UK sets out options for fixing its lagging business investment

LONDON – Britain’s finance ministry set out options on Monday for how the tax system could be reformed to encourage companies to invest more, something finance minister Rishi Sunak has said he wants to do to fix the country’s weak productivity growth.

Data from the Organisation for Economic Co-operation and Development shows companies in Britain invest the equivalent of 10% of gross domestic product a year, compared with 14% in similar countries, the ministry said.

Prime Minister Boris Johnson has promised to deliver a high-wage economy but to do that his government must improve Britain’s productivity record which lags behind that of many of its peers.

During the coronavirus pandemic, Sunak introduced a temporary “super-deduction” incentive, allowing companies to cut their tax bill by up to 25 pence for every pound they invest, but it is due to expire in April next year.

The two-year tax break is expected to cost 21.3 billion pounds ($26.2 billion), Britain’s budget watchdog forecast in October.

The ministry said options for future incentives included increasing the permanent level of an annual investment allowance or the rates for writing down allowances, introducing general first-year allowances for qualifying expenditure on plant and machinery and possibly additional such allowances.

A permanent full expensing of investment costs was also on the list but the ministry said it would cost more than 11 billion pounds a year.

“The government is keen to hear views as to whether that would be well targeted if funding is available, and if it isn’t available, how to best target our approach,” it said.

The ministry said businesses should submit their views by July 1.

($1 = 0.8129 pounds)