A super deduction successor could trigger £40bn-a-year boost for UK business investment

21 Feb 2022 02:48 PM

Introducing a new permanent investment deduction to succeed the Government’s super deduction could boost UK business investment by up to £40billion a year by 2026, according to a new CBI survey.  

Data compiled from 325 firms – of all sizes and sectors of the economy – suggests the super deduction has spurred investment and that a permanent incentive could trigger an annual 17% uplift in capital spending. This could turbo-charge growth ambitions, helping raise productivity and improve living standards across all UK nations and regions.  

The CBI survey reveals more than half of respondents took advantage of the super deduction – or plan to do so – to increase or accelerate capital investment plans.   

However, with the scheme set to end in 2023, there is a risk business investment could tail off at a crucial time, when the OBR is projecting post-recovery economic growth levelling out at a modest 1.3-1.7%. The recent Bank of England forecast is more pessimistic still, expecting growth of only 1.0% in 2024. In the CBI’s own economic forecast, business investment is expected to fall in spring 2023, once the super deduction ends.  

The business group is urging Government to create a permanent 100% tax deduction for capital spending in the year of expenditure at this year’s Spring Statement, helping to sustain business investment throughout 2023 and ushering in a 17% rise in business investment over the medium-term (see Notes to editors).  

If the super deduction expires without a successor, the CBI forecasts the UK will remain the lowest in the G7 for business investment by 2026. Implementing a permanent investment deduction would lift us off the bottom, fuelling higher growth and productivity across the UK. Longer term, increasing productivity is the only sustainable way to pay down debt and meet rising spending pressures. 

Tony Danker, CBI Director-General, yesterday said:   

“The Chancellor’s super deduction exemplified the boldness in public policy that we need to inspire investment and get the economy moving. Going by our survey results, it looks to be a real success. It’s started the job but cannot be a one-hit wonder. Evolving the policy from short-term fix into long-term strategy will give firms confidence that Government and industry are aligned. 

“The UK is facing the highest tax burden in decades. But by rewarding firms who put money into their operations, we can unleash new innovation and productivity – the ingredients we need to escape the low-growth trap and build a stronger, sustainable and more equitable economic future.”    

Key survey results:   

Impact of the Super Deduction:  

• More than half of firms (53%) plan to claim the super deduction.  
• A fifth of qualifying capital spend is only taking place because of the opportunity presented by the super deduction. 
• Some 19% of qualifying capital spend was as a result of accelerated investment plans due to the super deduction. 
• And 2% of qualifying capital spending is being invested in the UK – rather than elsewhere – because of the super deduction.  
• In total, 41% of planned qualifying capital investment in 2021-23 is due to the super deduction – more than half of which would not otherwise have taken place in the UK.  

Projected impact of a permanent equivalent relief:   

• 50% of respondents indicated they would revise investment plans as a result.  
• 24% said they would make additional capital investments in the UK.  
• 13% would make additional investments – and bring forward investment timescales. 
• A further 13% would accelerate UK investments already planned.  
• Survey respondents revealed plans for £1.3billion of capital projects and said a new investment deduction of the type proposed would see £169million of that spending accelerated – and a further £224million of projects added.
• Extrapolating these findings to a medium-term projection of business investment shows this could increase spending by 17% by 2026, compared to existing projections. 
• This is equivalent to additional investment worth £40billion per year by 2026. 

Expanding the assets that qualify for a permanent investment incentive – to include, for example, second-hand, leased and rented assets – and expanding the relief to unincorporated businesses could raise investment further, with potential for an additional boost of 4% over current projections, or another £10billion of investment per year by 2026.