Chancellor under pressure: calls for tax cuts and investment relief in Spring Budget

Members of the Conservative Growth Group (CGG), a group of MPs who back Liz Truss’ economic vision, are calling on the Chancellor to scrap the rise in corporation tax from 19 per cent to 25 per cent. This comes after pharmaceutical giant AstraZeneca announced it will build its new £330 million plant in Ireland rather than England, with concerns about business taxes in the UK.

Ranil Jayawardena, one of the CCG’s founders, told the Telegraph that keeping Corporation Tax at 19 per cent “would pay for itself”. Former Chancellor George Osborne has also advised Hunt to decrease business taxes in the spring budget to boost the economy. He said: “I reduced business tax because I thought that was a way of bringing investment in. That creates the revenues that allow you to fund your public services.”

Sir John Redwood, a former cabinet minister, is reportedly drawing up a list of potential tax cuts that is likely to form a pre-Budget CCG submission to the Chancellor. However Jeremy Hunt has already warned his colleagues that ‘’significant tax cuts in the budget is unlikely’’, given the current state of the public finances.

As well as cancelling the corporation tax increase, Redwood’s list is said by the Telegraph to include:

• Reform (unnamed) levies that hit the self-employed
• Scrap VAT on energy bills
• Reduce high green taxes on heavy industry

Members of the group are also arguing for increases to, or changes to the rules for, the pensions annual and lifetime allowances. Jayawardena told the Express: “Lifting – or scrapping – the lifetime and annual allowances will mean more experienced doctors in the NHS, patients get seen more quickly, fewer locums are needed, and people are able to return to work later in life.” According to the paper, ministers are already looking at the lifetime allowance, which is set at £1 million, but changes to the annual limit is the key reform doctors’ representatives want. It also quotes ex-pensions minister Sir Steve Webb saying there is ‘very little evidence’ that a general increase in tax-free limits for all workers would make much difference, but that a targeted increase aimed at doctors could have a ‘major impact’.

Some London Conservative MPs are backing Hunt, saying that the Chancellor needs to ‘’show [in the budget] there is a path to lower taxes in the future’’. However, they understand that ‘’there are limits to what he can do on tax at the moment’’ due to rising costs of the pandemic and the impacts of Russia’s invasion of Ukraine.

However, former Bank of England economist Sir Charlie Bean says the Chancellor will not be able to cut taxes in the Budget, even though he may have some “wiggle room” on spending. Conservative MP Caroline Nokes, a former minister and current chair of the Women and Equalities Select Committee, also warned against tax cuts. She said: “I think it would be irresponsible to have tax cuts and we saw back in the autumn, didn’t we, the dangers of unfunded tax cuts.”

Tory backbenchers are keeping the pressure up on the Chancellor to freeze fuel duty. During a recent meeting, Hunt, who was being challenged by Jonathan Gullis, said that the Government needs to “see how the public finances are at the time” before considering their request. However, Sir Edward Leigh believes that “there is room in this budget to cut taxes, whether it’s corporation, personal or fuel.” According to the Evening Standard, there are rumours that the Chancellor will extend the 5p fuel duty cut for another year.

A planned new tax on energy bills to fund research into hydrogen has been questioned by some MPs. The Energy Bill would see a levy added to household energy bills from 2025, with the proceeds used to fund production of hydrogen as a low-carbon fuel. But former Business Secretary Jacob Rees Mogg said he is “against new taxes even when they masquerade as green levies,” adding: "putting more taxes will make the UK more inefficient.”

Finally, several Conservatives MPs have asked the Chancellor to consider simplifying the tax-free child allowance scheme, as only 316,000 families have applied for the scheme out of 1.3 million.

Budget ‘asks’ and speculation

The Confederation of British Industry has backed MPs’ call in regards to childcare funding, saying that it would allow more parents to get back to work and could address acute workforce shortages. Additionally they are recommending the Government introduce a one-off tax free ‘’cost of living’’ support allowance in 2023-24 to empower employers to support staff on lower incomes.

The Institute of Directors, along with CBI and Made UK, have urged the Chancellor to include tax breaks for investment in his Budget and introduce a replacement for the ‘super-deduction’ scheme. Tony Danker, CBI director-general, believes that the budget provides a good opportunity to “transform the UK into a high-growth, innovation-first economy.”

Likewise, in a joint letter, five trade associations representing hundreds of companies and organisations in the UK, are calling on Hunt to use the Budget to introduce new investment tax relief.

Interactive Investor, a leading investment platform, has asked the Chancellor to eliminate stamp duty on investment trust share purchases in the Budget, as they believe that the levy is “anti-competitive and unfair”. Richard Wilson, chief executive of Interactive Investor, said: “it’s time for the Government to level the playing field and recognise that, like funds, investment trusts are a thriving part of the collective investment universe.’’

Labour is putting pressure on the Chancellor to introduce a ‘’proper’’ windfall tax on energy companies in the Budget, following Centrica's soaring profits. However a source close to the Treasury has indicated that it is highly unlikely as Hunt believes the tax in its current form is sufficient.

CIOT and ATT have been setting out some of the things we would like to see in the Budget. For ATT this includes extending tax reliefs on training costs to cover self-employed people who retrain in a new trade, and increasing out of date mileage allowance rates. CIOT’s representations include a call for the Government to review repayment interest rates, and for tax exemptions to apply equally to employees where the cost of benefits such as flu jabs is reimbursed by their employer as where their employer provides it directly.

The Chancellor has said that he will “look at the conditions necessary to make work worth your while” to tempt early retirees back into the labour market. Announcements under this heading can be expected in the Budget. It remains to be seen whether they will include tax changes, but one suggestion is that the Chancellor may launch consultations on proposals around reduced National Insurance Contributions for returning workers and retraining funding. We may also see reform of the much-criticised Apprenticeships Levy.

Ministers have hinted in recent debates that there might be changes to the non-dom tax regime – a politically charged area as this is a target for Labour. We could see an increase to the remittance charge or a consultation or tightening the criteria for non-dom status.

Overall, it seems unlikely that the Chancellor will include substantial net tax cuts in the Budget due to the current economic landscape. The Prime Minister and the Chancellor will likely set out long-term aims that will not provide immediate relief for taxpayers.

Finance Bill 2023

The Budget will be followed as usual by a Finance Bill. Measures expected to appear within this include:

• Legislation to implement a global minimum rate of tax of 15%, (OECD Pillar 2) from 2024, and to implement a qualified domestic minimum top-up tax (QDMTT) where a company’s UK operations have an effective tax rate of less than 15%
• Reforms to R&D tax relief to include data and cloud costs, to refocus support towards innovation in the UK and to target abuse
• Introducing the electricity generator levy and making changes to the energy profits levy
• Legislation to change pension relief relating to net pay arrangements to address the low earners anomaly
• Changes to Capital Gains Tax to give separating couples a longer window in which to transfers assets on a ‘no gain, no loss’ basis
• New, simpler system for Alcohol Duty rates and reliefs
• Expansion of ‘tax conditionality’ (making certain licences conditional on tax checks) to Scotland and Northern Ireland
• Legislation abolishing the Office of Tax Simplification