UK Plans Sweeping Changes To Tax And Benefits To Lift Growth
Companies will get £9 billion ($10.9 billion) a year of tax relief through a system of allowances for those making investments.
(Bloomberg) -- Chancellor of the Exchequer Jeremy Hunt set out major changes to the UK tax and benefit system to encourage businesses to invest, entice people back into work and to pull the economy out of stagnation.
Companies will get £9 billion ($10.9 billion) a year of tax relief through a system of allowances for those making investments. Families will see a total of £94 billion over this year and next to offset the soaring cost of living, with more than £5 billion a year allocated to help with childcare costs.
The measures are the key parts of the Treasury’s annual budget statement, which outlines Prime Minister Rishi Sunak’s tax and spending priorities as the next general election — due by early 2025 — comes into focus. Hunt is attempting to repair damage done to the public finances that sparked market panic last year during Liz Truss’s brief term as prime minister.
“The UK economy is on the right track,” Hunt said in his speech to Parliament in London on Wednesday. “In November we delivered stability. Today it’s growth — the best investment incentives in Europe. The biggest ever employment package.”
The budget included a series of measures, many trailed in advance, including:
- £3,300 per household for cost-of-living support, including a three-month cap limiting electricity and natural gas bills to about £2,500 and a freeze on vehicle fuel duty.
- A cut on tax for draft beer served in pubs, boosting the hospitality sector.
- The defense budget will rise by £11 billion over the next five years, raising spending to 2.25% of GDP.
- Savers will now be allowed to push an unlimited amount into pensions, removing a cap that many complained discouraged older people from staying in employment.
- Leisure centers will get £63 million to cope with high energy costs.
- A shakeup in the benefits system aimed at getting more people over age 50 back to work — and penalizing those who are able to take jobs but don’t.
Hunt said the economy would only contract by 0.2% in 2023, compared to the OBR’s previous forecast of shrinking by 1.4%. The average of independent forecasts had expected a 0.7% decline.
There were modest downgrades for longer-term growth forecasts — the OBR now expects the economy to grow 2.1% in 2026, versus a previous forecast of 2.7% growth, and growth of 1.9% in 2027, versus the previous forecast of 2.2% growth.
One of the biggest measures was aimed at reversing lagging business investment, one of the weak spots in the UK economy. The country is the only Group of Seven nation yet to recover its pre-pandemic economic strength.
The Office for Budget Responsibility said more generous allowances to allow full expensing of capital projects will increase investment 3% every year they are in place.
“Its impact on our economy will be huge,” Hunt said of the program. “This decision makes us the only major European country with full expensing.” The program will run for three years initially, with a view to making it permanent if possible.
There was also a £1.8 billion package of measures on research and development to help 20,000 cutting-edge companies, which are turning Britain into what Hunt called a “science superpower.”
Hunt said he would meet his fiscal rule of having debt falling as a proportion of the size of economy in five years’ time with £6.5 billion to spare. He said he’d meet his borrowing rule — to have public sector net borrowing below 3% of GDP over the same period — with £39.2 billion to spare.
For families, Hunt set out a series of measures to help with child care. That’s aimed at helping get more women back into the workforce and reduce the cost of care that’s well above most other industrial nations. He said the government will:
- Grant £600 incentive payments to people who become childminders.
- Boost funding by 30% for nurseries providing free childcare, to £288 million.
- Loosen minimum staffing rules, allowing nurseries to take care of more children.
- Expand funding to ensuring children can remain in schools between 8am and 6pm.
- Grant 30 hours a week of free care for all children older than 9 months, a package worth £6,500 a year to every family with a two-year-old.
“For many women, a career break becomes a career end,” Hunt said. “If we matched Dutch levels of participation, there would be more than 1 million more women who want to work, in the labour force.”
(Updates with details from the statement from the first paragraph.)
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