Will UK Budget deliver for UK businesses?

At the same time, the current super-deduction scheme, whereby entities have been able to gain tax relief by reinvesting in their operations, is due to fall away at the beginning of next month.

The super-deduction allows companies to cut their tax bill by up to 25p for every £1 they invest back into their businesses.

The combination of raising the tax rate and dropping the super deduction has been described as a double whammy by business leaders and some Conservative MPs.

“There is currently little incentive for firms to risk ploughing their dwindling cash reserves or fresh loans into new projects,” said Alex Veitch, director of policy at the British Chambers of Commerce (BCC).

Nonetheless, while Mr Hunt is unlikely to heed calls to scrap the rise in corporation tax, it’s widely expected he’ll replace the super-deduction scheme with a comparable plan.

“Back in the game on global investment”

The CBI favours a “full expensing” scheme, that would allow for 100 per cent of reinvested money to be offset against tax.

This would be less generous than the current super-deduction, which allows for 130 per cent capital allowance on qualifying plant and machinery investments and, says the CBI, could be phased in over three years, starting at 50 per cent in the first year.

“A six-point rise in corporation tax as the super-deduction ends will have a huge impact on investment which is desperately needed to grow the economy and improve productivity,” said Louise Hellem, director of economic policy at the CBI.

“Our proposals on full expensing would see the UK back in the game on global investment.”

Mr Hunt has spent some time consulting on a range of options for replacing the super-deductions, but recently told business groups that any successor scheme would be far less generous. The current super deductions have cost the Treasury around £25 billion over the past two years.

“We still believe that increasing corporation tax is a big mistake,” said Robert Colvile at the Centre for Policy Studies think tank.

Introducing full expensing “would at least compensate for its effects and persuade businesses to help deliver the growth we so desperately need,” he added.

Letting both the rise in corporation tax to 25 per cent and the demise of the super-deduction happen with no, at least adequate, remedial action would be a big surprise to business, but some are not convinced that neither will have a large effect on foreign direct investment (FDI).

“It is not clear that the super deduction has provided much of a boost to investment, because its effects have been swamped by the uncertainty caused by Brexit, Covid and the war in the Ukraine,” Peter Spencer, emeritus professor at the University of York told The National.

“I’m not sure that the increase in the mainstream rate to 25 per cent will have much of a negative effect. That is because [former Chancellor] George Osborne’s reduction from 25 per cent to 19 per cent did not obviously boost investment or FDI.”

Energy boost

Another major area that businesses will be closely watching in Mr Hunt’s budget speech is energy.

As for households, there has been an Energy Bill Relief Scheme (EBRS) for businesses running through the winter, but that comes to an end this month.

It will be replaced by the Energy Bills Discount Scheme (EBDS), which will offer businesses a discount on their gas and electricity unit rates, as measured in kilowatt-hours (kWh).

The EBDS will be considerably less generous than the EBRS, illustrated by the simple fact that total funding for the EBRS was estimated to be around £18 billion over the six months from October 2022 to the end of March this year, while the funding for the EBDS for the 12 months from April this year to the end of March next year will be capped at £5.5 billion.

A recent report from the internet company, GoDaddy, found more than three-quarters of entrepreneurs see the cost-of-living crisis is the greatest challenge they have faced, with most highlighting the impact of higher energy bills.

Nearly half felt that the Chancellor should offer tax incentives and some small business like bakers feel they should be included in the EBDS energy-intensive industries and therefore be eligible for larger discounts.

Chris and Sarah Fryer, who run a vegan pie business called Magpye in Newcastle, said: “As a bakery we use a lot of energy, so the rising cost of gas and electricity has dramatically increased our overheads.

“We are concerned about the energy relief scheme coming to an end in April, and would like to see the government launch targeted help for energy-intensive businesses like ours,” they added.

Of the 2.3 million small and micro businesses surveyed by GoDaddy, 630,000 said they were at risk of bankruptcy this year, because of rising costs.

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