Budget 2009: "Fairness" and "Opportunity", But Not For All

Last Updated Apr 22, 2009 4:19 PM EDT

Chancellor Darling's 2009 Budget spread the pain, but a bit unevenly, targeting top earners and specific industries for taxation.

In a much anticipated Budget, Darling earned bouquets and brickbats in equal measure. He got a general nod of approval for being direct and open about the UK's parlous financial position.

John Whiting at PriceWaterhouse Coopers admired Darling's directness in talking about the UK's poor economic state -- "there was no Micawber-like hoping for something to turn up. Businesses wanted that admission that the UK's in a hole, and a strategy for getting out of it. It also answered business calls for targeted investment."

But opinion's divided about Darling's move to address what he called "the anomoly" of high earners. As of next April, those on salaries topping £150,000 a year will be taxed 50 per cent and anyone taking home more than £100,000 will lose personal allowances. Couple those facts with the attacks on "non-doms" last year and you could find Britain facing a big business drain.

Those against claim it is "progressive communism" and argue that it's yet another reason for multinationals to relocate to a cheaper destination.

International entrepreneurs, too, may feel the penalties on early earnings will be too great and look elsewhere to invest or set up businesses.

If Darling sought to score public approval by going after fat-cats, he might've aimed a little higher up the scale, particularly for the amount the government expects to raise. Those taking home the sort of salaries that upset the general public aren't likely to feel the pain, but sub-board executives of multinationals and those in the professions probably will.

Smith & Williamson's Giles Murphy argues that it could send lawyers -- already a mobile group -- packing. So what? The UK loses knowledge workers, but also runs the risk of losing its competitive edge as an attractive location for inward investment.

Others say this is nonsense -- the top earners already claim residence abroad and those earning above £100,000 only make up, after all, about two per cent of the UK population.

Taxing the rich may be politically adroit. But Darling was inadvertently unfair to some industries. Sinners' taxes (alcohol, fuel,cigarettes, gaming) rise with every Budget, but the effect of booze and fuel on businesses could be more unpleasantly pronounced this year.

Fuel duties, for example, will affect distribution across industries. Alcohol levies will hurt the hospitality industry and the hard-hit pub sector.

Like it or note, gambling brings jobs and revenue to the UK -- the Rank Group claimed it was "dismayed" by unexpected tax measures that could cost it £9m and forced it to rush out a profits warning.

Darling has pledged millions for investment in favoured industries -- small, North Sea oil extractors, clean-tech, biotech and communications (to extend broadband and promote "Digital Britain") among them.

The car industry also got the nod (with its deal for new wheels scheme), yet the Budget sneaked in reforms to company car allowances that could cost UK companies £85m when they take effect.

But why are service industries being overlooked (gaming) or penalised (pubs) in favour of high-cost, sometimes less promising sectors -- how many times has biotech been touted as the Next Big Thing?

There's obvious political expediency in some of the government's choices. And there's a compelling argument for investing in clean tech and renewables, especially if it gives the UK manufacturing strength.

But services are cheap to invest in -- and some are an easy (comparatively) win. In leadership and management, the trend is to "strengths-based development" -- amplifying your attributes while acknowledging your weaknesses. Darling's got the last part down, but does he know which is the best foot to put forward?