Business taxes are set to fall in this month’s Autumn Statement as UK ministers signalled that they want to incentivise companies to pull Britain out of its growth stupor.
As new data showed the economy flatlining, chancellor Jeremy Hunt and his deputy John Glen made clear their desire to cut business taxes, including by extending the flagship “full expensing” capital allowance regime.
In September, Hunt insisted that the tight fiscal situation meant that tax cuts were “virtually impossible” at his Autumn Statement. But, on Friday, he said: “Cutting business taxes is the thing that’s most important at this stage.”
The UK economy stagnated in the three months to September, according to official figures from the Office for National Statistics on Friday, putting more pressure on Hunt to stimulate the economy.
Glen, Treasury chief secretary, told the Financial Times that the flatlining economy was in line with market expectations but “of course it’s not good news”. He said the Autumn Statement would focus on boosting growth.
Government insiders said that Hunt was likely to extend beyond 2026 the “full expensing” regime, which lets businesses deduct the full cost of investments in IT equipment, plant or machinery from their profits.
The tax break is known inside the Treasury as “the Big Daddy” of business tax cuts. Extending the tax break, or making it permanent, is seen as the biggest ask from business ahead of the Autumn Statement.
While a one-year extension is seen by officials as the most likely outcome, Hunt has said he would like to make the tax break permanent when it is fiscally responsible to do so. That option remains on the table, said people briefed on the Autumn Statement discussions.
The Office for Budget Responsibility, the fiscal watchdog, has said the annual price tag for the scheme is about £10bn, which means that an extension will make it harder for Hunt to remain within his fiscal rules that require public debt to be on a downward path in five years’ time.
Glen argued that the true annual cost of the scheme could be lower in the longer term, saying that this was a “contestable space”.
The most recent OBR forecast on March 15 gave the chancellor £6.5bn of headroom against that fiscal rule, although since then public borrowing has undershot the watchdog’s expectations.
The Resolution Foundation has estimated that the headroom will be about £13bn because the impact of higher inflation on the public finances is proving less malign than expected.
Speaking from his constituency in Salisbury, Wiltshire, Glen made it clear that lower taxation was a crucial component in generating growth.
“Growth is the key thing that 2024 needs to be about,” he said.
“Business taxation is a critical element of the equation that needs to be examined very carefully,” Glen added. “Clearly, the level of taxation business and individuals face has an impact on the level of confidence in the economy and where they invest.”
Glen, a well-known figure in the financial services world after serving as City minister from 2018-2022, said he was deeply sympathetic to Tory MPs who want to see cuts to personal and business taxation.
“I’m not deaf to the fact politicians face elections,” he said. But he also cautioned that the government was not about to take big fiscal risks to secure an electoral advantage ahead of a poll expected in the autumn next year.
“I’m not comfortable with the high levels of tax we have, but we also have to have integrity in our public finances,” Glen said.
He added: “Serious people who run significant tranches of our economy in the City of London want serious people in the Treasury making long-term decisions rather than seeking to garner political support in the immediate term.”
Glen is deploying that approach to a review of productivity in the public sector commissioned by prime minister Rishi Sunak with the aim of curbing the growth of the state and creating space for tax cuts in the longer term.
He said the review would look to cut administrative spending in areas like the NHS, police, schools and justice system and identify areas where artificial intelligence could accelerate processes and cut costs.
“AI is massive,” said Glen, a technocratic minister who has long been a key lieutenant of Sunak and who shares the prime minister’s love of data.
His public sector review would also look at earlier interventions in areas like support for children or in justice to reduce demand in the system. But he admitted that his work would not save money this side of an election.
Glen said his was a “deep, reasoned, analytical and rigorous” piece of work intended to generate savings in the next spending period, beginning in 2025. Would a potential incoming Labour government find it helpful? “I hope it’s useful in all circumstances,” he smiled.
He insisted that it was vital to challenge the idea that public services were inevitably facing a period of austerity after the election because of very tight spending controls pencilled in by the Treasury.
“We will not just buy into this narrative that unless you increase money forever in every government department you are leading to a deterioration in public services,” he said.
“All those that commentate and look at public spending need to stop seeing it through the lens of how much more money we have got to put in,” he added.
Glen claimed that economic growth will “accelerate in 2024”, an optimistic view not shared by the Bank of England, which has predicted that the economy will flatline throughout next year, and that inflation will be falling. But he admitted that might not be enough to win over a sceptical public.
“There have been legacy political issues that people have found very disturbing,” he said, a reference to the recent turbulent past of the Boris Johnson and Liz Truss premierships.
As for Sunak’s recent problems with his populist home secretary Suella Braverman, Glen made clear his distaste for some of his cabinet colleague’s recent comments.
Asked whether he shared Braverman’s views that people living on the streets were making a lifestyle choice, he said his “overall sentiment is one of compassion and concern”.
As for Braverman’s description of a pro-Palestinian demonstration on Saturday as being a “hate march”, Glen said: “It is incumbent on all politicians to think carefully about how their remarks will be interpreted and what effect it will have on different groups and how they behave.”
