London wants to combat the chronic weakness in growth with tax incentives

Accordingly, the experts are now only predicting a slight decline in economic activity of 0.2 percent for the current year. Next year it should then go up again with a plus of 1.8 percent. At the same time, the government assumes that the inflation rate will fall from around ten percent to 2.9 percent by the end of 2023. The unemployment rate will not climb higher than 4.4 percent.

The International Monetary Fund (IMF) predicts that the UK will have the lowest growth rate of any major industrialized country (G7) this year and has yet to return to its pre-pandemic level of prosperity.

More verbally than actually, Hunt is ushering in a fiscal turnaround. In November 2022, the finance minister announced tax increases and spending cuts totaling £55 billion (about €62 billion) to calm the nerves of the financial markets after the shock of former Prime Minister Liz Truss’ infamous “mini-budget”. The Tory politician wanted to push through massive tax cuts on credit. Hunt pulled the emergency brake, Truss had to resign a little later under pressure from her party.

Chancellor of the Exchequer sticks to corporate tax hike

Since then, the governing Conservatives have been struggling primarily with themselves over the right balance between sound budget management, fighting inflation and a growth policy. Despite his growth rhetoric, Hunt’s new budget proposal clearly prioritizes the first two goals. The most important evidence for this is that the British Chancellor of the Exchequer is sticking to the planned increase in corporation tax for companies from 19 to 25 percent.

“If the last government was guilty of unfunded tax cuts, then maybe this government is guilty of unfunded tax increases,” Mark Littlewood, director of the neoliberal think tank Institute of Economic Affairs, criticized Hunt’s agenda to news outlet Politico. The tax burden in Great Britain will reach a post-war high of 37.7 percent of gross domestic product (GDP) in 2027/28, according to OBR forecasts. This includes the highest share of corporate tax revenue in GDP since the levy was introduced in 1965.

Instead of a low corporate tax rate, the finance minister is opting for better depreciation options in future in order to increase corporate investment. Hunt is allowing the previous “super write-offs” of 130 percent for machines and systems to expire as planned. At the same time, however, companies should be given the opportunity to deduct 100 percent of certain investment expenses from their tax liability over the next three years.

Hunt put the cost of the new scheme at £9 billion a year. He announced further tax breaks for expenditure on research and development, the deductibility of which he only restricted in the autumn.

“Lack of investment is just one reason for our lack of productivity,” diagnosed Hunt, “plus there is too little economic activity.” According to the Treasury Secretary, there are seven million able-bodied adults in Britain who have turned their backs on the labor market.

In order to change that, the government wants to strengthen work incentives with additional help for childcare and higher tax allowances for old-age provision. In future, employees will be able to pay as much money into their private pension scheme as they want without having to pay taxes.

Nuclear power should be promoted more

The fact that economic growth in Great Britain is expected to decline less sharply than feared will also give the government new financial leeway. National debt should not exceed 100 percent of GDP and the budget deficit should fall below two percent by 2027.

Defense spending is set to increase by a total of £5 billion this fiscal year and next. Over the next five years, London wants to spend a total of £11 billion more on defense and is aiming for a future spending target of at least 2.25 percent of GDP.

Energy aid for UK consumers, introduced in the autumn, will be extended until the end of June. For three more months, energy costs for “a typical household” will be capped at £2,500 a year. At the same time, the fuel tax will remain frozen and the beer tax will even be reduced slightly. Hunt spoke of a “Brexit pub guarantee”.

For its own energy security, London is increasingly relying on “Carbon Capture and Storage” technology, in which climate-damaging carbon is filtered out of the air and stored. The government wants to support this technology with around 20 billion pounds over the next 20 years. In addition, nuclear power is to be declared a “sustainable environmental technology” and thus receive the same state support as renewable energies.

To ensure that prosperity is no longer concentrated in the south of the island kingdom and in London, Hunt uses an idea from Liz Truss and wants to set up twelve new “investment zones” across the country, which will receive special tax incentives. “That’s 12 potential Canary Wharfs,” said Hunt, referring to the successful transformation of east London’s former docklands into a world-renowned financial hub.

According to calculations by the OBR, the finance minister is giving the British economy a total of around £22 billion in start-up aid. However, he will not be able to dispel the bad mood in the country so quickly. According to an opinion poll by the Savanta Institute before his speech in the House of Commons, 60 percent of Britons do not believe that the new budget will improve the situation of the economy.

Hunt felt a taste of displeasure in front of Parliament in Westminster, where public sector workers protested for their wages to be compensated for inflation. A total of more than 400,000 teachers, doctors, railway workers and public administration employees went down their jobs on Wednesday.

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