Chancellor of the Exchequer Jeremy Hunt is set to extend a major tax break for businesses in his upcoming fiscal plan, according to people familiar with the matter, part of an effort to spur investment and boost the stagnant British economy.
Hunt wants to prolong the so-called “full-expensing” policy, which gives firms 100% tax relief on capital spending, beyond its expected expiration date in the 2025-26 fiscal year. The chancellor is waiting for final forecasts from the Office for Budget Responsibility before making a decision on the length of the extension, according one of the people, who asked not to be named while discussing internal deliberations.
Options under consideration include making the policy permanent or extending it by one year, according to another person. The Telegraph newspaper reported on Saturday that Hunt was considering extending the policy to the 2028-29 fiscal year, without saying where it got the information, which would imply making it permanent.
The UK’s finance minister has promised to do more to support growth in his autumn fiscal statement on Nov. 22, a key opportunity to improve the economy ahead of a likely election next year. The British economy flatlined in the third quarter, according to gross domestic product figures released Friday, as the Bank of England’s efforts to bring down inflation weigh on output.
Hunt announced the full-expensing policy 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%. While Hunt has said for months that he wants to make full expensing permanent to encourage more investment, he has cautioned it depended on economic circumstances.
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The measure would cost the Treasury £10 billion ($12.2 billion) for each additional year, one of the people familiar with Hunt’s thinking said. The policy lets firms effectively save 25 pence on their tax bill for each £1 they invest.
Read More: Hunt Promises Focus on Stimulating Growth as Economy Stagnates
Hunt is under pressure from his own Conservative Party to cut taxes, after the tax burden has risen to its highest since World War II due to governments efforts to offset the impact of the coronavirus pandemic and Russia’s war in Ukraine. He’s also trying to avoid adding to price pressures and has said he opposes broad-based tax cuts for now.
“What you’ll see in the weeks ahead is an autumn statement for growth measures that will unlock business investment,” Hunt told Sky News after GDP figures were released Friday. “But we won’t do anything that compromises the battle against inflation.”
--With assistance from Kitty Donaldson.
Author: Joe Mayes, Ellen Milligan and Philip Aldrick