The largest industrial companies have won what the chancellor described as “the largest business tax cut in modern British history”, a £10 billion-a-year break on investment in plant and machinery.
Full expensing, the temporary tax break brought in by Rishi Sunak when he was chancellor to help industry get through the pandemic, will be made permanent. The policy means companies can get all the tax back on an industrial investment, reducing their bill by up to £250,000 for every £1 million spent.
Major industrial businesses, corralled by Make UK, the manufacturing sector’s trade body, told Jeremy Hunt that permanent full expensing would be the “single most transformational” assistance he could give investment and growth.
The chancellor said the Centre for Policy Studies, the right-leaning think tank, had told him it would “maximise business investment, boost productivity and deliver higher levels of GDP”.
Hunt said it was only now, with the economy stabilising after the shocks of inflation and the Truss/Kwarteng tenure, that the Treasury could afford to forgo the £10 billion tax from industrial companies.
He said the Office for Budget Responsibility predicted that the tax break alone would boost manufacturing investment by £3 billion a year. “This is one of the most generous tax reliefs anywhere in the world,” the chancellor said. “The biggest-ever boost for business investment in modern times, a decisive step towards closing the productivity gap with other major economies and the most effective way we can raise wages and living standards.”
Stephen Phipson, chief executive of Make UK, said Hunt had been bold in “addressing the painful Achilles’ heel that has troubled the economy for decades”. He added: “The biggest factor that companies want when planning investment decisions is certainty in policy, and this has now been provided.”
Alistair Phillips-Davis, chief executive of SSE, the energy company, was among business leaders to welcome the move.
The Institute of Directors said a quarter of its members with a capital budget of more than £1 million had changed their investment plans as a result of the tax break.
Colin Graham, head of tax policy at the accountancy firm PwC, said the move would have a “significant impact”, positively on industrial sentiment but negatively on the Treasury’s coffers. “This may provide the certainty that many businesses have been seeking before giving the green light to investment,” he added.
Chris Denning, corporate and international tax partner at MHA, an accountancy firm, urged caution.
“The UK’s level of business investment is low compared with the G7,” he said. “We need to fix this and full expensing is not a silver bullet so needs to form part of a long-term plan for business taxation so needs to form part of a long term plan for business taxation.
“The ‘super deduction’, a similar measure to full capital expensing, has not done much to revive the UK’s investment rate when compared with the G7.
“The UK’s relatively low rate of corporation tax also seems to be having only a minimal effect. So we can’t get too excited about full capital expensing, although it will boost business confidence.”
Flora Barnes, corporation tax director at RSM UK, the consulting firm, said the policy would “benefit those businesses that have a long-term investment cycle”. She questioned, however, whether those businesses would feel confident investing “with a general election on the horizon”.
Rachel Reeves, the shadow chancellor, welcomed the policy, saying Labour had called for it. She said: “But that doesn’t make up for the years of uncertainty that businesses have faced with taxes going up and down like a yo-yo.”