Chancellor Rishi Sunak has promised targeted corporate tax cuts in the budget later this year to boost investment ahead of a major corporate tax hike starting next spring. He used a CBI speech on Wednesday to urge business leaders to "invest more, educate more and innovate more" in return for tax cuts, adding: “In the fall budget, we will cut your taxes to accommodate you encourage doing all this stuff. This is the path to higher productivity, a higher standard of living and a more prosperous and secure future.” Sunak announced last March that he would raise the corporate tax from 19p to 25p from April next year, raising £17bn a year. At the same time, it introduced a temporary two-year "super discount" that offers a 130 per cent discount on equipment purchases, equivalent to 25 pence on a company's tax bill, to encourage companies to attract investment. This month the cabinet announced a consultation on how to replace the tax credit with a super discount when it expires in 2023. It outlines a range of options, from increasing the annual investment deduction to permanently spending 100 per cent on plant and machinery. The Treasury has estimated that this most generous measure could cost more than £11 billion a year, raising questions among officials as to whether it is the best use of cash. CBI CEO Tony Dunker urged the Chancellor to honour existing commitments to "help protect business confidence." He added: "There is now a window for companies to decide whether to keep or change their spending plans, so not everyone can wait until fall."
The CBI has warned that capital spending will fall in 2023 when the super deduction ends and income taxes rise, likely pushing business investment as a share of gross domestic product to its lowest level in the G7. OECD data shows that companies invest only 10% of GDP annually in the UK, compared to 14% in competing countries.
The CBI says a permanent investment allowance could boost UK business investment to £40bn a year by 2026. Sunak thanked companies for their support during the coronavirus pandemic and tried to reassure them about the pro-corporate government's reputation by saying "never ever doubt we're on your side." CBI president Lord Karan Bilimoria urged the government to take immediate action against the cost of living crisis and help companies invest. He called the introduction of the over deduction fixed succession scheme “of exceptional importance.” Bilimoria also said the government should expand the Recovery Loan Scheme to help businesses access finance and advance the UK's digital strategy.