UK industry urges Hunt to cut business taxes to spur growth
BRITAIN’S leading business groups are calling on Jeremy Hunt to unlock investment with a mixture of tax cuts, improvements to the UK power grid and policies to address skills shortages when he unveils a package of economic measures later this month.
Hunt has downplayed expectations of any big giveaways ahead of his statement on Nov 22, saying his priority is – as it has been all year – to bear down on inflation that remains well above the government’s 2 per cent target. But even within those strictures, industry leaders argue the Chancellor of the Exchequer has the power to boost the business environment.
“There are some options open to him that could make a real difference without breaking the bank,” said Shevaun Haviland, director-general of the British Chambers of Commerce. “Businesses have told us they have billions of pounds in private investment waiting to be pumped into the UK economy.”
The economic outlook is bleak, with the Bank of England this week downgrading its growth forecast for 2024 to zero from 0.5 per cent, saying there’s a 50 per cent chance of a recession next year.
Hunt’s fiscal headroom at his last budget in March was £6.5 billion (S$10.8 billion), the lowest level ever. Since then, high inflation and wage growth have boosted tax revenue, lifting the margin to around £13 billion, the Resolution Foundation said in a report published on Monday (Nov 6).
However, the think tank warned the chancellor against indulging in a “fiscal illusion” that inflation can increase tax income without also pushing up spending. Current spending plans have yet to reflect recent public-sector pay settlements and many departments are facing a savage real-terms squeeze unless their budgets are topped up, it said.
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“It’s increasingly clear that spending plans pencilled in for after the next election cannot be delivered. Fiscal forecasts that ignore that reality aren’t worth the paper they’re written on,” said James Smith, research director at the Resolution Foundation.
With Conservative Members of Parliament calling for tax cuts and the governing party some 20 points behind Labour in recent polls, Hunt has a tricky balance to strike in what is likely to be the penultimate fiscal event before a general election expected next year. His dilemma is whether to prioritise voter-focused measures that might boost the Tories in the polls, such as cutting inheritance tax or stamp duty, or to instead favour tax cuts for business, which may go less noticed by the public but lift the economy.
The so-called “big five” of Britain’s business groups – the Confederation of British Industry, British Chambers of Commerce, MakeUK, Institute of Directors and Federation of Small Businesses all are pushing for the latter. Here are corporate Britain’s key asks:
Extend Investment Tax Break
Industry’s top request is for Hunt to make permanent the so-called “full expensing” policy he introduced in March, which gave firms 100 per cent tax relief on capital spending such as on new machinery until March 2026. Making that permanent – as Hunt has said he’d like to do if the public finances allow – could boost investment by about £50 billion annually and increase the size of the economy by 2 per cent by 2030/31, according to the CBI.
Treasury officials are currently drawing up alternative options around capital allowances if full expensing is deemed unaffordable, according to people familiar with the matter.
Fix the Electricity Grid
The BCC called on Hunt to fast-track power grid updates through the planning system and speed up the process of connecting new generating capacity to the grid and put an end to delays holding back Britain’s push to reach net zero carbon emissions.
Alleviate Skills Shortages
Britain’s tighter labour market due to the after-effects of the Covid-19 pandemic and Brexit is another bugbear for business. MakeUK, the manufacturing lobby group, said Hunt should permit more immigration in engineering roles to fill vacancies, while also reforming the apprenticeship levy to encourage greater uptake.
Several business groups also called on Hunt to offer tax relief on firms offering occupational health services in a bid to keep more people in work.
Extend Help for Retail, Hospitality
Both the FSB and BCC want Hunt to extend the current 75 per cent discount that retail, hospitality and leisure firms receive on their business rates bill, which is a tax on the rateable value of their premises. The discount, which was introduced to support Britain’s high streets, is due to expire in March next year.
Bring Back Tax-Free Shopping for International Visitors
The BCC said Hunt should re-instate the program that allowed non-EU shoppers to reclaim the 20 per cent Value Added Tax (sales tax) charged on goods purchased, a tax break which encouraged tourism and luxury shopping in Britain. BLOOMBERG
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