UK Chancellor of the Exchequer, Jeremy Hunt, is set to announce a series of measures aimed at boosting business investment by £20 billion a year. One of the key proposals is the extension of a tax relief on investment spending by British businesses, known as “full expensing.” This tax break allows businesses to save 25 pence off their tax bill for every £1 they invest in plant or machinery. Hunt’s plans also include a reduction in national insurance, a payroll tax, as part of his pledge to alleviate the country’s tax burden.
The announcement, known as the Autumn Statement, is crucial for both Hunt and Prime Minister Rishi Sunak, as they aim to strengthen the position of the governing Conservatives ahead of an expected general election next year. With the party currently trailing behind the main opposition Labour Party by 20 points in the polls, there is pressure on Hunt and Sunak to deliver voter-friendly measures.
Hunt faces the challenge of striking a balance between tax cuts and keeping inflation in check. Bloomberg Economics expert Dan Hanson suggests that Hunt’s focus will be on supply-enhancing policies rather than demand-stimulating ones. This approach is expected to be maintained as long as there is sufficient funding to support permanent full expensing and the reduction in national insurance.
Labour, on the other hand, has expressed support for tax cuts if elected to power. Darren Jones, the party’s shadow chief secretary to the Treasury, explained that taxes on working people need to come down, as families are currently paying an average of £4,000 more in tax. Jones emphasized the need for improved public services and a positive direction for the economy.
There are growing expectations for personal tax cuts following Sunak’s recent comment that the time is right to reduce taxes. Both the Times and Financial Times have reported that Hunt is likely to announce cuts to national insurance. However, the Treasury has declined to comment on these reports.
The full-expensing policy was initially introduced by Hunt in his spring budget as a temporary measure to counterbalance his decision to increase the corporation tax rate. The policy was set to expire in 2026, but Hunt has consistently expressed his desire to make it permanent if the country’s finances allow. The Office for Budget Responsibility estimated that making full expensing permanent would cost around £10 billion a year.
Hunt’s ability to consider tax cuts comes from the government’s achievement of halving inflation this year, although it still exceeds the Bank of England’s target. Additionally, better-than-expected growth figures and tax receipts have improved Hunt’s fiscal position. However, his current economic plans assume tight public spending after the expected 2024 election, a scenario described as “implausible” by the Resolution Foundation think-tank. This means that Hunt’s proposed giveaways could be challenging to finance in the future without risking damage to public services.
More detail via The Star here… ( Image via The Star )