PwC: UK business leaders’ confidence in the UK economy and tax system diminishes

Findings from a poll, carried out by PricewaterhouseCoopers LLP at its Breakfast Briefing event following the Budget show that UK business leaders are not optimistic about the UK economy and the competitiveness of the tax system.

Only 25% of senior executives say they expect the growth of their business to continue while 24% expect business activity to stagnate. Just over one third (36 per cent) of senior executives believe they will, to some extent, be tightening their companies’ belts in the course of the next year because of the current economic climate.

Despite reassurance from the Chancellor of the Exchequer about the resilience of the economy, overall confidence in the shape of the UK economy has diminished. While 81 per cent of business leaders questioned over the last two years thought that the UK economy was in relatively good shape following Budget announcements, this year only one third (36 per cent) were inclined to agree with this statement.

The tax system

The Budget will be of some relief to UK business because it contained few major surprises. This was particularly important given the amount of change already in-hand. Despite the Red Book and a raft of supporting press releases and documentation, this year’s Budget was more about consolidation, with net reduction in tax payments forecast for 2008/09 of GBP 140m for the measures announced on Wednesday. However, the measures will lead to a net increase in taxation for 2009/10 of GBP 790m and GBP 1.865bn for 2010/11.

However, a lack of progress in some areas could impact the attractiveness of the UK for business from a tax perspective. Two thirds (66%) of senior executives think the UK tax system is less competitive than it was five years ago

Mark Schofield, tax partner, PricewaterhouseCoopers LLP, said:

“It was encouraging to see that there were few surprise changes for large business. However, the challenge of maintaining a competitive tax system in the UK remains.

“Although the Red Book announces that a consultative document on the taxation of foreign profits will be published before summer 2008, businesses remain in the dark as to how this will affect them when the rules are introduced. The proposed new measures for principles based taxation, which are now subject to further consultation, could also give an unfavourable impression of the UK to potential investors.

“Business needs a certain, stable, attractive and coherent tax system to have the confidence to invest in the UK. Therefore the Chancellor must demonstrate clearly how he is going to deliver the government’s commitment to consultation with business to maintain a stable business tax system that remains responsive to business needs and internationally competitive”

As with any Budget, there are winners and losers. The Chancellor’s focus remains on how to retain investment from portable industries in the UK, i.e. the more internationally mobile businesses such as financial services companies, service companies generally and non-capital intensive businesses will benefit from the reduction in mainstream corporation tax from April 2008. On the other hand, industries with more physical capital such as the oil and gas, manufacturing and capital intensive industries could be disadvantaged as a result of the asset depreciation measures.

Survey questions

The PricewaterhouseCoopers Budget Breakfast event took place in London on 13 March 2008. The event was attended by 104 chairman, chief executives, managing directors, chief operating officers, financial directors, chief financial officers and non-executive directors from some of the UK’s largest businesses.