- £11bn measure will result in £3bn spending a year, says budget watchdog
- Lobby had called for a permanent policy
Businesses will be able to heavily capitalise on capital spending for the foreseeable future under the effective tax cut announced in the Autumn Statement that locks in “full expensing”.
The measure, which allows companies to deduct capital spending from taxable profits, was set to expire in 2026 but will now become permanent. HM Treasury said the £11bn measure would reduce companies’ tax by 25p for every £1 spent on plant and machinery.
That includes most business spending, ranging from IT equipment to building works. The full expensing policy was initially introduced for three years in the Spring Budget because business investment in the UK was lower than the OECD average, as a proportion of GDP.
“I’ve today delivered the biggest business tax cut in modern British history, with the most competitive investment allowances in any large economy,” Chancellor Jeremy Hunt said. "This will improve the UK’s capital stock, help close the productivity gap and drive sustainable growth."
Fiscal watchdog the Office for Budget Responsibility said business spending would increase by £3bn a year as a result. Lobby groups had called for the measure to drive up investment. “We believe that this would have the single most transformational impact on business investment and growth and accelerate industry’s transition towards net zero,” a joint letter from Make UK and the Confederation of British Industry (CBI) said last week.
“While there is an upfront cost, the long-term benefit to the public finances will be positive as providing allowances upfront enables greater investment, boosting employment and wider tax revenues.” The CBI said the measure could add 2 per cent to the UK's GDP by 2030.
The government also pledged £4.5bn of support for manufacturers, with £2bn earmarked for the automotive industry, £975mn for aerospace and £520mn for life sciences, as well as £960mn for a Green Industries Growth Accelerator focused on offshore wind, nuclear, carbon capture and hydrogen. "This support will attract an estimated £2bn of additional investment every year over the next decade," Hunt said.
While some incentives are in place, the UK has not leapt on the green energy stimulus bandwagon alongside the US and EU. The CBI, in calling for full expensing, said consistent policy would go some of the way to bringing in investment.
"With the constantly yo-yo-ing allowances and no response to incentives for green investment from the US and EU, we risk falling further behind," the lobby group added.
