Does Britain mean Business?

Does Britain mean Business?

  •  Britain is about to become a significantly worse place to do business, as corporation tax rises and the super-deduction expires.
  • Modelling by the CPS and US-based Tax Foundation suggests that the corporation tax rise will reduce long-run GDP by 1.2%.
  • The combination of the two will be even worse, seeing us fall from 10th to 33rd of 38 OECD members in terms of the competitiveness of our business tax regime.
  • It is still not too late for the Government to reconsider its planned corporation tax rise. But if it does not, it should offset the impact by introducing permanent full expensing as a replacement for the super-deduction.
  • New CPS/Tax Foundation modelling shows that the most generous version of this could increase long-run GDP by 3.4%. A more limited version, restricted to plant and machinery, could increase GDP by 1.2%, compensating for the impact of higher corporation tax at a long-run cost of only £2.3bn per year.

Ahead of next week’s Budget, a new report from the Centre for Policy Studies sets out the case for the Chancellor to prioritise measures which incentivise and attract business investment.

‘Does Britain Mean Business?’ makes the fundamental, evidence-based case for lower business taxes as a driver of growth. Robert Colvile and Tom Clougherty, the CPS’s Director and Research Director, argue that while there are significant pressures on the public finances, supporting business is vital to long-term growth – and that if ministers cannot afford to cancel the planned corporation tax rise, they should at the very least soften the blow by introducing full expensing, allowing businesses to write off 100% of tax on investment costs. 

According to new modelling from the CPS and the US-based Tax Foundation, full expensing – including structures and buildings as well as plant and machinery – would, in the long-term, increase investment by 5.7% and generate a 3.4% increase to GDP and a 3.0% increase to wages. A more limited but more affordable version, covering only plant and machinery, would deliver a potential 1.2% boost to GDP – far outweighing the long-run cost of just £2.3 billion a year.

Robert Colvile, Tom Clougherty - Friday, 10th March, 2023