Chancellor to offer smaller and medium-sized enterprises big tax breaks for investment in effort to unleash new era of growth in science and technology
The Chancellor is to offer Britain’s smaller and medium-sized enterprises (SMEs) big tax breaks for investment in Wednesday’s Budget as part of his effort to unleash a new era of growth in science and technology.
Allowances for investment in new plant and equipment are to be quadrupled from £250,000 a year to £1 million as Jeremy Hunt seeks to invigorate confidence in Britain.
He will defy the fierce pressure from business groups to rescind the April hike in corporation tax from 19 per cent to 25 per cent – and focus on supporting growth in Britain’s high-tech sector and getting inactive workers back into employment.
The company tax rate for smaller firms earning £50,000 to £250,000 will be held at 19 per cent. That means that this segment of business will enjoy the lowest company taxes in the Group of Seven richest nations.
Hunt believes that post-Covid skilled labour shortages are pushing up wages and could prolong Britain’s stubborn inflation rate which he is pledging to halve by the end of the year.
Tax breaks: Allowances for investment in new plant and equipment are to be quadrupled from £250,000 a year to £1 million
He will unveil measures to encourage people back into employment, amid early signs the rising cost of living is already luring some back.
The Chancellor’s central message is that if Britain wants to be the life-sciences and high-tech innovator it can be, then it is vital to get behind the small and medium-size enterprises. And he will claim that even after the rise in corporation tax, Britain will still have one of the most competitive tax rates in the advanced world.
The Chancellor wants to avoid the razzle-dazzle of predecessor Kwasi Kwarteng’s mini-Budget last autumn. He plans to use most of the £30 billion or more headroom on current borrowing to strengthen the UK’s fiscal stability rather than embark on new spending or a tax-cutting splurge.
Hunt will remind MPs his duty is to pay down £400 billion of Covid borrowing as soon as is practical and that big companies, which received large handouts during the pandemic, need to pay their fair share.
The Treasury view is that the Government, having largely won back confidence in UK government bonds after last autumn’s crisis, cannot afford to take any risks with the public finances.
The Chancellor will, however, announce an extension of the energy price guarantee until July at a cost of £3 billion, when a new, possibly lower price ceiling will be introduced by the regulator. The Government is also picking up the bill for a 10 per cent rise in universal credit and a programme of £900 of help for low-income families.
Hunt fears that with debt repayments expected to hit an alarming £120 billion in 2023-24 – the cost of more than any government department bar one – a further build-up of borrowing would be irresponsible.
The Treasury dismisses claims that the interest payments will fall sharply in coming months and years, and the Government insists it is bound by legislated accounting rules to take the hit in full.
The Office for Budget Responsibility remains hugely cautious about growth prospects, which will be reflected in miserly output projections.
Slow growth, in the Government’s view, means there is ‘no massive windfall’ that would allow Hunt to turn on the spending taps or to cut taxes.
The goal in the medium term is to get down borrowing, projected to hit £177 billion this year, as quickly as is practical. Beyond that, the Chancellor will seek to lay down long-term plans for investment which can unleash productivity.
Not only will Hunt refuse to rescind the rise in corporation tax, he is also planning to axe Rishi Sunak’s ‘super-deduction’ for capital investment with its £25 billion bill.
He believes that all it has done is allow corporations such as BT to switch the cost of capital projects, which would have been completed anyway, from their own balance sheets to the Exchequer.