Budget draws out partner opinions

Lawyers are well-known for their diffidence, but they have been far from slow to offer their opinions on Chancellor Gordon Brown’s Budget yesterday (21 March).

City partners welcomed a reduction in corporation tax from 30% to 28% in April 2008 in a bid to increase the UK’s appeal as a key global business centre - but were also quick to criticise a reduction in capital allowances.

Linklaters tax chief Guy Brannan argues: “The reduction in corporate tax is welcome but it is offset against a reduction in capital allowances which will hit the manufacturing industries. Yes, our tax rate is lower than the US but we are not in the US and our tax rate does not compare favourably with other European jurisdictions like the Netherlands or Ireland.”

Nick Cronkshaw, a tax partner at Simmons & Simmons, adds: “The changes to capital allowances could cause some clients a headache. There will be decreased allowances on fixtures. Most corporates will be annoyed at the changes in capital allowances even with the decreases in corporation tax.”

Some were more positive. According to Lovells tax partner Kevin Ashman, the reduction in capital allowances will make a significant difference for investors in property, trading and manufacturing. “Overall I would say it’s movement in the right direction,” he said.

Despite the reduction in corporation tax, the UK still has the seventh-highest rate in the European Union. Some partners argue that the changes will do nothing to benefit London as a financial centre.

Brannan adds: “The week started with reports that Barclays was considering moving to the Netherlands and I don’t think this would stop them. Do I think this budget has made Britain a more attractive place for business? No. In the long term there needs to be a more radical overhaul of the system.”

For law firms themselves, many felt the changes would balance each other out. With lawyers likely to be hit with increased national insurance bills, financial advisers have already admitted a lawyer who took home £100,000 before 21 March is likely to find himself in much the same position today.

As David Innes, a private equity partner at Travers Smith, sums up: “It’s a classic political budget. It gives with one hand and takes with the other, without massively changing anything.”

ben.mitchell@legalweek.com