Jeremy Hunt has a tremendous opportunity to deliver an ambitious, business-friendly spring budget today.
After last fall’s mini-budget pyrotechnics, which led to the resignation of Kwasi Kwarteng as chancellor and Liz Truss as prime minister, Hunt knows he can’t afford mistakes.
However, the Chancellor will deliver his statement in a much more lenient economic and budgetary context than he could have imagined at the start of the year.
Instead of experiencing the longest recession in our history, predicted by the Bank of England last year, the UK economy is still poised to expand despite the series of deeply damaging strikes it has endured.
Indeed, business prospects in the UK are buoyant, according to the latest quarterly survey from Accenture consultants.
Jeremy Hunt has a tremendous opportunity to deliver an ambitious, business-friendly spring budget today, writes Alex Brummer
After last fall’s mini-budget pyrotechnics, which led to the resignation of Kwasi Kwarteng as chancellor and Liz Truss as prime minister, Hunt knows he can’t afford mistakes
It shows British business confidence rebounded last month to its highest level in a year, with manufacturers and the services sector, which accounts for more than 70% of economic output, expressing optimism.
Remarkably, trust in the UK is higher than in continental Europe and worldwide. If there was ever a better time to support enterprise, entrepreneurship and effort, it’s now.
Unexpectedly, the Chancellor also has the means to help businesses and taxpayers. Strong tax revenues, near full employment, falling fuel prices and tight control of the government’s purse strings have meant borrowing is £30bn lower than forecast in the autumn.
The National Institute for Economic and Social Research think tank says there could even be an extra £100 billion for tax cuts and extra spending in the current forecast period ending in 2027 -2028.
There are plenty of options Hunt could pursue to put boosters under the economy. While it’s clear he plans to play it safe, here are ten big tax changes I think he could make without scaring the horses.
1. Ditch the business tax hike
Corporation tax, paid by the largest companies, will rise from the current headline rate of 19% to 25% from April 6. This will be a huge deterrent to companies investing in Britain.
The UK’s biggest company, life sciences giant AstraZeneca, has already decided to shift new investment to Ireland, citing the “disheartening” rise in corporation tax.
Disconcertingly, the rise appears to be continuing despite evidence that shows revenues have risen sharply since George Osborne began the process of cutting corporation taxes during his term as chancellor.
2. Keep the super tax break for investing
The super-deduction, introduced by Rishi Sunak after Covid-19 to revive the economy, is a massive tax break for companies investing in new capital.
Among other things, this encouraged huge investment in wiring Britain with broadband. Now that the Chancellor is considering abolishing it, major investments could dry up.
It should be replaced by a similar measure that not only offers deductions for capital and installations, but also offers tax breaks to companies that modernize using digitization, software and AI.
The super-deduction, introduced by Rishi Sunak after Covid-19 to revive the economy, is a massive tax break for companies investing in new capital
3. Increase tax breaks for high-tech companies
This week the Chancellor persuaded HSBC to bail out the London branch of Silicon Valley Bank, a key financier for venture capital and tech start-ups. Now he must go further.
It must reverse proposals to make it harder for innovative, technology, biotech and other science-based companies to access research and development tax breaks.
It is expected to double tax breaks and spending on R&D and training to ensure the UK remains the world’s third-biggest location for tech investment behind the US and China.
Maintaining the 19% corporate tax rate for small businesses, the source of British entrepreneurship, should be part of this plan.
4. VAT-free purchases to attract tourists
Britain has some of the most prestigious shopping venues in the world, ranging from opulent retail groups such as Fortnum & Mason and Selfridges to the luxury brand emporium at Bicester Village in Oxfordshire.
All of these have attracted foreign visitors, but the decision to impose VAT on these sites after Brexit is a devastating blow that only benefits rival European cities such as Paris and Madrid.
5. Reform rates, save high streets
Reform of the odious trade tariff system that has turned many of the country’s shopping streets into commercial deserts is now needed.
Digital giants like Amazon must pay their fair share.
6. Make the new pension ceiling fair
In a huge disincentive to work and save, the Treasury has steadily reduced – and then frozen – the lifetime tax-free pension savings cap of £1.07million.
This has led many professionals, especially doctors, to take early retirement. There are indications that the limit is to be raised to £1.8million, which will benefit up to two million people at a cost to the Exchequer of £2billion a year.
As welcome as this may be for middle-income taxpayers, it is unfair to people who have already made life-changing retirement decisions due to arbitrary limits.
The Chancellor must devise a transition system so that those who have made the decision to retire and who will now be excluded from the upper limit of tax exemption are not disadvantaged.
7. Reduce crippling childcare costs
The cost of childcare has skyrocketed in the UK and is forcing parents (often women) to stay at home. The current system provides 30 hours of support during school terms to parents of children aged three to four.
The new plan due to be announced today to extend this support is key to unlocking the 300,000 people who have dropped out of the labor market since the pandemic.
8. End the Isa savings freeze
The tax-free savings limit on an individual savings account has been frozen at £20,000 a year since 2017.
It’s time for the Chancellor to raise the limit, especially for those investing in funds focused on UK start-ups, newly-created companies and companies committed to carbon-reducing technologies.
9. Create more free zones
A key part of the upgrading program is to create new enterprise zones where there are generous tax allowances and government funding for development and infrastructure projects.
This policy was suspended in the fall of 2022 and the current government is more inclined to focus its attention on proven science hubs such as Oxford and Cambridge.
The benefit of reaching out to underdeveloped parts of the country, such as Teesside Freeport, is that it is brilliant at mobilizing investment. More free zones should be a given.
10. Increase personal tax allowances
The freeze on tax relief, historically increased in line with inflation, has pushed millions of ordinary Britons into higher tax brackets. It’s a brake on hard work.
The Chancellor is expected to pledge to gradually ease the freeze as public finances and the economy improve.
Of course, the Chancellor subjects all his budget proposals to the scrutiny of the Office for Budget Responsibility and is careful to coordinate with the Bank of England in its efforts to halve inflation by the end of This year.
Hunt may not feel like he has the fiscal leeway to fully embrace these aspirations for a low-tax economy. But his first spring budget must assure businesses and voters that better, weaker and fairer tax policies lie ahead.
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