UK businesses to receive £27bn in investment tax breaks

British businesses will be offered £27bn in tax relief for the next three years to boost company investment as the government seeks to jump-start economic growth.

In his Budget, Jeremy Hunt, the chancellor, set out plans to make the UK “the best place in Europe for companies to locate, invest and grow” with incentives to offset the biggest rise in corporation tax in more than four decades.

Hunt had been criticised by some Conservative MPs for proposing to lift the rate of corporation tax, but he sought to win over more sceptical voices by announcing £9bn a year of “full expensing” for capital investment by UK companies.

The three-year tax relief — which will come into effect on April 1 — will allow businesses to deduct the full cost of investments from the tax on their profits.

Until March 31 2026, for every £1 invested in qualifying expenditure, companies will be able to save up to 25p on their tax bill.

The Office for Budget Responsibility, the fiscal watchdog, said the policy would boost business investment by about 3 per cent every year for the duration of the programme.

Matthew Fell, interim director-general of the CBI, said full expensing would “keep the UK at the top table for attracting investment and put us on an essential path to a more productive economy”.

The employers’ group has estimated that a permanent version of the scheme — which Hunt said on Wednesday he wanted to implement “as soon as we can responsibly do so” — could boost gross domestic product by up to 2 per cent, or £50bn, by 2030-31.

Meanwhile, Kitty Ussher, chief economist at the Institute of Directors, a business group, said the scheme “simplifies the system, removes confusion and crucially incentivises investment by reducing the upfront cash flow risk”.

The government hopes the tax cuts will reverse the slowdown in business investment since Brexit, with executives warning of the negative effect of the decline on economic growth and efforts to improve productivity.

Business investment in the UK accounted for 10 per cent of GDP compared with the OECD average of 12.5 per cent in 2021, according to government figures.

Hunt on Wednesday confirmed plans to raise corporation tax from 19 per cent to 25 per cent in April, when a 130 per cent “super-deduction” tax break on capital investment, in place since 2021, will also come to an end.

Before the Budget, business leaders warned that pushing ahead with both policies would make the UK one of the least competitive nations in the OECD for business investment and lobbied strongly for a replacement to the super-deduction scheme.

Under full expensing, the government said the UK would have the joint highest net present value for capital allowances in the OECD alongside countries such as the US.

Companies had looked to Hunt to boost economic optimism and incentivise them to invest in their operations at a time of rising labour and supply costs and concerns about a decline in consumer spending.

But the Federation of Small Businesses said that despite Hunt’s announcement, small companies would still have to contend with the highest tax burden since 1948.

Martin McTague, the group’s national chair, said that although Hunt had “set high expectations for supporting small firms during these challenging times”, the Budget would “leave many feeling short-changed” and “left behind” compared with big companies.

Stephen Phipson, chief executive of Make UK, the manufacturers’ trade association, welcomed the government’s push to boost investment, but said companies would be disappointed by the lack of an extension to support for energy bills.

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