Jeremy Hunt on Wednesday will announce billions of pounds to boost business investment and measures to boost Britain’s workforce, including a major expansion in free childcare, in a “Budget for growth”.
The Chancellor has promised that business will be the main beneficiary of tax cuts in the Budget, but he is constrained by a difficult fiscal backdrop and has vowed to hold back on spending to reduce inflation.
One big area will be a £4bn expansion of free childcare for parents aged one and two in England, a move intended to help older people return to work earlier, government officials have said.
Last November, Hunt tried to stabilize the economy after Liz Truss became prime minister, but privately admitted he had failed to convince the country he had a growth strategy.
On Wednesday, he will tell parliamentarians: “In the autumn, we took the difficult decision to give stability and good money. Today, we send the next part of our plan, the Budget for growth.
One Tory official said Hunt’s statement would be deliberately cautious and considered a “budget for wonks”, adding: “We’re not out of the woods yet.” Rightwing Tory MPs have been told not to expect big tax cuts.
Hunt will claim that he can deliver growth by “removing the barriers that stop businesses investing, tackling the labor shortages that stop recruitment, breaking down the barriers that stop jobs and using British ingenuity to make us a science and technology superpower”.
Government officials say Hunt will announce a new multibillion-pound capital allowances regime and other reforms intended to boost investment – and to offset other tax changes coming into effect in April that will hit businesses.
The chancellor has said he will stick to plans to increase the corporate tax from 19 per cent to 25 per cent and to stop the “super-cut” – a two-year measure offering 130 per tax relief for companies’ purchase of equipment.
Hunt has been consulting on replacing the super-cut with “full expensing”, which allows 100 percent of qualifying capital expenditure in the UK to be written off from taxable income in the year it is carried out.
Government insiders said on Tuesday that Hunt is expected to go ahead with a 100 per cent capital allowance. The Treasury has estimated that the “full cost” will cost £11bn at the peak, but that will fall over time.
This is because the scheme will initially include up-front tax breaks for new capital spending, along with allowances for older investments that have now been phased out over a number of years.
Hunt will also announce measures to tackle the 1.1 million vacancies in the UK labor market, including providing incentives for the elderly, sick, disabled and over 50s to work. The minister will also relax rules on migrant workers to help fill jobs in key sectors.
There is also expected to be an incentive for British investors and pension funds to commit to early stage companies, including in the tech sector, which was shaken this week by the collapse of the UK arm of Silicon Valley Bank.
The budget will also contain measures to tackle the cost of living, such as retaining fuel duty and extending the £2,500 energy price guarantee for three months from April, avoiding bills this spring.
The measures will be taken against the backdrop of a still challenging economy, with weak growth forecast for the next five years, although the fiscal watchdog will withdraw its forecast of a deep recession in 2023.
With lower public debt this year and next, Hunt will have room for a one-off prize to reduce the cost of living pressure, but the Office for Budget Responsibility does not necessarily say that the medium-term outlook for public finances will be any brighter than in November.
Public debt is expected to decline only as a share of gross domestic product at the end of the forecast, with little room to spare.