As the United Kingdom gears up for snap elections on July 4, 2024, one topic stands at the forefront of discussions: tax policy. In a landscape where corporate tax rates and capital cost recovery provisions have been subject to instability, the question arises – why is the current full expensing policy in the UK worth upholding and expanding?
1. Full Expensing: Encouraging Business Investment
– Full expensing allows businesses to immediately deduct the full cost of certain investments, promoting the purchase of equipment, technology, and buildings.
– This policy eliminates biases in the tax code, incentivizing companies to invest more. In the long run, this leads to increased worker productivity, higher wages, and job creation.
2. Capital Allowances: Fueling Economic Growth
– Capital allowances enable businesses to deduct capital investment costs from their revenue over time through depreciation.
– When businesses have limited deductions for capital expenditures, they make fewer investments in critical assets like equipment and machinery, impacting productivity and wages.
3. UK’s Progressive Approach
– In response to the COVID-19 pandemic, many governments worldwide increased their capital allowances, but these policies are expiring elsewhere.
– On the contrary, the UK made significant policy improvements permanent, ensuring stability and support for business investment.
How the UK Embraced Full Expensing
– From April 2021 to March 2023, the UK implemented a super-deduction allowing businesses to deduct 130% of plant and equipment costs.
– The policy aimed to aid business investment during the transition from a 19% to a 25% corporate tax rate. It was a significant move to boost the economy.
The Impact of Permanent Full Expensing
– The UK’s decision to make full expensing permanent has positive economic implications.
– Model simulations project increased GDP, investment, and wages, positioning the UK favorably in international rankings.
Looking to the Future
– To sustain economic growth, it is crucial for the UK to maintain full expensing permanently.
– Both major political parties have expressed a commitment to upholding the current policies, signaling a bipartisan understanding of their importance.
In Conclusion
As the UK charts its course post-election, the decision to extend full expensing to all Brownfield developments emerges as a strategic move. By enhancing deductions and improving cost recovery, the UK can solidify its position as a leader in economic growth and business investment. Together, let us champion policies that drive prosperity and progress.
