ALEX BRUMMER: Ten ways the Chancellor can put rocket boosters under the economy today

Jeremy Hunt has a great opportunity to deliver an ambitious and business-friendly Spring Budget today.

After the mini-Budget fireworks last fall that led to the resignation of Kwasi Kwarteng as Chancellor and Liz Truss as Prime Minister, Hunt knows he cannot afford to make any mistakes.

Nevertheless, the Chancellor will make his statement against a much more favorable economic and fiscal backdrop than he could have imagined at the start of the year.

Instead of the longest recession in our history, predicted by the Bank of England last year, the UK economy is still growing, despite the series of very damaging strikes it has suffered.

The business outlook in the UK is good, according to the latest quarterly survey from consultant Accenture.

After the mini-Budget fireworks last fall that led to the resignation of Kwasi Kwarteng as Chancellor and Liz Truss as Prime Minister, Hunt knows he cannot afford to make mistakes

It shows that last month UK business confidence recovered to its highest level in a year, with both manufacturers and the all-important services sector – accounting for more than 70 per cent of economic output – feeling bullish.

Remarkably, confidence in the UK is higher than in Continental Europe and the rest of the world. If ever there was a more appropriate time to support entrepreneurship, entrepreneurship and endeavors, it is now.

Unexpectedly, the Chancellor also has the resources to help businesses and taxpayers. Solid tax revenues, near-full employment, falling fuel prices and careful monitoring of the government’s purse strings have pushed borrowings down £30bn from last autumn’s forecast.

The National Institute of Economic and Social Research think tank says there could be as much as £100bn extra room for tax cuts and additional spending over the current forecast period ending in 2027-2028.

There are plenty of options Hunt could pursue to boost the economy. While it’s clear he intends to play it safe, here are ten major tax changes I think he could make without scaring the horses.

1. Ended the business tax increase

The corporate tax, paid by the largest companies, will be increased from the current nominal rate of 19 percent to 25 percent from April 6. This will greatly discourage companies from investing in Britain.

The UK’s largest company, life sciences giant AstraZeneca, has already decided to move new investment to Ireland, citing the “discouraging” increase in corporate tax.

Astoundingly, the increase appears to be continuing, despite evidence showing that revenues have risen sharply since George Osborne began cutting corporate taxes during his time as chancellor.

2. Keep super tax credit for investing

Super deduction, introduced by Rishi Sunak after Covid-19 to jump-start the economy, is a huge tax break for companies investing in new capital.

Among other things, it has encouraged huge investment to provide Britain with broadband. Now that the chancellor plans to abolish it, major investments could dry up.

It should be replaced by a similar measure that not only offers deductions for capital and installations, but also offers tax benefits to companies that modernize with the help of digitization, software and AI.

Super deduction, introduced by Rishi Sunak after Covid-19 to jump-start the economy, is a huge tax break for companies investing in new capital

3. Increase tax breaks for high-tech companies

This week, the Chancellor persuaded HSBC to bail out the London branch of Silicon Valley Bank, a major financier of venture capital and high-tech start-ups. Now he has to move on.

He must cancel proposals to make it more difficult for innovative, tech, biotech and other science-based companies to access research and development tax breaks.

He would need to double tax breaks and spend on R&D and training to ensure the UK remains the third most important location for technology investment in the world after the US and China.

Maintaining the 19 per cent corporate tax rate for smaller companies, the source of British entrepreneurship, should be part of that plan.

4. VAT-free shopping to attract tourists

Britain has some of the most prestigious high street shopping in the world, ranging from lavish retail groups such as Fortnum & Mason and Selfridges to the luxury brand empire of Bicester Village in Oxfordshire.

All of these locations have been a magnet for foreign visitors, but the decision to charge VAT on these locations post-Brexit is a devastating blow that will only benefit rival European cities such as Paris and Madrid.

5. Reform tariffs, save shopping streets

Reform of the odious corporate fare system that has turned many of the country’s high streets into shopping deserts is now needed.

Digital giants like Amazon need to be made to pay their fair whack.

6. Make the new pension ceiling fair

To massively discourage working and saving, the Treasury has steadily lowered – then frozen – the cap on tax-free pension savings to £1.07 million over a lifetime.

This has led many professionals, especially doctors, to retire early. There are indications that the limit will be increased to £1.8 million, benefiting up to two million people at a cost to the Treasury of £2 billion a year.

As welcome as this will be for middle-income taxpayers, it is unfair to people who have already made life-changing decisions about retirement due to arbitrary caps.

The Chancellor must devise a transitional system so that those who have made the decision to retire and are now excluded from the higher tax-free limit are not disadvantaged.

7. Ease crippling child care costs

Childcare costs have exploded in the UK, forcing parents (often women) to stay at home. The current system provides 30 hours of support during the school year for parents of three to four year olds.

The new plan expected to be announced today to expand this support is vital to unlocking the 300,000 people who have lost their jobs since the pandemic.

8. End the Isa saving stop

The limit for tax-free savings in an individual savings account has been frozen at £20,000 per annum since 2017.

It’s time for the Chancellor to raise the limit, especially for those putting their savings into funds targeting UK start-ups, newly established companies and companies committed to carbon reduction technologies.

9. Create more tax-free zones

A critical part of the leveling agenda is the creation of new enterprise zones where there are generous tax deductions and government funding for development and infrastructure projects.

This policy was put on hold in the autumn of 2022 and the current government is more inclined to focus on proven science hubs such as Oxford and Cambridge.

The benefits of reaching underdeveloped parts of the country, such as the free port on Teesside, is that it is brilliant at attracting investment. More tax-free zones should be a good idea.

10. Increase personal tax deductions

The freeze on tax deductions, historically increased in line with inflation, has pushed millions of ordinary Britons into higher tax brackets. This discourages hard work.

The Chancellor should make a pledge to gradually ease the freeze as public finances and the economy improve.

Of course, the Chancellor is subjecting all his budget proposals to scrutiny by the Office for Budget Responsibility and making sure to work with the Bank of England to cut inflation in half by the end of this year.

Hunt may not feel he has the fiscal leeway to fully adopt these aspirations of a low-tax economy. But his debut Spring Budget should reassure businesses and voters that better, lower, and fairer tax policies lie ahead.