Chancellor settles on middle ground

15 March 2001
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15 March 2001

Gordon Brown's budget offered good news for the public sector, but business gave it a predictably mixed reception. David Arminas looks at what it means for purchasing and supply professionals

Analysts believe chancellor of the exchequer Gordon Brown's 2001 budget was a "something for everyone" affair, with the government preparing for a May election. While it was strong on raising state benefits to woo the core vote, the budget was notable for mildly disappointing, rather than unduly upsetting, the business community .

The climate change levy was done and dusted before the budget, and it will be a full year before industry and government can tally up its cost.

During the coming year, utilities buyers and machinery purchasers will have to keep a close watch to gauge the levy's true burden on purchasing budgets. With solid facts in hand, industry lobbyists will be better equipped to fight their corner and ensure that the levy features more heavily in next year's budget.

At a macroeconomic level, the budget ensures a continued equilibrium in the supply chain, said Roy Ayliffe, CIPS director of professional practice. Brown is particularly keen to avoid the boom-and-bust cycles of the 1980s and early 90s which are devastating for supply chains, Ayliffe added.

The 3.7 per cent increase in public-sector spending by 2003-04 will help to keep things on an even keel. Big infrastructure projects such as highways and IT systems look safe for now. This means partnering and prime-contractor relationships built up carefully by purchasers should continue through the year with little disruption from uncertainty over forthcoming central government funding.

Assurances of this kind are good news for buyers and contract managers on large projects. Since last month, they face compulsory Gateway reviews by the Office of Government Commerce to ensure a project will meet the requirements for which it was first procured. Accountability by procurement staff remains paramount despite assured government budgets.

Brown accepts that the strong pound will depress exports, but he has given consumers increased spending power to maintain domestic demand for goods and services.

Small and medium-sized enterprises (SMEs) are included in Brown's strategy to maintain domestic demand. SMEs are relieved at the chance to claw back money from government to ease their bottom line. Several fillips were announced to help them maintain competitiveness in the face of export difficulties, including simplified tax returns, a raising of the VAT threshold and government help for new businesses.

Many purchasers in larger companies may forget the real difficulties faced by those suppliers several tiers down from the top levels. Their margins have been shaved back in recent years to maintain contracts with large UK firms whose globalisation policies have increasingly threatened SMEs with being supplanted by foreign suppliers.

So was it a good or bad budget for buyers, and are there any warning signs of trouble awaiting purchasers later in the fiscal year?

Andrew Bell, tax partner at PricewaterhouseCoopers, said the budget was, overall, "very positive for SMEs. A number of administrative burdens have been taken away. Filing corporate tax returns no longer needs complex calculations - it's been proposed to base it on profits - and that will take out a layer of administration. Likewise, the number of businesses that only have to file VAT returns annually has been increased."

Bell believes there is confusion about which are new announcements and which are re-hashes of previous statements. "Some policies were re-announced in the April and November budget statements."

But not everyone is happy. "From the supply chain point of view, it was a bad budget," said Gary McIlraith, vice-president of the European operations practice at consultancy AT Kearney. "There were four fundamental issues for the supply chain that weren't addressed: transport - there was pampering the masses on fuel duty [up to a 3p a litre cut]; communications - broadband technologies that could really cause e-business to take off; growing red tape; and regional development. It was really an electioneering budget."

In the coming year - after a general election - procurement professionals may well remember Brown's 2001 budget more for what it didn't do than for what it did.


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