UK bosses were left stunned on Monday after the chancellor ripped up almost all of a series of promised “pro-business” tax changes in an attempt to rebalance the government’s finances.
Jeremy Hunt axed proposals around cutting dividends tax, repealing off-payroll working rules, a new VAT-free shopping scheme and a freeze on alcohol duty rates, saving close to £6bn, according to the Treasury.
He had already confirmed on Friday that he would U-turn on a plan to keep corporation tax at 19p next year, rather than letting it increase to 25p — raising up to £19bn annually.
The package of measures was announced in the “mini” Budget last month as part of prime minister Liz Truss’s pitch to be a “pro-business” leader. However, the unfunded tax cuts — totalling £45bn a year — prompted chaos in financial markets, pushing up UK gilt yields and mortgage rates as investors lost confidence in the UK.
Business groups on Monday agreed that a change of policy was needed to restore the country’s credibility. Roger Barker, head of policy at the Institute of Directors, a professional body that had supported the reforms, said the tax cuts needed to be affordable.
“The chancellor needs to reestablish confidence in the market. All these things in isolation were welcome, but the priority has to be regaining the trust of the markets,” he added.
The government insisted it would keep a number of pro-growth reforms from the “mini” Budget, including the creation of new low-tax investment zones, plans to relax planning regulations and to speed up the delivery of infrastructure projects.
The IoD welcomed the government’s decision to maintain the annual investment allowance at the higher figure of £1mn. This will be kept alongside an extension to the seed enterprise investment scheme, which affects the amount of money companies can raise, and the company share options plan, a means for businesses to offer staff equity-based incentives.
The chancellor also retained plans to ditch the cap on banker bonuses, which has raised questions at a time when the help offered to people over soaring energy costs has been stripped back.
The government’s chopping and changing of tax policy prompted anger from some business groups.
Michael Kill, chief executive of the Night Time Industries Association, said that in “less than 40 days in office the prime minister has crashed the economy, placing an insurmountable level of pressure on businesses and people’s livelihoods”.
He added that the chancellor “has critically compromised thousands of businesses and workers across our sector . . . our industry is now facing one of the toughest winters in history”.
Emma McClarkin, British Beer and Pub Association chief executive, said the chancellor’s decision to reverse the alcohol duty freeze would be a “huge blow” to pubs and brewers.
Martin McTague, national chair of the Federation of Small Businesses, said the chancellor was “right to highlight the need for stability”.
But he added the decision to “decouple those paid through dividends from the reduction in national insurance will be a blow to many small business owners trying to keep their heads above water”.
He said: “Dividend taxation doesn’t just hit investors — it hits hard-working entrepreneurs with bills to pay.”
“The chancellor’s buzzword was stability,” said Shevaun Haviland, director-general of the British Chambers of Commerce, which represents business across the UK. “But what we’ve seen from him is a plan for today and nothing for tomorrow.”
Paul Barnes, chief executive of the Association of International Retail, said the decision to reverse plans to reintroduce VAT-free shopping for international visitors “will come as a hammer blow to UK tourism and the British high street”.
Business groups are also urging the chancellor to bring in targeted tax incentives to offset the impact of a decision to restore the rise in corporation tax to 25 per cent next year.
The CBI wants to see an extension of the “super deduction” investment incentive scheme to allow tax breaks on capital spending, while banks are calling for a surcharge on profits to be cut.
Hunt also announced a shake-up of the energy support scheme so that the household price cap will last for only six months rather than two years before being replaced with a more targeted approach.
Support for all businesses — through a parallel scheme — was only ever due to last for six months.
“Any support for businesses will be targeted to those most affected and the new approach will better incentivise energy efficiency,” said Hunt.
