<?xml encoding=”utf-8″ ??>
British businesses are poised to mothball investment due to uncertainty over whether the country is on course to tip into a recession and a looming tax grab, a new survey out today indicates.
Fears of a slowdown in spending caused by families’ finances being squeezed by the cost of living crisis has knocked optimism among UK services companies, which generate around £2 in every £3 of GDP.
“Uncertainty about demand continued to weigh on business investment, resulting in expected cutbacks in spending on land and buildings, as well as vehicles, plants and machinery,” according to a new report from the Confederation of British Industry (CBI), the country’s largest business lobby group.
Interest rates have also climbed ten times in a row to a 15-year high of four per cent as the Bank of England has raced to rein in runaway inflation, making it more expensive for companies to borrow to fund investment.
A decline in investment intentions has been compounded by Chancellor Jeremy Hunt pushing ahead with a six percentage point corporation tax hike to 25 per cent from 19 per cent from April.
The CBI has backed that decision, but has called on Hunt and Prime Minister Rishi Sunak to launch a permanent succession to the 130 per cent super deduction to soften the tax grab.
Worsening investment confidence “underscores the need for serious action to build momentum in the economy at the spring budget,” Charlotte Dendy, head of economic surveys at the CBI, said.
“To offset the six-point rise of corporation tax in April and restore investor confidence, firms want the government to replace the super-deduction by either introducing full expensing for capital investments or setting out a three-year roadmap to achieve exactly that,” she added.
Investment reliefs let businesses offset qualifying capital spending from their corporation tax bill. They are designed to incentivise firms to spend money on things like machinery and buildings, which expand an economy’s capacity to make things.
Businesses are poised to be paying nearly £19bn more to the Treasury from their profits in five years due to the tax rise. That extra money will help to pay for cost of living support and avoid heaping more pressure on household finances by raising personal taxes, like income tax or national insurance.
Pharmaceutical giant Astrazeneca recently chose to build a new plant in the Republic of Ireland – which has a softer profit tax than the UK – over Britain.
Swelling costs and a reduction in household spending is sucking profits out of the services sector, with both consumer facing and professional services companies absorbing a sharper drop in earnings compared to the previous quarter.
Hunt is trying to keep the public finances in check to ensure he meets his fiscal rules, namely, reducing the debt to GDP ratio and preventing borrowing from topping three per cent of GDP in five years.
It has been reported the Office for Budget Responsibility has trimmed its long term growth forecasts, potentially resulting in Hunt reining in spending or raising taxes to reach his fiscal targets.
Confidence among finance, law and other professional services firms dropped over the last three months, albeit at a slower pace than the three months to November, down by a net minus 20 per cent from minus 55 per cent.
A similar trend was detected among consumer facing companies.
