(Bloomberg) -- UK Chancellor of the Exchequer Jeremy Hunt aims to boost business investment by £20 billion ($25 billion) a year by unleashing a package of measures on Wednesday including making permanent a 100% tax relief on investment spending by British businesses.
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The move to extend indefinitely the so-called “full expensing” tax break, which saves businesses 25p off their tax bill for every £1 they invest in plant or machinery, will be one of the key planks of the chancellor’s tax and spending plans, according to a person familiar with the matter, who requested anonymity discussing unannounced measures. Hunt is also expected to announce a cut to national insurance, a payroll tax, as part of a promise to start reducing the country’s tax burden.
The so-called Autumn Statement is a crunch moment for both Hunt and Prime Minister Rishi Sunak, as they seek to restore the fortunes of the governing Conservatives, which trail the main opposition Labour Party by 20 points in the polls ahead of a general election expected next year. For Hunt it’s particularly tricky as he seeks to strike a balance between cutting taxes and keeping a lid on inflation.
The two men are under pressure from their restless backbenchers to deliver voter-friendly measures amid the perception the government failed to move the dial at recent opportunities including the party’s annual conference last month, the King’s Speech laying out its legislative agenda, and a cabinet reshuffle last week that saw former Prime Minister David Cameron return to the cabinet as foreign secretary.
What Bloomberg Economics Says ...
“Even if Hunt has more room for maneuver, we think his guiding principle when it comes to tax cuts will be to focus on policies that can be cast as supply enhancing rather than demand stimulating.”
—Dan Hanson Bloomberg Economics. Click for the PREVIEW.
So long as the money is there to pay for plans to make full expensing permanent and to cut national insurance, Labour would keep both if it’s elected to power, the party’s shadow chief secretary to the Treasury, Darren Jones, told Bloomberg TV on Wednesday.
“We agree in the Labour Party that taxes on working people need to come down because on average families are paying £4,000 a year more in tax,” Jones said. “People will be saying ‘never have I paid so much tax, but what am I getting for all of that money when our public services are on their knees and the economy is headed in the wrong direction?’”
Sunak fueled expectations for personal tax cuts after he said on Monday that the time was right to start reducing taxes. He and Hunt have overseen the tax burden rising to its highest level since World War II. Both the Times and Financial Times newspapers reported late Tuesday that Hunt is due to announce cuts to national insurance, a form of payroll tax. The Treasury declined to comment on the reports.
“We can now focus on going for growth, pushing up the growth rate of the economy and cutting taxes for individuals,” Hunt’s deputy Laura Trott said on BBC Radio earlier on Tuesday. “This is a big moment for us, for people at home.”
The full-expensing policy was announced by Hunt in his spring budget, a three-year measure meant to soften the blow of his decision to increase the corporation tax rate to 25% from 19%. It was due to expire in 2026, and the chancellor has repeatedly said he wanted to make the policy permanent should the public finances allow. It’s a move that the government’s fiscal adviser, the Office for Budget Responsibility, said in March would cost “approaching £10 billion a year.” The Treasury declined to comment when asked if Hunt will make it permanent.
Hunt finds himself in a position where he can consider tax cuts because the government has hit its goal of halving inflation this year — though the rate is still more than double the Bank of England’s 2% target — and because his fiscal position has improved due to better-than-expected growth figures and tax receipts.
However, his current economic plans assume tight public spending in the years after the expected 2024 election which the Resolution Foundation think-tank has described as “implausible” — meaning he’s set to announce giveaways that will be hard to fund in future without damaging public services.
“We’re already in a position where the tax system is not raising the revenues that are needed to deliver the kind of scope and quality of services the public want,” said Gemma Tetlow, chief economist at the Institute for Government. “There’s a tension between the reality of the performance of public services and growing pressures on them over the next few years with the desire of some to cut tax revenues at the same time.”
The Treasury said Hunt will announce 110 measures focused on growth, including removing planning red tape, speeding up access to the electricity grid and reforming welfare.
Earlier on Tuesday, the Treasury said Britain will increase the national living wage by almost 10% to £11.44 an hour next year, a boost to the UK’s lowest earners and a move Hunt said would “end low pay in this country.” Some 2.7 million workers will benefit from the raise.
--With assistance from Lizzy Burden, Andrew Atkinson and Eamon Akil Farhat.
(Updates with comment from Labour’s Jones starting in fifth paragraph.)
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