BVCA slams Budget, predicts "end of competitiveness"

The British Private Equity and Venture Capital Association (BVCA) has reacted angrily to Alistair Darling's 2009 Budget, with chairman Simon Walker claiming that the increases to the top rate of income tax "effectively end Britain's competitiveness."

In what will no doubt be seen by many as Labour reverting to type, the Chancellor announced that a new top rate of income tax of 50% will be applied to those earning over £150,000 from April 2010. At the same time, the personal tax allowance for those earning more than £100,000 will be withdrawn, while the exchequer will also restrict pension tax relief for those earning above £150,000 from 2011.

The moves are being brought in to help pay for the sharp rise in government borrowing in recent months, which Darling admitted will push net public sector debt to around 79% of GDP by 2013 - a figure Walker described as "breathtaking". Large bail-outs in the banking sector alone will cost in excess of £50bn - around 3.5% of GDP.

However, the Government has long affirmed its commitment to following the US model and spending its way out of the recession, and it was always likely to be the wealthy that were left holding the bill. What has surprised some is the scale of the measures and the speed with which they will be implemented. In November's Pre-Budget Report, a 45% tax rate had been proposed from 2011. Walker claims that the new rates "will discourage investors from being located and doing business here."

The income tax adjustments were accompanied by a rise in duty on fuel, alcohol and tobacco, which overall will deliver an additional £6bn in revenues by 2012. There will also be a cut in real public spending from 1.2% to 0.7% of GDP from 2011.

Some help was offered to struggling businesses in the form of a doubling of the main capital allowance for investment to 40% in 2009-10, as well as a two-year extension of provisions to allow them to carry forward tax losses over three years. There was also a scheme to boost the beleaguered motor industry in the form of a £2,000 payment to trade in 10-year-old cars for new.

But the BVCA saw its calls for a targeted innovation fund for venture capital, in which the private sector would have participated, rejected in favour of a new £750m Strategic Investment Fund. Walker expressed his "deep disappointment" at the decision, stating that it "looks like a return to the public sector seeking to 'pick winners' (but ultimately subsidise losers)."

In terms of the economic outlook, Darling predicted that the UK economy would contract by 3.5% in 2009, but would return to growth in 2010 - growing by 1.25%.

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