Jeremy Hunt has a tremendous opportunity to deliver an aspirational and business-friendly Spring Budget today.
After the pyrotechnics of the mini-Budget last autumn, which led to the resignation of Kwasi Kwarteng as Chancellor and Liz Truss as Prime Minister, Hunt knows he cannot afford mistakes.
Yet the Chancellor will deliver his statement against a far more benign economic and fiscal background than he could have imagined at the start of year.
Instead of the longest recession in our history, forecast by the Bank of England last year, the British economy is still just about expanding despite the series of deeply damaging strikes it has suffered.
Indeed, the UK business outlook is buoyant, according to the latest quarterly survey from consultants Accenture.
Jeremy Hunt has a tremendous opportunity to deliver an aspirational and business-friendly Spring Budget today, writes Alex Brummer
After the pyrotechnics of the mini-Budget last autumn, which led to the resignation of Kwasi Kwarteng as Chancellor and Liz Truss as Prime Minister, Hunt knows he cannot afford mistakes
It shows UK business confidence rebounded last month to its highest level for a year, with both manufacturers and the all-important services sector — comprising more than 70 per cent of economic output — expressing optimism.
Remarkably, confidence in the UK is higher than in Continental Europe and across the globe. If ever there were a more propitious moment to underpin enterprise, entrepreneurship and endeavour it is now.
Unexpectedly, the Chancellor also has the means to help businesses and taxpayers. Solid tax receipts, near full employment, falling fuel prices and careful control of the Government’s purse strings have ensured borrowing is running at £30 billion lower than was projected in the autumn.
The National Institute of Economic and Social Research think-tank says there could even be an extra £100 billion of space for tax cuts and extra spending over the current forecast period ending in 2027-8.
There are plenty of options Hunt could pursue to put boosters under the economy. While it is clear he plans to play it safe, here are ten big tax changes that I believe he could make without scaring the horses.
1. Ditch the rise in business tax
Corporation tax, paid by the biggest companies, is to rise from the current headline rate of 19 per cent to 25 per cent from April 6. This will be an enormous disincentive for businesses to invest in Britain.
The UK’s biggest company, life sciences giant AstraZeneca, has already decided to shift new investment to Ireland, citing the ‘discouraging’ corporation tax increase.
Bafflingly, the increase appears to be going ahead despite evidence that shows revenues have risen strongly since George Osborne began the process of lowering company taxes during his time as Chancellor.
2. Keep super-tax relief for investing
Super-deduction, introduced by Rishi Sunak after Covid-19 to jump-start the economy, is a massive tax break for companies that invest in new capital.
Among other things, it has encouraged huge investment in wiring up Britain with broadband. Now the Chancellor plans to abolish it, major investment could dry up.
It should be replaced with a similar measure which not only offers deductions for capital and plant, but also offers tax breaks to companies that modernise using digitalisation, software and AI.
Super-deduction, introduced by Rishi Sunak after Covid-19 to jump-start the economy, is a massive tax break for companies that invest in new capital
3. Boost tax breaks for high-tech firms
This week, the Chancellor persuaded HSBC to bail-out the London branch of the Silicon Valley Bank, a key financier for venture capital and high-tech start-ups. Now he needs to go further.
He must cancel proposals to make it more difficult for innovative, tech, biotech and other science-based companies to access tax breaks for Research & Development.
He should double down on tax breaks and spending for R&D and training to ensure that the UK remains the third most important venue for technology investment in the world behind the U.S. and China.
Retaining the 19 per cent corporation tax rate for smaller firms, the wellspring of British entrepreneurship, should be part of that plan.
4. VAT-free shopping to attract tourists
Britain has some of the most prestigious shopping venues in the world, ranging from opulent store groups such as Fortnum & Mason and Selfridges to the luxury brand emporium of Bicester Village in Oxfordshire.
All of these have been a magnet for overseas visitors, but the decision to impose VAT on these venues post-Brexit is a devastating blow which only benefits rival European cities such as Paris and Madrid.
5. Reform rates, save high streets
Reform of the odious business rates system that has turned many of the nation’s high streets into retail deserts is needed now.
Digital giants such as Amazon must be made to pay their fair whack.
6. Make the new pensions cap fair
In a whopping disincentive to working and saving, the Treasury has steadily reduced — and then frozen — the cap on tax-free pensions savings at £1.07 million over a lifetime.
This has led many professionals, notably doctors, to retire early. Indications are that the limit is to be raised to £1.8 million, benefiting up to two million people at a cost to the Exchequer of £2 billion a year.
As welcome as this will be to middle-income taxpayers, it is iniquitous to people who have already made life-changing decisions about retirement as a result of arbitrary limits.
The Chancellor has to devise a transition system so that those who made the decision to retire, and will now be locked out of the higher tax-free limit, are not disadvantaged.
7. Ease crippling childcare costs
The cost of childcare has ballooned in the UK and forced parents (often women) to stay at home. The current system offers 30 hours of support during term-time for parents of three-to-four year olds.
The new plan expected to be announced today to extend this support is vital to unlocking the 300,000 people who have dropped out of the work-force since the pandemic.
8. End the Isa savings freeze
The limit on tax-free savings into an individual savings account has been frozen at £20,000 a year since 2017.
It is time for the Chancellor to raise the limit, especially for those who put their savings into funds focused on UK start-ups, newly floated companies and firms committed to carbon reduction technologies.
9. Create more tax-free zones
A critical part of the levelling up agenda is creating new enterprise zones where there are generous tax allowances and government funding for development and infrastructure projects.
This policy was put on hold in the autumn of 2022 and the current Government is more inclined to focus its attention on proven science hubs such as Oxford and Cambridge.
The benefits of reaching out to underdeveloped parts of the country, such as the free-port on Teesside, is that it is brilliant at marshalling investment. More tax-free zones ought to be a no-brainer.
10. Raise personal tax allowances
The freeze on tax allowances, historically raised in line with inflation, has pushed millions of ordinary Britons into higher tax brackets. This is a disincentive to hard work.
The Chancellor should make a pledge to gradually ease the freeze as the public finances and economy improve.
Of course, the Chancellor is subjecting all his Budget proposals to scrutiny by the Office for Budget Responsibility and is being careful to co-ordinate with the Bank of England in the effort to halve inflation by the end of this year.
Hunt may not feel he has the fiscal space to fully adopt these low-tax economy aspirations. But his debut Spring Budget must assure firms and voters that better, lower and fairer tax policies lie ahead.
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