Jeremy Hunt, the Chancellor of Exchequer, is looking at giving British companies additional tax relief for investment spending. This is part of his spring budget to stimulate economic growth.
According to two sources, Hunt is currently reviewing potential changes to the UK’s capital-spending allowances in order to encourage business investment. They said that Hunt is still constrained by tight fiscal circumstances and has not made any final decisions.
Hunt is being pressured to act as Britain’s most prominent corporate tax break, the “super-deduction”, introduced in 2021 by then-Chancellor Rishi Sonak and giving firms 130% capital expenditure tax relief, expires April 1. Hunt is facing double pressure to act as the UK’s corporation rate will rise from 19% – 25% on April 1.
A Treasury spokesperson stated that all UK taxes are being continuously reviewed and that the department will not comment on any potential changes in advance of next week’s budget.
The Treasury is considering a range of measures to replace super-deduction. These include increasing so-called first year allowances, which allow companies to deduct certain capital expenditures from their taxable profits. To full expensing, which allows firms to deduct all qualified capital spending, according the people.
Hunt is also considering how long the measures will last. A temporary full-expensing system, which would reduce tax bills by 25 pence for each PS1 invested, was one option that was discussed at the Treasury. This policy would be costly, as it could cost up to PS11billion ($13billion) the first year. According to another source, Hunt would propose a permanent replacement for the Conservative Party’s manifesto prior to the next election. This is expected next year.
According to this person, the Treasury has met with representatives of capital allowances to discuss various options in recent days. The G-7 Average has seen a 19% decrease in business investment
Sunak and Hunt want to address the UK’s long-standing problem of low investment relative to G-7 countries. Hunt faces the challenge of finding a solution to the UK’s fragile public finances.
Hunt faces pressure to encourage business investment and to freeze fuel duty. He also needs to give additional help to families struggling with a cost of living crisis. Treasury officials caution Hunt that Hunt does not have enough discretion to give away any money in his spring budget. A modest increase in interest rates could wipe out his headroom for achieving his fiscal goal of having his debt fall by 2027-28.