Full expensing of business investment will drive growth; urges it to be made permanent
Responding to this afternoon’s Spring Budget, the Institute of Directors strongly supports the Chancellor’s decision to allow all investment expenditure to be set against revenue for tax purposes in the year it is spent for the next three years. The Institute of Directors made the case for so-called 100% expensing in a letter to the Treasury in July 2022 (p.6 onwards).
The IoD is also encouraged that the supply-side policies announced in the Budget were of sufficient magnitude to themselves cause the independent Office of Budget Responsibility to raise forecasts for output and employment in the medium term. The policy of 100% expensing is expected to raise business investment for the years it is in place, but its temporary nature means the OBR does not expect a permanent long-term effect.
The IoD welcomes the measures designed to make it easier for people to offer their skills and talents in the workplace, including:
- Greater investment in pre-school childcare
- Raising the childcare component of Universal Credit and paying it up-front
- Expanding the ‘midlife MOT’ offer to make it accessible to more people
- Expanding the forthcoming occupational health pilot subsidy scheme for SMEs
- New ‘returnerships’ for career changers, designed to be supportive of older workers
- New ‘Universal Support’ programme aimed at those with disabilities and long-term sickness, to match individuals who want to work with existing job vacancies
The partial reversal in cuts to R&D tax credits is also welcome but, by targeting research-intensive sectors, it does nothing to encourage a greater culture of innovation in rank-and-file businesses. There is also a gap in policy around incentivising smaller companies to meet net zero targets.
Kitty Ussher, Chief Economist at the Institute of Directors, said:
“Our economy has been held back in recent years because people running businesses have felt nervous of committing to investment when the climate is so uncertain. The introduction of 100% full expensing for the next three years is therefore very welcome and we urge it to be continued thereafter. It simplifies the system, removes confusion about whether digital investments count as capital and crucially incentivises investment by reducing the up-front cashflow risk.
“Our members have been very worried about prospects for the UK economy so will be reassured at the upgrading of official forecasts, and the news that the OBR expects a technical recession will be avoided this year. It’s also hugely encouraging that they felt able to lift further their assessment of Britain’s growth potential as a direct result of supply-side policy decisions announced today; this is evidence-based policy-making at its best.
“Having said that it is disappointing that the Chancellor has chosen to target R&D tax credits to some parts of the economy. While good news for the sectors concerned, it could lead to less innovation across the economy more widely. We would also like to see greater understanding of the intervention required to support businesses of all sizes to transition to net zero, particularly those who have not yet engaged with the issue.”
Alexandra Hall-Chen, Principal Policy Advisor for Sustainability, Skills and Employment, said:
“Our latest survey data tells us that skills shortages are a huge problem for our members. We welcome the focus on making it easier for people to go back to work, particularly expanded free childcare provision for children below the age of three.
“However, the childcare landscape needs long-term reform to ensure that it is sustainable and supports parents to work. We would encourage government to appoint a childcare czar to drive the agenda forward across government departments, and to undertake a broad-ranging review of the cost and availability of childcare in the UK.”
