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The UK government’s decision to make permanent a big tax break for companies gives them the certainty to make productivity-boosting investments, said business groups welcoming the move in Wednesday’s Autumn Statement.
Chancellor Jeremy Hunt said the “full expensing” regime for capital investments by companies would be extended beyond the initial three-year period envisaged when he unveiled the measure in his March Budget.
The change aims to boost the UK’s anaemic economic growth and productivity by encouraging businesses to invest in new plant and machinery.
Hunt said it was “the largest business tax cut in modern British history” while the Office for Budget Responsibility forecast that making the policy permanent would increase business investment by about £3bn a year compared with the temporary measure.
The regime, expected to cost the exchequer about £10.9bn a year by 2028-29, allows companies to immediately deduct the full investment costs from their taxable profits rather than spreading them over multiple years. Companies can save up to 25p in tax for every £1 of capital investment.
Extending full expensing was a key demand from several business groups ahead of the Autumn Statement, as well as companies including BT-owned Openreach, Siemens and Bosch.
They had argued that companies often plan and make large investments over several years, meaning many businesses would not be able to include the temporary tax break when calculating whether to make investments.
The relief was introduced in spring partly to offset a rise in corporation tax from 19 to 25 per cent and the ending of the more generous pandemic era “super-deduction”, which had been introduced in 2021.
Making the regime permanent “will be a boost to companies wanting to invest but who were holding back due to uncertainty on the tax break’s future”, said Alex Veitch, policy director at the British Chambers of Commerce.
BT said making the policy permanent would reduce its UK tax bill from 2027, boosting its cash flow.
UK business investment has lagged international peers and economic growth has flatlined. Making full expensing permanent meant “an end to continual, short term policy sugar rushes in favour of a stable and steady approach to improving productivity and growth”, said Fhaheen Khan, senior economist at manufacturers’ group Make UK.
The policy’s success will have to be judged over the longer term because of the time lag between businesses deciding to invest and getting new machinery up and running, said economists.
Businesses are expected to slow some investment plans in the short-term because they no longer have to meet the initial 2026 deadline for using the full expensing deduction. The OBR said this would be outweighed by increased investment in the medium term.
The measure is likely to benefit industries such as manufacturing more than sectors requiring less capital but which account for a large part of the economy. “This is much more beneficial for capital intensive industries than it is for service industries,” said Chris Sanger, a tax partner at EY.
Full expensing was mostly of benefit to companies making large investments because there is already an annual investment allowance covering capital outlay of up to £1mn, he added.
Hunt did not bow to industry requests to expand the relief to cover leased assets but said he would consult on the idea, as well as on ways to simplify the UK’s capital expensing rules.
The chancellor also confirmed plans to provide £4.5bn of funding for strategic manufacturing sectors over five years from 2025. The funding includes £2bn to support the automotive sector in the development of zero emission vehicles and £975mn to help the aerospace sector develop energy efficient and zero-carbon aircraft technology. The money will also fund life sciences and green industries.
Airbus UK chair John Harrison said the funding “offers greater certainty for long-term investment in sustainable aviation and highly skilled jobs . . . in the UK”.
Additional reporting by Yasemin Craggs Mersinoglu