British businesses will receive £27bn of investment tax relief

British businesses are being offered £27 billion in tax breaks over the next three years to boost business investment as the government looks to kick-start economic growth.

In his budget, Chancellor Jeremy Hunt set out plans to make the UK “the best place in Europe for companies to locate, invest and grow” with incentives to offset the biggest rise in corporation tax in more than four decades.

Hunt has been criticized by some Conservative MPs for proposing a rise in the corporate tax rate, but sought to win over more skeptical voices by announcing that the £9bn a year would be a “full spend” on capital investment by British companies.

The three-year tax credit – which comes into effect on April 1 – allows businesses to deduct the full cost of investments from their profit tax.

Until 31 March 2026, for every £1 invested in eligible spending, companies can save up to 25p on their tax bill.

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According to the Office for Budget Responsibility, the budget watchdog, the policy will increase business investments by about 3 percent annually during the duration of the program.

Matthew Fell, interim director-general of the CBI, said full reimbursement would “keep the UK at the forefront of attracting investment and move us towards a more productive economy”.

The employers’ group estimated that a permanent version of the scheme – which Mr Hunt said on Wednesday he wanted to introduce “as soon as we responsibly can” – could boost gross domestic product by up to 2 per cent, or £50bn. By 2030-31.

Meanwhile, Kitty Ussher, chief economist at the Institute of Directors (a business group), said the system would “simplify the system, remove confusion and fundamentally encourage investment by reducing upfront cash flow risk”.

The government hopes the tax cuts will reverse a slowdown in business investment since Brexit, with leaders warning of a negative impact of the downturn on efforts to boost economic growth and productivity.

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Business investment in the UK accounted for 10 per cent of GDP in 2021, compared to the OECD average of 12.5 per cent in 2021, according to government figures.

Hunt confirmed on Wednesday that corporate tax will rise from 19 percent to 25 percent in April, when the 130 percent “super deduction” tax credit for capital investments that has been in place since 2021 will end.

Ahead of the Budget, business leaders warned that advancing both policies would make the UK one of the least competitive nations in the OECD for business investment and lobbied hard to replace the super deduction system.

With full spending, the government said the UK would have the highest net present value of capital grants in the OECD alongside countries such as the US.

Companies looked to Hunt to boost economic optimism and encourage them to invest in their operations at a time of concerns about rising labor and supply costs and declining consumer spending.

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But the Small Business Association said despite Hunt’s announcement, small businesses still face the highest tax burden since 1948.

Martin McTague, the group’s national chairman, said that while Hunt had “high expectations for supporting small firms in these challenging times”, the budget “feels to many that they are flat-footed” and “falling behind” big business.

Stephen Phipson, chief executive of Make UK, the trade union for manufacturers, welcomed the government’s drive to boost investment but said companies would be disappointed if support for energy bills was not extended.