In the recent Spring Budget, UK chancellor Rishi Sunak increased corporation tax from 19% to 25% from 2023, stating it was “fair and necessary” to ask businesses to contribute to the economic recovery. But what he took away with one hand, he quietly gave back with the other.
In a move that attracted much less attention, the chancellor also granted businesses an enormous handout by announcing a new ‘super deduction’ tax relief. In practice this means that companies that invest in certain qualifying capital assets will be able to cut their tax bill by up to 25p for every £1 they invest. The subsidy is eye-wateringly expensive: according to HMRC it will cost the government an estimated £29bn over three years, and £12bn in its first year alone. In other words: it amounts to an enormous windfall for corporations, particularly those that have large capital expenditure budgets.
The rationale for this huge tax break is that it will supercharge investment, helping to boost the UK’s sclerotic economy and galvanise the UK’s post-pandemic recovery ahead of a looming hike in corporation tax in 2023. Yet the policy has attracted widespread criticism for rewarding investment that would have happened anyway, such as BT’s infrastructure upgrade that is already in full swing, and for giving an indiscriminate tax break to big businesses – including those which have flourished during the pandemic.
