chancellor George Osborne's first Budget have sparked mixed reaction from small business representatives.

The standard rate of VAT will increase to 20% from 4 January 2011. David Whiscombe, a partner at consultancy BKL Tax, believes the increase could actually have some positive effects for retailers. He said: "[The VAT increase] is an unwelcome change for consumers and VAT-exempt businesses but for others a mixed blessing. It may trigger a six-month mini-boom for retailers as consumers bring forward big-ticket purchases."

However, Ken Parsons, chief executive of the Rural Shops Alliance (RSA), criticised the Government's timing. He told BAD News: "Positives are hard to find with the VAT increase. My attitude is that you can't complain about it because the Government have got to find the money from somewhere. In terms of timing, it is exactly the wrong timing and it totally masks the increase."

He added that small firms who supply to large corporates could find they will have to shoulder the burden of the increase. "In the fine print of the Budget it says that the Government expects a third of the increase to be absorbed by retailers, but people like Tesco will squeeze their small suppliers and the smaller retailers don't have a cat in hell's chance."

Meanwhile, the Federation of Master Builders (FMB) warned that the VAT increase would have "a disastrous effect" on the building industry and would be a "charter for cowboys" as more homeowners resort to cash-in-hand transactions to avoid the increased cost for building work.

The Capital Gains Tax (CGT) rate for higher rate taxpayers has been increased to 28% from 22 June, which the National Landlords Association (NLA) said would affect the "vast majority of landlords who supplement modest income with lettings activity". However, David Salusbury, chairman of the NLA, concluded that it could have been worse: "Although the Chancellor has failed to recognise the distinction between long-term investment and short-term speculation, the immediate increase is not as high as the trailed 40%."

Meanwhile, the Federation of Small Businesses (FSB) welcomed the announcement that new businesses that start up in certain areas of the UK (not including London, the South East and the East of England) will be exempt from paying the first £5,000 of Class 1 employer National Insurance Contributions on the first ten employees. However, the FSB said the scheme should be extended to existing businesses and should apply UK-wide.

The Forum of Private Business (FPB) has predicted that the Budget has been a "pleasant surprise" for small business owners, in particular the reduction in the rate of corporation tax. The rate for small companies will reduce from 21% to 20% next year.

FPB chief executive Phil Orford said: "Obviously the VAT rise will have an impact on many smaller businesses, however I expect most FPB members would rather stomach a VAT increase than a rise in other taxes or even greater cuts in public spending."

For the full Budget report and associated notices from HM Treasury click here.

For HM Revenue & Customs' (HMRC) summary of the main measure for tax, national insurance and VAT click here.