Tax break for businesses made permanent - BBC News
A policy allowing firms to deduct machinery and equipment costs from their tax bill has been made permanent.
The manufacturing industry called for the policy to be made permanent

A tax break which allows businesses to deduct the full cost of investing in machinery and equipment from their tax bill has been made permanent.

In his Autumn Statement, Chancellor Jeremy Hunt called it the "largest business tax cut in modern British history", but this was disputed by an economics think tank.

Big business groups praised the policy, which had been due to end in 2026.

It is hoped it will encourage firms to invest and lead to economic growth.

Mr Hunt said the policy - known as "full expensing" - would mean that for every £1m a company invests, it would get £250,000 off their tax bill in the same year.

Under full expensing, companies can deduct the costs of various equipment from their tax bills, including machines from computers to lathes, office equipment such as desks and chairs, as well as vans, tractors, large construction equipment and tools.

Mr Hunt said the move - which has been supported by Labour - would cost £11bn per year.

According to research by the British Chambers of Commerce, the policy has benefited 34% of businesses since it was temporarily put in place in April.

However, the UK's official economic watchdog, the Office for Budget Responsibility (OBR), has forecast that business investment could fall in the short term due to firms no longer having to ensure investments were made before the previous 2026 deadline. Ultimately, the OBR estimates the policy will drive business investment up by £3bn a year.

The OBR has forecast the UK's economy will grow more slowly than previously thought over the next two years due to inflation - the rate prices are increasing - taking longer to fall.

Businesses are currently having to pay a higher rate of corporation tax, after it rose from 19% to 25% in April. Corporation tax is charged on a company's profits - the amount of money firms make, minus their costs - and is paid to the government by UK businesses with profits over £250,000 and foreign companies with UK offices.

Big profitable construction, engineering and manufacturing businesses will be happy tonight.

The ability to offset 100% of new equipment and machinery permanently against profits - Labour also says it backs the move - will give the UK one of the most competitive investment environments in the developed world.

Perversely, as the OBR notes, we may actually see business investment go down as there is no incentive to pull investment forward before the current scheme's old expiry date in March 2026. But the OBR says over the next five years, business investment will be £3bn a year higher.

If you are a small business or a hospitality business you will be grateful of the extra year of business rate discounts and the freeze on alcohol duty till next autumn. It will help sooth the very real concerns they had over the 10% rise in the living wage - more for younger workers.

But the engine room of the economy is services and here there is less to cheer. Businesses that invest in people and ideas rather than machines and widgets won't benefit from the biggest single tax giveaway in today's statement.

Rain Newton-Smith, chief executive of the CBI business lobby group, said the tax break would help firms to "unleash pent-up investment", which she argued was "critical to getting momentum into the economy".

Neil Carberry, chief executive of the Recruitment and Employment Confederation industry body, said making full expensing permanent was good news, but only for businesses "in the sectors that can really benefit from it".

He said services firms which make up "the bulk of the economy - benefit far less" compared with companies in the manufacturing and construction sectors.

But Robert Forrester, boss of one of Britain's biggest car dealerships, Vertu Motors, said he did not think making the move was a "massive thing for most businesses".

"For many British businesses, they're just trying to keep going," he told the BBC's Today programme prior to the chancellor's speech.

"They're not investing heavily in plants and machinery, but they're still very valid businesses that employ people and serve customers."

The Institute for Fiscal Studies think tank said there were "serious trade-offs" with making full expensing permanent, including creating "a bias towards investing in qualifying plant and machinery rather than other assets".

"The chancellor described the change as 'the biggest business tax cut in modern British history'. It is not," said Isaac Delestre, a research economist at the IFS.

Other policy measures affecting business announced by the chancellor included:

Tina McKenzie, policy chair at the Federation of Small Businesses (FSB), said business rates were "one of the absolute worst taxes faced by small firms", adding that the chancellor was right to have concentrated on "helping the smallest firms at the heart of so many communities".

But Helen Dickinson, chief executive of the British Retail Consortium which represents retailers, said the announcements would "not do enough to support shops, shoppers, and industry that employs over three million people".

She said Mr Hunt had "poured fuel on the fire spreading across our high streets with a tax hike on shops and other businesses", due to his decision to allow business rates to rise in line with inflation.

"The country needs wholesale reform of our broken business rates system," Ms Dickinson added.

Are you a small business owner or self-employed with a young family? How will the Autumn Statement affect you? Share your experiences by emailing haveyoursay@bbc.co.uk.

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