Jeremy Hunt is poised to reject business calls to use next month’s autumn statement to extend a £10bn tax cut aimed at boosting corporate investment in the UK, despite growing concerns over the economy.
At the spring budget in March, the chancellor introduced the multibillion-pound “full expensing” investment relief by saying he wanted to make it permanent “as soon as we can responsibly do so” to help kickstart economic growth.
Industry leaders are preparing to use a round of Downing Street meetings with Hunt this week and next to lobby for the three-year policy to be extended in the autumn statement on 22 November to help counter Britain’s worsening growth outlook.
However, it is understood that Hunt will tell bosses that constraints on the public finances mean he is unable to change course after a sharp rise in government borrowing costs in recent months.
Although the chancellor is expected to place a heavy emphasis on supporting economic growth and raising business investment, sources close to the government pointed to the high cost of the policy and the precarious position of the public finances.
Introduced from April to soften a rise in corporation tax from 19% to 25%, full expensing allows firms to claim back the cost of investments in IT equipment and machinery by allowing them to write it off against tax on their profits. The policy had an initial price tag of £8bn this year, while the Office for Budget Responsibility estimated that the cost of making it permanent could approach £10bn a year.
Hunt has previously argued that the scheme could be made permanent “when fiscal conditions allow”, but cautioned this month that “difficult decisions” would need to be made after the worsening of the public finances. The cost of long-term government borrowing on financial markets this month hit the highest levels since 1998.
However, the chancellor has come under pressure from Conservative MPs to cut taxes in an effort to reverse the Tories’ plummeting opinion poll ratings.
Figures from the Confederation of British Industry show that private-sector activity continued to fall in the three months to October, according to a report published on Monday, amid a downturn across the services sector, distribution, and manufacturing.
Alpesh Paleja, the lead economist at the CBI, said firms were being stifled by high costs, staff shortages and febrile demand conditions. “Chronically weak activity underscores the scale of the challenge the chancellor faces to break the UK’s low-growth cycle,” he said. “Bold action to mobilise the workforce, streamline planning processes, and make full expensing for investment permanent, is crucial to boosting UK productivity.”
In a separate report, the manufacturing group Make UK said extending the full expensing policy was vital for companies for their investment planning. A survey of its members found most were planning to invest in artificial intelligence and other cutting-edge technologies – but said 40% believed the UK was falling behind international competitors.
Hunt is expected to hold meetings with Britain’s four biggest business groups this week and next in advance of the autumn statement. Industry sources said they believed that full expensing remained a “live” issue in the Treasury and would be high on the agenda, but conceded that changes would be difficult to secure. “I don’t think it’s a lost cause,” said one.
One option could be to extend full expensing from three to five years to give firms greater certainty, according the British Chambers of Commerce.
Alex Veitch, head of policy and insight at the BCC, said research from its members across the country showed that the scheme was already having a positive impact. “In our autumn statement submission to the chancellor, we called for him to introduce a five-year period of certainty, while retaining the commitment to making the policy permanent depending on economic conditions.
“We’re also looking for the government to widen eligibility to include leased assets.“
Kitty Usher, chief economist at the Institute of Directors, said: “It doesn’t make policy sense [to have a temporary regime]. Once the policy is settled, it’s pretty much all upside, because it incentivises more capital investment that we know is linked to economic growth.”
A spokesperson for the Treasury declined to comment on changes to tax policy, but said the UK had the lowest corporate tax rate in the G7 and the joint most generous capital allowance regime of any major advanced economy.
“Growing the economy is one of our top priorities, which is why we’ve introduced full expensing, an effective £27bn corporation tax cut, as well as a new £500m-a-year R&D tax credit system – both of which have led to the UK having the highest investment growth in the G7.”
