Businesses invested more in the UK over the past year than previously thought as they took advantage of the government’s super-deduction tax break before it expired in March.
Updated figures from the Office for National Statistics showed that business investment grew 9.2% over the year to June, an upward revision from 6.7%. That helped the UK economy close a gap with Germany, France and the US.
The figures may indicate some success in Prime Minister Rishi Sunak’s decision to give businesses more incentives to invest in the UK. The Treasury launched the super-deduction, which gave companies 25p of tax relief on every £1 invested, alongside plans to raise corporation tax from 19% to 25% from March 2023.
Analysis by the ONS showed the incentive worked, with a third of manufacturers using it. That finding will feed into a growing debate over how the UK can best stimulate its economy, with members of Sunak’s ruling Conservative Party calling for tax cuts.
While Sunak has campaigned saying he wants low taxes, the Institute for Fiscal Studies on Friday released a report showing that the tax burden on the UK during the session of Parliament from 2019 to the next election will increase more than any other period on record.
The subject is likely to dominate the Conservative conference, which starts next week. But so far, Chancellor of the Exchequer Jeremy Hunt has said tax cuts will be “virtually impossible” this year due to the state of the public finances.
The IFS estimated that taxes will amount to around 37% of national income from around 33% in 2019, equivalent to £100 billion of additional tax revenues a year.
“Taxpayers are being bled dry to fund an unprecedented cost of government crisis, and there seems to be little hope of respite,” said John O’Connell, chief executive officer of the TaxPayers’ Alliance, said. “Ministers must get serious on spending to give struggling Brits a break and reverse this grim trajectory.”
Hunt is hoping faster growth will provide the scope for tax cuts, and hopes may be raised by the improved business investment figures. As well as better annual figures, business investment grew 4.1% in the three months to June, up from the previous estimate of 3.4%.
As well as upgrades to the last year, the ONS revised up annual business investment growth by 0.4 percentage points on average between 1997 and 2022.
However, Capital Economics said the boost “won’t last” as it reflected companies bringing forward investment plans to take advantage of the two-year super-deduction before it expired in March.
At the March budget, Hunt kept the 25% relief for three years under the new full-expensing regime alongside an increase in the corporation tax rate from 19% to 25%.
An ONS survey in August found that 18.2% of all businesses used the super-deduction, 32% when small businesses are excluded. A third of manufacturers said they used the incentive. Those that used the relief increased their investment by up to 29%, the ONS found.