Jeremy Hunt will on Wednesday announce billions of pounds to boost business investment and measures to bolster Britain’s workforce, including a big expansion in free childcare, in a “Budget for growth”.
The chancellor has pledged that business will be the main beneficiary of any tax cuts in his Budget, but he is constrained by a tough fiscal backdrop and a vow to hold down spending to tame inflation.
One big area of spending will be a £4bn expansion of free childcare for parents of one and two-year-olds in England, a move intended to help parents return to the workplace earlier, government officials said.
Last November, Hunt attempted to stabilise the economy after Liz Truss’s disastrous premiership, but he has privately admitted that he failed to persuade the country that he had a growth strategy.
On Wednesday, he will tell MPs: “In the autumn we took difficult decisions to deliver stability and sound money. Today, we deliver the next part of our plan, a Budget for growth.”
One Tory official said Hunt’s statement would be deliberately cautious and regarded as “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 obstacles that stop businesses investing, tackling the labour shortages that stop them recruiting, breaking down the barriers that stop people working and harnessing British ingenuity to make us a science and tech superpower”.
Government officials say Hunt will announce a new multibillion-pound regime of capital allowances and other reforms intended to boost investment — and to offset other tax changes taking effect in April that will hit business.
The chancellor has said he will stick to plans to increase corporation tax from 19 per cent to 25 per cent and to end a “super-deduction”— a two-year measure offering 130 per cent tax relief on companies’ purchases of equipment.
Hunt has been consulting on replacing the super-deduction with “full expensing”, which allows 100 per cent of qualifying capital expenditure in the UK to be written off against taxable profits in the year it is incurred.
Government insiders said on Tuesday that Hunt was expected to press ahead with 100 per cent capital allowances. The Treasury has estimated that “full expensing” would cost £11bn at its peak but would fall over time.
That is because initially the scheme will include the upfront tax break for new capital spending, alongside allowances for old investment that is currently written off over a number of years.
Hunt will also announce measures to tackle the 1.1mn vacancies in the British labour market, including providing incentives for parents, the sick, disabled and over-50s to work. Ministers will also relax rules on migrant workers to help fill jobs in key sectors.
There are also expected to be incentives for UK 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 holding down fuel duty and extending the £2,500 energy price guarantee for three months from April, avoiding a spike in bills this spring.
The measures will come against a still challenging economic backdrop, with weak growth forecast over the next five years, even though the fiscal watchdog will pare back forecasts of a deep recession in 2023.
With significantly lower public borrowing this year and next, Hunt will have room for one-off giveaways to ease the cost of living pressures, but the Office for Budget Responsibility is not on course to say that the medium-term outlook for the public finances will be much brighter than in November.
Public debt is expected only to be falling as a share of gross domestic product by the end of the forecast, with little room to spare.