In the dark and uncertain times that we all find ourselves in, the first thoughts that jumped to mind when I began writing about what measures I would like to see in the March Budget were; if a single world currency or a return to the Gold Standard were the only answer.

Finding myself pondering if I was being too drastic, I turned to consider some more reasonable fiscal measures that might help get the economy back on track again.

In simple terms, my view is that the British economy is dependent on consumer spending, and the two missing components in today's economy are confidence and liquidity. If consumers are confident (in terms of money security, following from job security etc.), then they are spending money on their lifestyle and living costs, and they are happy. At present, the confidence has gone and therefore even those people who have disposable income are scared to spend it, and hence their happiness is reduced. So to get the economy back on track, the Chancellor needs to reinstall confidence and liquidity.

Whatever the Chancellor has in mind, it is clear that histrionic action is urgently needed to reduce the deficit and drive economic recovery and growth within the UK. In his Autumn Statement, he has already announced many of the measures which he intends to implement in Finance Act 2012. I will not dwell on changes already planned, and will instead summarise some measures which I feel may be value-added bonuses to his speech in March.

Individuals

Many individuals find themselves locked tight in a dark place between paying their increasing tax bill and VAT costs, reducing their household consumer debt and struggling with the latest austerity measures.

Thankfully the Government have already announced their plans to consider a good increase in the Personal Allowance to enable a little more disposable income. However, on the other hand they have announced an unfair cut in Child Benefit for families where one individual (note that this is not the combined income) earns money taxed in the 40% band. This is a big loss to families who have one individual earning say £45k and the other earning £10k compared to a household with both parents earning £35k who do not fall into the new cuts.

A re-consideration of these proposals is definitely called for.

Unutilised Capital

Many wealthy individuals have their money sitting merely accumulating in a bank account. This is money that fails to be invested and circulated around the community, either in the form of loans, business investments, business or social enterprise projects etc.

Given the current economic crisis, it is important to motivate these individuals to use some of their wealth for the greater good of the economy in order to stimulate liquidity. A tough view may be to consider a wealth tax on savings in excess of say £500,000 which would apply to individuals with funds lying dormant in a bank account.

However, the last thing we would want to do is to invite the country's wealthiest to move their money offshore, and perhaps then a more conservative view would be to reintroduce the old Investment Income Surcharge of the 1970's that was applied then at a rate of 15% above a certain limit of investment income. The top rate of tax was then 83% which was how a marginal rate of 98% could be incurred in those days.

I am most definitely not proposing a tax rate at these levels, but a tax charge of some kind for the country's wealthiest individuals could most importantly encourage them to use at least some of their savings for investment in the business community to encourage entrepreneurship, capital investment and jobs creation.

Business Investment

Small businesses are those worst hit by tightening disposable consumer income, increasing taxes and the aftermath affect of the business failures of many its customers.

The Enterprise Investment Scheme (EIS), and the new Seed Enterprise Investment Scheme, are excellent incentives for investment in small companies, but the denial of Income Tax relief for those who have over a 30% stake in a company is of no help to many Northern Ireland businesses who are owner managed companies. As a result, we fail to see EIS relief being utilised practically in local businesses and instead used by wealthy individuals with boutique qualifying companies set up by investment merchants as a means of saving them tax and making them even richer.

While there are some capital gains tax and income tax loss reliefs for investments in businesses that fail, a form of relief (with appropriate limits) against Income Tax for someone investing in setting up a new business in the UK, no matter how great an interest in the company they hold, is missing.

The greatest part of the country's tax take comes from VAT, PAYE and National Insurance, and therefore it is in the Government's interest to encourage new businesses; and a tax break such as this would give a very welcome cash flow boost in the early years of trade to help encourage budding entrepreneurs to give the business world a try.

Another way of providing a tax break on business investment would be to use EIS reliefs on a more practical level to set up regional venture capital type funds where wealthy individuals could invest in a fund which is then used to invest in local businesses in that region. This would utilise inactive capital by the wealthy (as referred to previously) to promote business generation by the local people. The income tax relief earned by the investor would be a mere ripple compared with the additional VAT, PAYE and NIC generated by the local businesses when they generate increasing turnover and jobs, thereby a step towards instilling liquidity and confidence.

Business Investment – a UK Mondragon?

Alongside the current process of setting a legal framework for micro enterprises and microcredit in Europe, a further business investment opportunity that the UK could greatly benefit from is to engineer an ethos of motivated owner-managers, through tax incentives to motivate investment in social enterprises / co-operatives. Co-operatives are owned by their worker members who must ‘buy’ into the enterprise when they join; and the members share common goals and motives for profit generation with social objectives and community spirit.

The Spanish model is renowned; and the Spanish Mondragon co-operative formed in 1956 has been a source of inspiration to many other countries. The Mondragon Cooperative Corporation built a diverse enterprise based on solidarity and democratic principles of ‘one person one vote’. Bangladesh is another example – Bangladesh built their social enterprise project on a strategy of identifying and building innovative partnerships within the private sector, undertaking commercially viable work that helps to alleviate poverty and aid the development of Bangladesh. America too is now developing ‘B Corporations’-Certified B Corporations are a new type of corporation that uses the power of business to solve social and environmental problems. To earn certification, B Corps meet rigorous standards of social and environmental performance, legal accountability, and public transparency.

The Chancellor could learn a lot from these businesses models which strive in times of crisis; the Mondragon remains the seventh largest company in Spain, even in its current economic crisis.

While Europe aims to set a legal and regulatory framework for micro-enterprises across its members states, I strongly feel that the Chancellor should act now to provide suitable fiscal support to social enterprise in terms of tax concessions for individuals and the Enterprises for the early years (for example, Spanish co-operatives paid no Corporation Tax for the first ten years and half the standard rate afterwards).

This would be a great building step for the UK to utilize many unused key strengths of individuals in the private sector who would otherwise not be able to start their own business. They would work together, setting their own goals and objectives, addressing social disadvantage and building teams of motivated individuals working for community and social benefit.

Foreign Direct Investment (FDI)

With economic growth for 2012 predicted at only 0.6% in the latest IMF forecast, it is clear from our knowledge of the Celtic Tiger that a great boost to the economy would come in the form of foreign direct investment into the UK by wealthy profitable companies; creating jobs and generating revenues for local businesses and the taxman, and again improving liquidity and confidence.

An incentive to motivate FDI is critical to such a step. I am not suggesting that the UK as a whole should even consider this, but I cannot help wondering about a cut in the rate of Corporation Tax, even for certain zones. The pattern in Ireland, and the ongoing consultation into a reduction of the Corporation Tax rate in NI has already proven the view that a significant cut would put the UK on the map in terms of target countries to consider for expansion or relocation.

Other incentives to encourage FDI, whilst not as headline catching, could include Corporation Tax exemption for the first 2 years for new start up companies employing over say 20 people at the end of its second year of trade, or extended Capital Allowances for equipment and assets purchased or introduced in the first year of a new business.

Banking

Much scepticism remains around the subject of Britain's banks, and it is clear that they continue to lend money and earn their money in the wrong markets. The core market for banking remains to be in micro financial markets for trading financial instruments.

This strategy earns money for the banks, but fails to lend money into the UK business sector. A structure should be put in place to address this issue and move their core market back to where it should be, thereby effectively moving the current burden from the taxpayer back to the banks.

Exports

Economic growth can only be achieved by Britain tackling the over-dependence on its public sector, increasing its FDI and increasing its exports.

A tax incentive to help businesses export would be gladly welcomed. Invest Northern Ireland is already an excellent support to local businesses, and it is hoped that this will continue, with more targeted support for businesses to reach export markets, in terms of both financial and mentoring assistance.

Property

The Irish Government in its December budget announced two good steps towards achieving investment in property again. The first was to reduce the commercial property Stamp Duty rate from 6% to 2% and the second was an exemption from Capital Gains Tax for properties bought by the end of 2013 and held for 7 years. These measures will go a long way to encourage individuals to buy and retain property, and with a possible increase in interest rates on the horizon to control inflation, similar reliefs in the UK would be gladly received to help boost the property market into moving again.

Conclusion

While my thoughts laid out in this article may not have any impact on whatever changes Mr Osborne is planning to bring upon us in April, I find some encouragement in the traditional etymology of ‘April’ which derives from a Latin word meaning “to open” (in allusion to its being the season when trees and flowers begin to “open”). I will finish this article with those thoughts of spring and fresh hope, and trust that whatever the Chancellor has in his red briefcase will give the economy the kick start that it desperately needs.

Lesley Austin is a Senior Tax Manager with Cavanagh Kelly Chartered Accountants

Tel: 028 8775 2990

Email: lesley.austin@cavanaghkelly.com

Web: www.cavanaghkelly.com