The design industry gave last Tuesday’s Budget a tepid welcome, regarding the Chancellor’s proposals as useful, but not ground-breaking.
The measures affecting the small business-dominated design sector aim to improve cashflow, increase opportunities for investment and decrease taxation.
British Design Initiative chief executive Maxine Horn is encouraged by the Chancellor’s decision to raise the level at which tax relief can be claimed on venture capital, from 100 000 to 150 000. The move kicks in on 1 July this year and will benefit design consultancies in two ways, she says.
“It will give investors more incentive to back start-up projects, which may well include design consultancies. In addition, design work will be created from other new start-ups which will increase the need for identity and other design work,” says Horn.
Meanwhile, design groups with an average annual wage per head of less than 23 500 will benefit from the Government’s new National Insurance contribution rate. This will no longer be charged on the first 81 earned in a week, but increases the rate on the remainder from 10 per cent to 12.2 per cent.
“Most design consultancies pay out less than the [23 500] threshold and so will benefit from this, although a few of the more specialist, high-profile operations will lose out,” says Steve Waring, partner at accountancy firm Willott Kingston Smith.
Either way, industry experts say the move will have little impact on all but a very few design consultancies. The new rate applies from April 1999.
The Confederation of British Industry welcomes the Chancellor’s decision to extend the capital allowance increases introduced in last year’s Budget.
This increased the rate of tax relief a business is eligible to claim on a capital investment the first year after purchase from 20 per cent of the price to 50 per cent. At either rate the business is eligible for tax relief on the entire purchase, but last year’s change accelerated the process, therefore improving cashflow.
The rate will drop to 40 per cent for the year beginning this July. Many small businesses had feared that it might return to 20 per cent as Brown implied in the 1997 Budget statement.
Design consultancies will also benefit marginally from the reduction in corporation tax from 21 per cent to 20 per cent.
In addition, product designers look set to benefit from a new 50m University Challenge Fund.
“This gives universities the opportunity to get extra funding to develop a product for the market, in conjunction with the private sector. It is a marvellous opportunity for product designers and we will certainly be encouraging them to contact the universities,” says Horn.