Election gamble

Windfall tax worry hangs over ‘Budget for business’

Jeremy Hunt
Jeremy Hunt will seek to help business

Businesses can expect the Chancellor to announce a series of measures to stimulate investment and get more people back into the workforce in a budget that will help determine the Tories’ fate at the general election.

Jeremy Hunt’s plan for a 2p cut in National Insurance has been widely forecast and he is also expected to encourage capital spending through extension of the full expensing scheme, reversing a proposed income threshold on angel investors and offering tax reliefs to help small businesses.

The chancellor will say that the NI tax cut is worth a total of £900 for the average worker when combined with the two percentage point cut that was announced in the autumn statement. For the Scottish worker on an average £35,518 salary the latest cut will mean a saving of £458.96, according to Totally money.

Mr Hunt has won the battle to cut NI rather than income tax, preferred by the Prime Minister. NI is calculated off a lower tax base and therefore is less costly. However, it is not paid by pensioners and so there is a political risk that it will not play well with this core group of voters.

Pension schemes will be encouraged to invest more in UK growth firms, while Mr Hunt will attempt to get more economically inactive people back into the workforce.

However, he will pay for these tax cuts through £9 billion worth of tax rises and spending reductions. These include an extension of the oil and gas windfall tax, changes to the employee ownership tax regime, removing the tax break on second homes and by raising taxes on vapes and tobacco.

He is likely to provide more help for the housing sector, while alcohol duties are more likely to be frozen along with fuel duties.

A welcome move would be a cut in VAT, perhaps a VAT holiday, or a rise in the threshold. Analysts are divided on whether he can afford it. A looming general election may be the deciding factor.

Any extension to the windfall tax, or energy profits levy, will not favour Conservative MPs in Scotland where Prime Minister Rishi Sunak was last week proclaiming his party to be supporters of the oil and gas industry.

Offshore Energies UK yesterday described talk of an extension of the levy as “a worrying signal for the offshore energy sector”. David Whitehouse, CEO Offshore Energies UK said: “If the energy profit levy is extended, it will be the fourth tax regime two years.

David Whitehouse
David Whitehouse: instability affects planning

“The windfall conditions have gone and energy prices are now where they were before the invasion of Ukraine. This instability makes it impossible for companies to plan or set long term objectives which is stifling investment and the transition to clean energy.”

Mr Hunt’s Budget speech will be followed by a debate at Holyrood that will end in a vote to “condemn the Labour Party’s intention to block any new oil and gas licences and its proposed extended windfall tax” and “call on the Scottish government and the Labour Party to end their reckless assault on North Sea oil and gas workers and Scotland’s economy”.

It could prove an uncomfortable session for the Tory MSPs if Mr Hunt extends the levy, although Labour supports a higher windfall tax and the SNP was the first party to call for one.

Scottish Conservative leader Douglas Ross told delegates at his party’s conference in Aberdeen at the weekend that an extension of the tax “would be an unacceptable blow to [the oil and gas industry’s] confidence and the confidence to the jobs and the workers here”.

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