Chancellor Rishi Sunak is considering a multi-million-pound tax break to encourage investment in equipment and technologies, reports the Telegraph.
The plans will give firms a full tax break on capital investment – such as machinery, technology and industrial premises – so that they can immediately take the costs out of their bills.
Sunak hopes that this measure will give the economy a leg up following the effects of COVID-19. Senior Conservatives think that a move like this could encourage otherwise reluctant businesses to invest in growth.
US-based research shows that this kind of intervention, known as ‘full expensing’, could increase investment by 17.5 per cent and wages by 2.5 per cent. Earlier this year, the Centre for Policy Studies said the scheme “would mean businesses investing more, leading to higher incomes and more tax revenue”.
At the moment, companies are only given tax relief on the first £200,000 of investment under the Annual Investment Allowance. A two-year temporary increase to £1m will wind up on December 31st. However, with longer-term expenses like property and machinery, firms can only deduct a small sum each year of the lifespan of the investment.
Supporters of full expensing say that a move like this can free up cash for businesses to hire more people. The measure could be brought in on a temporary basis, possibly 12 months.
Rishi Sunak is thinking of including the measure in his Autumn Budget. Addressing a Lords committee in May, the Chancellor said that the current allowance “covers 90 per cent of businesses… it does not cover 90 per cent of all investment, which is done by a small number of larger firms”.
“There has been a long-standing issue with investment in this country. So there is a general reason why one might want to try to encourage more corporate investment.”
But he added: “We have a long-standing issue, and there might well be an argument for looking at things in the shorter term to help to drive the recovery.”