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Jeremy Hunt has come under pressure from the CBI to announce tax breaks for businesses at the budget as a “last chance” to help the economy avoid a recession this year.
The employers’ group has called on the government to provide investment tax breaks, announce plans for better funding of childcare to get women back to work and pump up green investment to help the country avoid being the laggard in the G7 group of advanced economies this year.
Hunt will present his budget on March 15, the chancellor’s second fiscal event after last November’s autumn statement, which wiped out former prime minister Liz Truss’s planned tax cuts to restore market confidence in UK policymaking. This month the chancellor announced four pillars of the government’s growth strategy: enterprise, education, employment, and everywhere.
Tony Danker, director general of the CBI, said the spring statement was “an opportunity to get the UK out of any recession sooner rather than later and transform the UK into a high-growth, innovation-first economy”.
The CBI wants Hunt to make specific commitments to continue tax breaks for investment beyond the two-year super deduction for capital spending, that ends this year. Business investment has chronically lagged behind international peers since the financial crisis and took an additional hit in the aftermath of Brexit.
“Firms are seeing the end to the super deduction with nothing to replace it but a big rise in corporation tax. This will have a huge impact on investment and leave the UK falling behind its global competitors,” Danker said.
Corporate tax will rise to 26 per cent from April, in line with predecessor Rishi Sunak’s pledge, and a reversal of Kwasi Kwarteng’s ill-fated attempt to cut the rate to 19 per cent. The CBI initially welcomed Kwarteng’s mini-budget last September, calling the £40 billion blitz of tax cuts “a turning point for our economy”.
“A simpler, smarter approach to tax can pay dividends and firms will be keen to make the most of the investment incentives on offer,” Danker said last September before market turmoil forced the government into retreat.
The chancellor’s room for large tax or spending giveaways is constricted by tight public finances and a desire to cut government debt in the next five years.
The CBI said Hunt should announce a partial expensing regime for business investment over three years to “send a clear signal to both domestic and international investors”. It also wants employers to benefit from a government reskilling programme, and thinks Hunt should also match free childcare rules for 3 and 4-year-olds to those for 1 and 2-year-olds to encourage mothers back to work, the CBI said.
“Businesses know the reason for [labour force] inactivity are complex, but the measures we’ve proposed around reforming the childcare market, enabling more agile and flexible training provision, and helping prevent and treat long-term sickness are part of the solution,” Louise Hellem, director of economic policy at the CBI said.
The UK also risks being left behind in a global green subsidies race as the US pumps money into electric vehicles, renewables and raw materials to meet its international climate targets. The CBI wants tax breaks for renewable electricity investment.
Interactive Investor, which has about 400,000 clients, has called the levy on investment trusts “anti-competitive and unfair” and is calling on Jeremy Hunt to change the rules in the budget next month.
Investment trusts have long argued that the tax is unfair because it is not imposed on rival investment products such as funds and because investment trusts have already paid it once when buying the underlying shares they own.