Chancellor Jeremy Hunt made a tax break for business investment permanent on Wednesday, aiming to kickstart growth in the country's sluggish economy.
Britain has suffered from weak business investment since the Brexit vote in 2016, and economists blame the lack of corporate investment for the country's anaemic growth rate in recent years.
Hunt hopes that by making permanent the tax break known as "full expensing", companies will spend more on new kit and technology, lifting productivity.
"I will today make full expensing permanent. This is the largest business tax cut in modern British history," Hunt said in his Autumn Statement on Wednesday.
The move would boost annual business investment by around £3 billion a year, forecasts from the Office for Budget Responsibility (OBR) said.
The opposition Labour party, which is ahead of Hunt's Conservatives in the polls before an election expected in 2024, said it supported the move.
Full expensing is a capital allowance scheme that allows companies to deduct 100 per cent of the cost of qualifying plant and machinery from their taxable profits.
Hunt said that the tax break costs the government £11 billion a year. It was brought in earlier this year and had been due to expire in 2026, but the country's improved finances meant it could now be made permanent, Hunt said.
The permanent extension would mean for every million pounds invested businesses would receive £250,000 off their tax bill in the same year.
Or, for every £1 invested in items such as computers, machinery and tools, businesses can claim back 25p in corporation tax.
Commenting on the measure, Lee Murphy, managing director of The Accountancy Partnership, has called for entrepreneurs to “transfer their gaze” to growth.
“There are more than five million small to medium enterprises (SMEs) in the UK and inflation, rising utility costs and the cost-of-living crisis have caused turmoil,” Murphy, whose Wirral and London-based firm manages the tax affairs for more than 13,000 SMEs and entrepreneurs, said.
“This has been felt acutely by SMEs facing fierce competition while struggling to attract customers or clients, who are choosing how they spend their money carefully.
“Making full expensing permanent will allow entrepreneurs to transfer their gaze to growth and reinvestment. It means they will be able to have greater scope in improving production and make strides to bolster the bid to improve the economy by implementing this tax break.”
Murphy added: “In October the number of company insolvencies in England and Wales was reported to be 18 per cent higher than the same month last year, meaning they are at their highest level since 2009.
“The benefit of full expensing gives entrepreneurs support to allow them to look forward to the future, instead of fighting for survival.”
