Chancellor George Osborne today announced his much anticipated Budget

Infrastructure shale gas and R&D given Budget boost

Boosts to infrastructure spending and tax breaks for R&D tempered gloomy economic news in today’s budget.

Chancellor George Osborne announced that growth in 2013 would be 0.6 per cent – half the 1.2 per cent he predicted four months ago in his autumn statement – and that the UK's national debt would rise to 85 per cent of GDP and not start coming down until 2017/18 – a year later than previously predicted.

But he also announced measures designed to stimulate growth in manufacturing and engineering including a £15bn boost to infrastructure spending, a "generous" new tax regime to promote investment in shale gas, incentives for the manufacture of ultra low-emission vehicles and an improved 10 per cent rate on R&D tax credit.

But commenting on today’s statement, Terry Scuoler, chief executive of EEF, the manufacturers’ organisation, said the Chancellor had not gone far enough.

He said: “Today’s Statement contained some helpful measures on business taxation and some signs of re-prioritising spending for growth but it still feels like a job half done. The Chancellor had over £11bn of under-spending in his arsenal and should have done more to drive growth now, particularly through accelerating investment in infrastructure.

“With forecasts for business investment scaled back heavily for the next five years, the growth and investment challenge we face continues to mount. Looking to the Spending Review, with the Chancellor sticking to his fiscal plans, this can’t just be about tighter spending controls. It must also be about a more radical of shift of spending towards growth.”

One of the key elements of the Chancellor’s growth boosting measures is the allocation of an extra £3bn a year to infrastructure projects such as roads, railways and power stations from 2015 – a £15bn increase in spending over the remainder of the decade.

"By investing in the economic arteries of this country, we will get growth flowing to every part of it," he told the House of Commons.

But Kate Orviss, infrastructure partner at law firm Pinsent Masons, said the Chancellor’s announcement was “disappointing” when looked at in detail.

“The disappointment is that this funding will not be available until 2015/16 and there is a complete lack of clarity over what it will be spent on. This time the real detail will not been revealed until June,” she said.

“"The Government claims to see infrastructure as a key element of its growth strategy but has singularly and repeatedly failed to deliver budget after budget. And time is running out as even announcing new major projects now won't deliver growth in the short term.

"Now is the time to start delivering before investors and contractors look to exploit other opportunities. Major British contractors are already looking elsewhere such as India and Sub-Saharan Africa. The drain of experience from the UK will continue if the UK Government delays real announcements on infrastructure projects."

There was positive news for the energy industry though with a new tax regime to support controversial shale gas activities and two projects identified as preferred bidders in the Government’s £1bn Carbon Capture and Storage Commercialisation Programme Competition – the Peterhead Project in Aberdeenshire and the White Rose Project in Yorkshire.

The Chancellor said "shale gas is part of the future and we will make it happen" as he unveiled measures to support the new industry, including field allowances to promote early investment in the sector.

Dr Tim Fox, Head of Energy and Environment at the Institution of Mechanical Engineers said: “It is particularly welcome that both a gas and coal project are through to the next stage of the Government’s CCS competition as the Institution has been calling for this for the past three years.

“Government must continue to encourage the development of a balanced power generation mix including renewables, nuclear and fossil fuels, ultimately abated with CCS.

“In addition, as we have previously highlighted, it is important for Government not to see shale gas as the silver bullet many claim it is. Shale gas is unlikely to impact greatly on energy prices in the UK and we must avoid becoming hostage to volatile gas markets by not being over-reliant on gas.”

Mr Osborne also announced exemptions from the climate change levy for energy intensive industries, a move EEF head of climate & environment policy Gareth Stace said would help level the playing field for UK businesses.

He said: “These are welcome exemptions which will bring UK firms in sectors such as ceramics and steel into line with the same tax regime applicable to many of their EU competitors. It also sends a powerful signal that government is committed to these sectors operating on a level playing field and help boost investment in them.”

But environmental groups were less keen on the contents of Mr Osborne’s statement, slamming the budget for its lack of support for the green economy.

Greenpeace executive director John Sauven said: "We got tax breaks for polluters and almost complete disinterest in the green economy, one of the only sectors that has consistently delivered jobs and growth in recent years

"British businesses stand poised to become dominant forces in the global clean energy market, but they're being undermined by a Chancellor who seems increasingly ill-suited to the times we live in. This man lacks a vision."

Friends of the Earth's head of campaigns Andrew Pendleton said: "Shale gas is not the solution to rising energy bills. It's dirty, unnecessary and its extraction will have an earth-shattering impact on local communities across the UK."

One area of support for the green economy announced in the Budget was the Government’s pledge to offer new tax incentives for ultra-low emission vehicles.

There are set to be two new company car tax bands, one for cars with emissions of 0 to 50g of carbon dioxide per kilometre, and one for cars with emissions from 51 to 75g/km.

Cars in the 0 to 50g/km band will pay 5 per cent tax in 2015/16, rising to 7 per cent in 2016/17, while vehicles in the 51 to 75g/km band will pay 9 per cent in 2015/16 and 11 per cent in 2016/17. The incentives and emission thresholds will be reviewed in the 2016 Budget.

Chris Chandler, principal consultant at Lex Autolease, said: “This is a positive development and should help to stimulate the fledgling market for ultra-low emissions vehicles. Aligning these vehicles to low taxation motoring should help persuade more fleets to use them as part of their everyday operations.”

There were also boosts to businesses struggling during the recession with corporation tax to be cut by 1 per cent to 20 per cent in 2015, and R&D tax credit due to be boosted.

EEF chief economist Lee Hopley said: “Another cut to corporation tax and enhancing the R&D tax credit will help push the UK up the rankings as an investment location for large employers.

“In particular the 10 per cent rate on the R&D tax credit should help to attract and grow innovation activity in the UK, which is vital for cementing our long term industrial competitiveness.”

Chief Financial Officer at technology development firm Cambridge Consultants Mammen Eapen said the Budget had some good news for SMEs and the engineering and technology sector in general, with the move to reduce National Insurance for businesses by up to £2,000 a key headline.

“SMEs are the driving force of the economy and will continue to play a huge role in providing the growth in output and employment, particularly amongst the engineering and manufacturing industries,” he said.

“Another key announcement was the move to 'above the line' tax credits for large companies. This was combined with a new 10 per cent corporation tax rate on profits attributable to income from patents, which will take effect next month.

“This is key to helping to drive innovation when R&D is so crucial to the income and commercial success of so many design and innovation companies like ours. Again, it is about making the UK as competitive as possible which we are happy to see.”

But Ian Malcolm, managing director of ElringKlinger (GB), the Teesside-based automotive parts manufacturer, was less convinced.

He said: "The Chancellor's Budget offered very little in terms of support for the manufacturing industry and businesses such as ElringKlinger (GB). As ever, the devil is in the detail and big statements from the Chancellor seem to take a long time to come into fruition.

“What the country needs is for capital to be spent now, not next year. In short, more direct action is needed to get the country back on the road to economic recovery."

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