Rishi Sunak pledges targeted tax cuts for business in the Budget later this year designed to boost investment ahead of a sharp rise in headline corporation tax from next spring.
The British chancellor used a speech to the annual CBI conference on Wednesday night to call on business leaders to “invest more, train more and innovate more” in return for tax cuts, adding: “In the autumn Budget we will cut your taxes to encourage you to do all those things. That is the path to higher productivity, higher living standards, and a more prosperous and secure future.”
Sunak announced in March last year that he would increase corporation tax from 19p to 25p from next April, raising £17bn a year. At the same time, Sunak introduced a temporary two-year “super-deduction” offering 130 per cent relief on purchases of equipment — equivalent to 25p off a company’s tax bill — to encourage businesses to bring investment forward.
This month, the government announced a consultation into how to replace the super-deduction tax break when it expires in 2023. It outlined a range of options, from increasing the level of an annual investment allowance to a permanent full expensing of 100 per cent on plant and machinery.
This most generous measure could cost over £11bn a year, according to Treasury estimates, raising questions from officials whether this is the best use of the cash.
CBI director-general Tony Danker will urge the chancellor to deliver on existing commitments to “help protect business confidence”. He added: “There’s a window now where firms are deciding whether to stick or twist on their spending plans, so not everything can wait until autumn.”
The CBI has warned that capital investment will fall in 2023 when the super-deduction stops and corporation tax rises, which is likely to send business investment as a share of gross domestic product to the lowest level in the G7.
OECD data show that companies invest just 10 per cent of GDP each year in the UK, compared with 14 per cent in rival countries.
The CBI says a permanent investment deduction could boost UK business investment by up to £40bn a year by 2026, however.
Sunak also thanked companies for their support during the pandemic and sought to reassure them of the government’s pro-business credentials by saying “never, ever doubt we are on your side”.
CBI president Lord Karan Bilimoria urged the government to act immediately on the cost of living crisis and help firms to invest. He described the introduction of a permanent successor scheme to the super-deduction as “of the utmost importance”.
Bilimoria also argued that the government should extend the successful recovery loan scheme to help businesses to access finance, and bring forward a UK digital strategy.