Jeremy Hunt is preparing to use next week’s budget to repel mounting criticism of Britain’s faltering status as a global hub for business, including new tax reliefs to encourage companies to invest.
Business leaders and some Conservative MPs have called on the chancellor to soften the planned rise in corporation tax from 19% to 25% to allay growing fears over the health of the British economy and faltering levels of company investment.
Bosses and the Labour party have warned that Britain is falling down global league tables amid furious lobbying in the run-up to the budget, with companies urging Hunt to offer fresh tax breaks to replace the super-deduction – a two-year scheme offering firms 130% relief on productivity-boosting investments.
Hunt is understood to have dusted down the results of a consultation launched by Rishi Sunak last year while he was still chancellor, which set out a range of options for replacing the tax break when it expires on 1 April.
Options include “full expensing” of company investment, which would allow qualifying expenditure to be written off in the year it is incurred. However, the Treasury has estimated it could cost £11bn a year.
Sources said government finances had changed since the consultation was launched. At the time, the Treasury said it wanted to hear if such a scheme would be well targeted if funding was available, and if it wasn’t, how to best target its approach.
Earlier this year, the Confederation of British Industry lobby group proposed a “three-year roadmap” to full expensing, starting with a 50% investment allowance from this April, with an initial price tag of between £1.2bn and £2.5bn.
Business leaders had been left with the impression that the chancellor planned to defer major changes on corporate taxation until later this year. However, the move to offer some relief at next week’s budget comes as the government faces mounting criticism of its economic management and Britain’s status among global firms.
Sir James Dyson, the inventor and entrepreneur, has attacked the planned rise in corporation tax. Several top UK companies have also separately moved to float their shares on the US stock exchange, shunning the London market.
On Wednesday, the head of the UK’s City watchdog said a “wider conversation” on Britain’s approach to its stock market was required as he defended the regulator’s role in the decision by the UK microchip designer Arm to list in New York.
Nikhil Rathi, the chief executive of the Financial Conduct Authority, told MPs on the Commons Treasury committee: “We are one part of the conversation, but there are also wider issues.”
Rathi referred to tax policy, regulations protecting consumers from company failures, as well as takeover rules which could have forced Arm’s Japanese owners, Softbank, to list the company in London.
“There is a wider question for us as a country, in that, how much are we prioritising the development of our capital market in broader public policy?”
Hunt has said his ambition is for Britain to have “nothing less than the most competitive tax regime of any major country”, although cautioned that any changes would be limited by tight fiscal constraints and the need to have sustainable public finances.
The planned corporation tax rise to 25% from April would still leave Britain with the lowest rate in the G7 group of wealthy nations. Economists have also questioned whether retaining a 19% headline rate would kickstart business investment, after a decade of cuts came with a heavy price tag and minimal gains.
Business leaders and Labour have also said years of political turmoil, crumbling public services and fractious post-Brexit relations with the EU are among the reasons for weaker levels of business investment beyond headline tax rates.
On Tuesday, the shadow chancellor, Rachel Reeves, said Labour would support the government if Hunt announced a package of investment reliefs to offset the rise in corporation tax. Reeves said Labour would review business taxes with an aim to encourage investment in the British economy.