Hunt eyes £10bn business tax cut (but does he have the funds he thinks he has?)
JEREMY Hunt is consider- ing a £10billion cut in business taxes to help head off a recession next year.
The Chancellor is mulling an extension of a temporary tax break that rewards firms for investing in their businesses.
The move is being considered for inclusion in this month’s Autumn Statement on the economy, despite Treasury warnings that cuts in personal taxes are unlikely.
A report today suggests that the Chancellor will have more money to play with than previously thought, as stealth taxes bring in surging revenues.
The study by the Resolution Foundation think-tank suggests Mr Hunt may have £13billion in ‘fiscal headroom’ – double the level forecast at the March Budget.
The study found that high inflation, coupled with record wage growth, is driving up tax revenues much faster than expected, with receipts set to come in £16billion higher than forecast by the Office for Budget Responsibility.
However, the Resolution Foundation said the increase in headroom was largely illusory as inflation means the Government also faces increased costs.
Research director James Smith said: ‘As well as causing a huge cost of living crisis, Britain’s bout of high inflation is also flattering the public finances, with higher pay growth feeding through into higher tax revenues. But while this will give the Chancellor the appearance of extra wriggle room in his Autumn Statement, it is in fact a fiscal illusion founded on the idea that higher inflation will increase tax revenues without also pushing up spending on public services.’
But Whitehall sources confirmed that the Chancellor is considering business demands to extend the temporary regime of ‘full expensing’, which allows firms to offset investment costs against tax.
Mr Hunt announced the scheme at the Budget to soften the blow of a huge rise in corporation tax – from 19 to 25 per cent. He said he wanted to make it permanent ‘when fiscal conditions allow’. A Whitehall source said encouraging business investment was a key goal of the Autumn Statement.