Rishi Sunak has unveiled what he described as the biggest business tax cut in British history, offering companies the chance to reduce their bill by 130 per cent of any amount invested.
The chancellor said the unprecedented move would deliver a significant boost to the UK’s economic recovery in the wake of the coronavirus pandemic.
But he admitted the idea, dubbed the ‘super deduction’, which would effectively pay companies to invest, had never been tried before in the UK.
The gamble was necessary because the country “needs an investment led recovery”, he told MPs as he unveiled his budget.
He said the move was supported by the independent Office for Budget Responsibility, which said it would boost business investment by around 10 per cent, or £20bn a year.
Mr Sunak said the change would make the UK’s tax regime for business investment “truly world leading”.
At the moment businesses can only reduce their tax bill by a fraction of the money they have spent on investment.
Labour leader Sir Keir Starmer said he wanted to see the details of the scheme, but added: “It is unlikely to make up for the last ten years, when the levels of private investment growth have trailed other countries”.
The changes are due to come into effect at the start of next month and will be worth up £25 billion to companies over two years.
Setting out how it would work, Mr Sunak said that under existing rules a construction firm which bought £10m of new equipment could reduce its taxable income that year by £2.6m.
However, under the new scheme that reduction would be £13 million.
In its assessment the OBR added a note of caution, saying the super deduction “largely brings forward planned investment from future years.”
