3 minute read - 14th March 2023
CBI calls for permanent investment deduction replacement
The CBI is calling on the government to use the spring budget to introduce a permanent investment deduction that allows businesses to deduct the full cost of investments from their profits, as soon as they spend the money.
This can then be used to offset the planned rise in corporation tax to keep the UK attractive as a destination for business investment.
The pay-off for this approach could be significant, with up to a 2% boost to GDP – worth £50bn – by 2030/31. Alternatively, if the government would prefer additional time to absorb the cost, they can still act decisively by setting out a new investment allowance tax roadmap that would start at 50% in April, working up to 100% over a few years as the economy recovers.
The UK has been plagued by low levels of business investment since the pandemic. Without action, the Bank of England has warned about a 5.6% fall in business investment this year, just as firms face the biggest rise in corporation tax in nearly fifty years and current – proven to be effective – investment incentives are cut.
The CBI estimates its proposals could boost business investment by 21% – or £52bn – a year by 2030/31 and stop activity falling. It would reward businesses that choose to invest in the UK and prevent companies facing the worst of both worlds.
Brian McBride, CBI president, said: “With firms across the country already putting investment plans on ice as they manage sky-high costs, the chancellor has no time to waste to help Britain compete for investment and keep major wealth creators committed to the UK. Without action, the double blow of the super-deduction expiring and the [planned] higher rate of corporation tax would send a worrying sign about Britain’s status as a place to do business.
“We’ve been crystal clear that if firms are to stomach the corporation tax rise, it must be accompanied by a significant investment incentive. Otherwise, we could condemn the UK to years in the slow lane for growth and investment. That’s why we’re urging the chancellor to bring in a full expensing regime to replace the super-deduction. That policy alone could supercharge UK competitiveness and help offset a large jump in corporation tax.”
The CBI’s proposals to government:
• Replace the super-deduction with a new permanent investment deduction providing full expensing – giving certainty to underpin confidence in the UK’s investment environment.
• The spring budget should be the moment to see a significant uplift to capital allowances, to help offset the six-point increase in corporation tax.
• Introducing 100% full expensing from April 2023, could see an increase in business investment of 21% – or £52bn – a year by 2030/31.
• If the government doesn’t commit to full expensing immediately, it should set out a roadmap to get there. The spring budget should be the moment to increase capital allowances, to at least 50%, before moving to 100% within three years.
• A 50% allowance could see business investment boosted by 13% or £33bn a year by 2030/31.
McBride concluded: “Today, the UK has the fifth most competitive capital investment tax incentives in the OECD. Yet come April, without the super-deduction or something similar in its place, the UK risks falling back to its previous ranking of 30th.
“A CBI survey showed a fifth of business investment planned while the super-deduction was in place would not have happened without it – with another fifth brought forward to benefit from it. Our proposals on capital allowances would free up cash so businesses can invest more, and more quickly. The spring budget gives the government an opportunity to take decisive action towards stimulating business investment and unlocking greater economic growth.”