Chancellor to offer large investment tax breaks to small and medium-sized businesses to spark a new era of growth in science and technology
The Chancellor will offer Britain’s small and medium-sized enterprises (SMEs) significant tax breaks for investment in Wednesday’s Budget as part of his efforts to spark a new era of growth in science and technology.
Allocations for investment in new plant and equipment are to be quadrupled from £250,000 a year to £1million as Jeremy Hunt seeks to reinvigorate confidence in Britain.
It will defy fierce pressure from business groups to reverse April’s rise in corporation tax from 19% to 25% – and focus on supporting the growth of Britain’s high-tech sector and re-entry inactive workers.
The corporation tax rate for small businesses earning between £50,000 and £250,000 will be maintained at 19%. This means that this business segment will benefit from the lowest corporate taxes in the Group of Seven richest countries.
Hunt thinks post-Covid skill shortages are driving up wages and could prolong Britain’s stubborn inflation rate which he pledges to halve by the end of the year. ‘year.
Tax breaks: Allowances for investment in new plant and equipment are to be quadrupled from £250,000 a year to £1million
He will unveil measures to encourage people to get back to work, amid early signs that the rising cost of living is already attracting some.
The Chancellor’s central message is that if Britain is to be the life science and high-tech innovator that it can be, then support for small and medium-sized businesses is vital. And he will claim that even after the corporation tax hike, Britain will still have one of the most competitive tax rates in the advanced world.
The chancellor wants to avoid the mini-budget glare of his predecessor Kwasi Kwarteng last autumn. He plans to use most of the £30bn or more headroom on current borrowing to bolster the UK’s fiscal stability rather than embark on new spending or fiscal spree.
Hunt will remind MPs that his duty is to repay £400billion of Covid loans as soon as possible and that big businesses, which have received large donations during the pandemic, must pay their fair share.
The Treasury is of the view that the government, which has largely regained confidence in UK government bonds after the crisis last autumn, cannot afford to take risks with public finances.
The Chancellor will, however, announce an extension of the energy price guarantee until July at a cost of £3bn, when a new, possibly lower, price cap will be introduced by the regulator. The government is also footing the bill for a 10% increase in Universal Credit and a £900 relief package for low-income families.
Hunt fears that with debt repayments set to reach an alarming £120billion in 2023-24 – the cost of more than any department but one – further borrowing would be irresponsible.
The Treasury rejects claims that interest payments will fall sharply in the months and years to come, and the government insists it is bound by legislated accounting rules to take the hit in full.
The Office for Budget Responsibility remains extremely cautious about growth prospects, which will result in stingy production projections.
Slow growth, the government says, means there is “no massive windfall” for Hunt to open the spending taps or cut taxes.
The medium-term objective is to reduce borrowing, which is expected to reach £177bn this year, as quickly as possible. Beyond that, the Chancellor will seek to establish long-term investment plans that can unleash productivity.
Not only will Hunt refuse to reverse the corporate tax hike, but he also plans to scrap Rishi Sunak’s ‘super deduction’ for capital investments with his £25billion bill.
He believes all he has done is allow companies such as BT to transfer the cost of capital projects, which would have been completed anyway, from their own balance sheets to the Treasury.
