Budget 2013: What to watch - business

For part one, read: Budget 2013: What to watch - personal finance.

Corporation tax

Recent news: The main corporation tax rate is already due to fall from its current rate of 24% to 23% this April and 21% in April 2014.

Analysts' expectations: "20% has a nice ring to it, although it would quite expensive," state analysts at Capital Economics, calculating an extra 1p off the headline rate would cost about £0.4 billion in 2013/14 and £0.8 billion by 2014/15.

"Or [Osborne] could heed calls to cut the rate for small companies further below the current 20% rate."

Business rates

Recent news: Treasury Minister David Gauke has reportedly written to the British Retail Consortium (BRC) confirming he will look at redefining how business-rate increases are measured.

The BRC wants rates to be linked to consumer price index (CPI) inflation, rather than retail price index (RPI) inflation. It has also called for a one-year freeze in rates, while the Free Enterprise Group of Conservative MPs has proposed a three-year moratorium.

Analysts' expectations: Since CPI inflation is typically about 0.8% below RPI inflation, analysts at Capital Economics estimate a switch would save businesses (and cost the Chancellor) about £200 million a year.

They add: "The Chancellor has stuck to his guns on bigger increases in business rates in the past and may well feel that the corporation tax cuts have done enough to support companies."

Lending boost

Recent news: The latest statistics from the Bank of England show that while the Funding for Lending Scheme (FLS) may be continuing to put the building blocks in place for a pick-up in lending by banks and building societies, this groundwork is yet to actually prompt a notable effect in lifting lending.

Indeed, net lending by FLS participants fell by £2.4 billion in the fourth quarter, following an increase of just £923 million in the third quarter of 2012.

Vince Cable recently wrote to the Bank of England to ask about the scope for adapting the FLS to raise the level of support for small businesses; the idea has been floated that the scheme could be separated out, so lenders focused on running down their mortgage books could participate at a lesser cost.

In November 2011, the government announced £1.2 billion for co-investment with private-sector investors in managed funds that lend directly to UK businesses via the "Business Finance Partnership".

Previously, in March 2012, a government-commissioned taskforce headed by Tim Breedon, chief executive of Legal and General, published a report on boosting finance options for businesses. However, analysts at Capital Economics say the government is yet to act on the recommendations.

Admittedly, the market may already be doing some of the leg work. For example, pay-day loan company Wonga has launched a business loans service. And the growth of "peer-to-peer" platforms is allowing firms to obtain funding directly without the need for a bank intermediary.

Analysts' expectations: "With small and medium-sized businesses representing 99.9% of all private sector enterprises and 59.1% of private sector employment, building recovery resources for the sector is, in our eyes, a key ingredient for a sustainable UK recovery," stress analysts at Investec.

Stocks to watch: The government may also announce some details on how and when it will sell the equity it holds in the partly state-owned banks, Lloyds Banking Group and Royal Bank of Scotland.

Mervyn King recently hit the headlines for arguing RBS should be split into a "good" and "bad" bank to speed up the return of the "good" bank to the private sector.

And Prime Minister David Cameron has called on RBS to "accelerate" its reforms, while press reports have suggested the board of RBS may be preparing for the sale of a portion of the government's £50 billion stake by the end of 2014.

"Even assuming RBS's share price saw no rise from its current level, the sale of 10% of the government's stake would still raise £5 billion for the public coffers," say analysts at Capital Economics.

This feature was written for our sister website Interactive Investor

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