Business lobby groups have called on the government to kick-start economic growth by including tax breaks for investment worth billions of pounds and policies to tackle worker shortages in the Budget.
Chancellor Jeremy Hunt is expected to offer only modest help for companies in the March 15 Budget, with no immediate tax cuts likely because of tight constraints on the public finances amid the economic downturn.
Hunt is prioritising cutting inflation and reducing public debt, but he is coming under pressure from business groups and Conservative MPs, including former prime minister Liz Truss, to do more to boost growth.
The CBI employers’ group said on Thursday that Hunt should include measures in his Budget costing £19bn in 2023-24 to increase business investment and alleviate labour shortages.
Business groups such as the CBI are concerned about how the government’s “super-deduction” scheme for capital investment — a two-year measure offering 130 per cent tax relief on companies’ purchases of equipment — expires in March.
The following month UK corporation tax will increase from 19 to 25 per cent, intensifying fears that companies will cut capital spending.
CBI director-general Tony Danker said: “This Budget is the opportunity to get the UK out of any recession sooner rather than later and transform the UK into a high-growth, innovation-first economy.”
He said the end of the super-deduction scheme alongside the sharp rise in corporation tax “will have a huge impact on investment and leave the UK falling behind its global competitors”.
Institute of Directors head Jonathan Geldart said businesses wanted the government to produce “a credible medium-term plan to take us beyond the current macroeconomic difficulties on to a path of sustainable growth”.
The IoD and Make UK, the trade body for manufacturers, have joined the CBI in calling on the government to introduce a replacement for the super-deduction measure.
The CBI has suggested that companies should initially be able to write off 50 per cent of the cost of any capital spending against tax, with the arrangements becoming more attractive as the public finances improve.
Make UK wants the government to focus tax relief on investment in green plant and machinery. The IoD wants the super-deduction scheme retained on a permanent basis.
The Federation of Small Businesses highlighted the future tax burden for companies — saying that from April the UK “will feature the highest tax burden since Clement Attlee and Stafford Cripps in 1948”.
The FSB wants targeted help for smaller companies, by proposing that they qualify for business rates relief if they have premises with a rateable value of less than £25,000. The current threshold is less than £15,000.
The FSB also called for a delay to the government’s plan to cut research and development tax credits for small companies from April.
“The chancellor’s Budget will be one of the last chances in this parliament to have an impact on how well the economy is growing and whether people feel it in their bank account,” said FSB policy chair Tina McKenzie.
With the government cutting subsidies for companies on their energy bills from April, the FSB and the CBI want ministers to provide vouchers to small businesses to help them invest in “green” improvements to their premises, such as heat pumps, better insulation and solar panels.
The IoD recommended cutting corporation tax for companies that have achieved net zero emissions, as well as tax credits for businesses investing in sectors contending with skills shortages.
Employers are concerned that growth is being hampered by a lack of skilled workers.
The CBI called for government support to help parents back into work via some free childcare for one and two-year-olds. It also wants an independent review of the UK childcare system.
Danker said British parents were facing some of the highest childcare costs in the OECD. “We need to see immediate action to urgently solve the labour challenge. Without it, businesses are left trying to grow, invest and become more productive with one hand tied behind their backs,” he added.
The CBI also suggested a one-off tax-free “cost of living” support allowance in 2023-24 to enable employers to help staff on lower incomes.
The FSB wants to exempt day nurseries from business rates, as well as increase the maximum amount claimable by parents for tax-free childcare from £2,000 to £3,000 each year.
Make UK proposed a new employer training fund that would provide tax relief to support reskilling and financed through unspent apprenticeship levy funds.
To address labour shortages, Make UK also wants the government to open up its shortage occupation list to allow more workers from the EU and other countries.
It also wants the government to clarify which EU laws are staying, changing, or going from the UK statute book. “Employers value a stable and predictable regulatory environment,” said Make UK.
Hunt has said that if he has any fiscal leeway in future his priority will be to cut business taxation, but his allies said the situation at the March Budget was likely to be very constrained.
The Treasury launched a consultation in May last year to “consider reforms to best support business investment” once the super-deduction measure ends. “What we do depends entirely on the state of the public finances,” said one Treasury insider.
Hunt has also said that although corporation tax is rising to 25 per cent in April, 70 per cent of companies — which generate profits of £50,000 or less — will not be affected.