The CBI is calling for a permanent investment deduction to stop the damage that might do to our growth prospects – but what is it?
For two years, the Super-deduction has worked to incentivise business investment post pandemic by enabling firms to reduce their taxable profits based on qualifying spend. But it was only ever intended to be temporary, and it’s coming to an end this month – just when the UK government is hiking Corporation Tax by six points. Combine that with all the other cost pressures they’re facing, and the double whammy will hit firms’ confidence hard. Long-term investment decisions will falter.
With the Super-deduction in play, the UK has the fifth most competitive capital investment incentives in the OECD. A CBI survey showed a fifth of business investment planned while it was in place would not have happened without it – with another fifth brought forward to benefit from it. And these capital investments make our firms more effective, efficient and productive.
Without the Super-deduction, we could slip back to 30th out of the 38 countries in the rankings. And the Bank of England is already warning of a 5.6% fall in business investment this year.
We have to find a smarter solution.
The CBI’s suggestion is to offset the rise in Corporation Tax with investment incentives elsewhere that properly reward those that invest in the UK.
We believe a permanent investment deduction of 100% will get firms of all sizes and in all locations investing, simplify the tax system and set the UK up for future growth. By enabling firms to reduce their taxable profits to match the cost of qualifying investments they make, it could unlock £53bn of extra investment per year by 2030/31 and boost the level of GDP by 2%.
As CBI President Brian McBride said in this article in The Telegraph: “If there’s one thing I’ve learned throughout my career in business, it’s that raising business taxes is never the way to stimulate an economy and deliver growth. It puts boardrooms on edge, and it makes investors think twice about their next move. I know, I’ve been in those discussions.”
“After a turbulent few years, investors are keeping their cards close to their chests when it comes to investment intentions. With all eyes on the Spring Budget, my sense is that pragmatic business leaders will only wear that hike in Corporation Tax rise if the other sums add up. Without an incentive alongside, then April will just see a damaging hit to UK competitiveness.”
