The budget proves disappointing for design

The Chancellor’s latest Budget was a disappointment for many business experts in the industry. Emily Pacey reports on their concerns

The design industry found little solace in last week’s Budget, as it girds itself for what the Chancellor of the Exchequer Alistair Darling admits is a ‘deepening global recession’.

‘I am disappointed that there is nothing geared towards helping small businesses in the Budget,’ says Design Business Association chief executive Deborah Dawton, fearing for design consultancies’ cashflow.

‘Getting a line of credit through from the banks is proving almost impossible for design businesses,’ she says. Her voice chimes with the Federation of Small Businesses’ ignored pre-Budget request for an independent corporate mediator between banks and businesses.

Dawton also laments the lack of help for consultancies that owe money to their banks. ‘The Budget could have introduced rules allowing small businesses to defer on bank loan repayments,’ she says.

Ticegroup managing director Ian Cochrane is also disappointed by a Budget that he brands ‘not very innovative or clever’.

‘The Budget could have reduced corporation tax, got rid of employment law red tape and given a little encouragement to entrepreneurs to set up new businesses, but it did none of these things,’ he chides, echoing the Chancellor’s forecast of up to 18 months further economic gloom.

‘The writing is on the wall in terms of the severity of UK plc’s problems.’

There is widespread concern that the Government’s decision to raise the highest rate of tax from 45 to 50 per cent for those earning over £150 000 will disincentivise the UK’s design sector’s best talent.

‘The high earners in the design sector will be gnashing their teeth in reaction to the hike in tax for their bracket,’ says accountancy firm Kingston Smith W1 tax partner Graham Morgan.

‘The Government has just made enemies with a key group of highly skilled, highly paid people,’ says Dawton. ‘The UK has been a low-tax economy for a long time now, which has enabled us to attract highly skilled people. As soon as you start hiking up their taxes, these highly mobile people move away.’

Some doubt that risking the good favour of this demographic is not worth the calculated £1bn that would be raised by the tax hike. Particularly, says Dawton, because it could discourage high earners from the client side investing.

‘The biggest effect on design of the tax hike will be an indirect one,’ says Dawton. ‘This tax bracket is full of entrepreneurial people who invest in new start-ups, but they are going to wonder whether it is economically viable to invest here any more.’

There is similar dismay over the new higher cap on redundancy, which from October will mean that statutory redundancy pay will rise to £380 a week, up from £350 a week. Cochrane and Dawton both fear that employers will look to make junior staff redundant over more long-term and senior staff to avoid the new top rates of redundancy payouts.

‘Also, the fact that it has been announced but will not be implemented until October means that employers are more likely to make redundancies earlier rather than retaining staff for as long as possible,’ says Dawton.

Morgan describes the Chancellor’s pledge to create 250 000 new jobs as ‘interesting’, but wonders how the Government intends to achieve it. Cochrane, meanwhile, regrets that the Budget did not contain a specific graduate employment scheme. He concludes that despite its protestations, the Government is ‘prepared to have high levels of unemployment for a while’.

Nevertheless, the Budget did offer some glimmers of hope. The enhanced rate of capital allowance, which has been doubled from 20 to 40 per cent, will give design groups a heavy discount on computer equipment.

‘Two cheers for that, I suppose it is a help,’ says Morgan, reserving his third cheer because ‘this is really to encourage expenditure on new equipment with the intention of stimulating commercial activity. It encourages them to buy this year rather than next,’ says Morgan.

Dawton adds the caveat that ‘design groups’ biggest expenditure is on people rather than equipment, so it will not benefit them as much as other companies’.

However, she is impressed by the Government’s promise to invest £750m in advanced emerging technologies, including advanced manufacturing, digital and Green technologies.

‘This is a good thing. It has to affect design, as the resulting products and services will have to manifest in the marketplace, creating opportunities for product and graphic designers,’ she says.

Cochrane is less convinced that the money will filter down significantly to design groups. ‘This money is mainly an investment fund for science and technology, so I get the feeling that the design business won’t see any of it,’ he says.

Offering a smidgen of advice to consultancies, Morgan suggests that they have no option but to stand on their own two feet.

‘It’s steady as you go for small design groups through the recession, with no real help from Government,’ he says.

Key Budget points

• The Government expects economic growth to return by the end of 2009, achieving growth of 1.25% in 2010 and 3.5% in 2011

• From January, under-25s that have been out of work for 12 months will receive a job offer or training place

• The Government plans to work with employers to create 250 000 new jobs

• An extra £50m will go to the Technology Strategy Board to foster innovation and new technologies

• £405m earmarked to encourage low-carbon manufacturing