CBI: Jeremy Hunt and Rishi Sunak must use budget to prevent recession and bolster UK economy
Jeremy Hunt and Rishi Sunak need to use the spring budget to stimulate growth to prevent the UK tipping into a recession this year, the country’s biggest business group has urged today.
The chancellor and prime minister should at the 15 March statement soothe the impact of a sharp rise in the UK’s profit tax to avoid slamming the brakes on investment, according to the Confederation of British Industry (CBI).
Allowing businesses to invest in machines and technology tax free would boost spending on resources that will lift the country out of its more than decade long growth malaise, the CBI recommended.
Sunak and Hunt reversed Liz Truss’s decision to scrap a six percentage point corporation tax last year, raising fears investment will become unviable for many businesses, especially after the 130 per cent investment tax relief ends at the same time in April.
“This budget is the opportunity to get the UK out of any recession sooner rather than later and transform the UK into a high-growth, innovation-first economy,” Tony Danker, director general of the CBI, said.
“We know the economy can – and must – break out of its low growth trap, but we will need action on business investment to achieve it,” he added.
“Our proposals on full expensing would see the UK back in the game on global investment,” Louise Hellem, the organisation’s director of economic policy, said.
Corporation tax is a levy on company profits and it is poised to rise to 25 per cent from 19 per cent in April.
That will water down incentives for companies to invest by cutting the amount of money they can spend on new technology and machines and reduce the amount of cash they can keep for themselves, critics of the rise argue.
Hunt and Sunak have signalled there will be no major tax cuts in the budget for fear of missing their goals of capping borrowing as a share of the economy at three per cent and cutting the debt to GDP ratio in five years.
The pair hiked taxes and cut spending by £55bn on 17 November, tightening the screw on household and business finances.
Since then, the amount of money the government has spent on capping household energy bills at £2,500 has been much lower than forecast due to international gas prices falling below their pre Russia-Ukraine war levels.
Debt interest spending is also likely to be lower than the Office for Budget Responsibility expected back in November due to inflation dropping quickly, handing Hunt and Sunak some cash. However, long term economic growth is thought to have been downgraded by the spending watchdog, sucking revenue away from the treasury.
Britain is expected to tip into a long, but shallow recession this year, with the Bank of England forecasting GDP will shrink 0.5 per cent.
The UK has suffered from awful economic growth since the financial crisis, mainly due to lacklustre productivity improvements, which experts say can be turned around by ramping up business investment.
The CBI also called on Sunak and Hunt to implement an investment allowance in the 45 per cent windfall tax on renewable energy and electricity suppliers similar in scope to the one offered to oil and gas firms in the energy profits levy.
An expansion of childcare support would help keep people in the labour market and offset the impact of around 500,000 people leaving the workforce since Covid-19, the CBI said.
Critics have said the government needs to raise the cap at which child benefit payments start to taper off from £50,000. It has been frozen at that level since 2013.
A Treasury spokesperson said: “Growing the economy is one of the Prime Minister’s top priorities, which is why we have maintained record levels of capital investment and R&D spending, as well as setting out our vision to develop exciting sectors like advanced manufacturing and the life sciences.
“It’s vital we stick to our plan to halve inflation this year and reduce debt, so that we can create the necessary conditions to promote long-term economic growth and improve everyone’s living standards.”