Chancellor of the Exchequer Jeremy Hunt is considering giving British firms extra tax relief on investment spending as he seeks measures to boost economic growth in his spring budget.
(Bloomberg) — Chancellor of the Exchequer Jeremy Hunt is considering giving British firms extra tax relief on investment spending as he seeks measures to boost economic growth in his spring budget.
Hunt is reviewing a series of potential changes to the UK’s capital-spending allowances to encourage business investment, according to two people familiar with the matter, who asked not to be named discussing confidential plans. No final decisions have been made and Hunt is constrained by a tight fiscal picture, they added.
Hunt is under pressure to act because Britain’s flagship corporate tax break — the so-called “super-deduction” introduced by then-Chancellor Rishi Sunak in 2021, which gives firms 130% tax relief on capital spending — expires on April 1. The UK’s corporation tax rate is also set to rise from 19% to 25% on the same date — a double hit for businesses that Hunt is facing calls to offset.
A spokesman for the Treasury said that all UK taxes are under constant review and the department won’t be commenting on potential changes ahead of the budget next week.
Measures being considered by the Treasury to replace the super-deduction include expanding so-called first-year allowances – which allow companies to deduct the cost of certain capital expenditure from their taxable profits – to full expensing, which would allow firms to deduct all qualifying capital spending, according to the people.
Hunt is also weighing how long any measures might last. One option discussed in the Treasury is a temporary full-expensing regime, which would save companies 25 pence on their tax bill for every £1 invested. The policy would be expensive, costing up to £11 billion ($13 billion) in the first year. Hunt would then propose a permanent replacement in the Conservative Party’s manifesto before the next election, which is expected next year, according to another person who was briefed on the matter.
The Treasury has held meetings to work through the different options on capital allowances in recent days, that person said.
The UK has had a long-standing issue of weak investment relative to its G-7 peers and Sunak and Hunt are keen to tackle the problem. Hunt’s challenge is finding a solution that is consistent with his efforts to repair the UK’s public finances, which remain in a fragile state after the chaotic premiership of Liz Truss last year roiled markets.
In addition to encouraging business investment, Hunt is also facing pressure to freeze fuel duty and give extra help to households struggling with a cost-of-living crisis. Treasury officials have cautioned that Hunt has limited freedom for giveaways in his spring budget and a modest increase in interest rates would wipe out the headroom he has to hit his key fiscal target of having debt falling by 2027-28.
–With assistance from Alex Wickham.
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