Creating a permanent tax relief on business investment will unlock a well of productivity hidden in the UK economy, according to Britain’s biggest business group.
The government should strengthen incentives for businesses to ramp up capital spending by using the super deduction as a model to create a permanent investment scheme, the Confederation of British Industry (CBI) has urged.
In its submission ahead of Chancellor Rishi Sunak’s Spring Statement on 23 March, the CBI said there is a £100bn warchest ready to be tapped if the UK “achieves a more ambitious 2.5 per cent rate of growth”.
However, this is only likely to be achieved if Britain reverses the long-term trend of sluggish business investment levels.
“Without a permanent investment incentive to replace the super-deduction, for example, CBI forecasts predict the UK will remain bottom for business investment among the G7 in 2026,” the organisation said.
Britain’s business investment levels are far below the OECD average, leading some economists to warn it will continue to be held back by weak productivity growth.
Last week, Sunak set out his plan to turbocharge the UK economy by creating a “culture of enterprise” at the Mais lecture.
Scaling up capital spending and getting businesses to create upskilling programmes to improve workers’ productivity will help achieve higher economic growth, Sunak said.
“Business backs the Chancellor’s desire to foster a renewed culture of enterprise and deliver a more ambitious growth rate,” Tony Danker, director general of the CBI, said.
“His vision set out only last week to leverage the tax and regulatory system to promote business investment, upskill Britain’s workforce and stimulate innovation is the right recipe for future success,” he added.
The government should turn the apprenticeship levy into a “skills challenge fund” that rewards companies that notch higher levels of skills, the business group said.
“Make no mistake, business is ready to step-up and unleash the wave of investment we need. But right now, it’s operating with one hand tied behind its back,” Rain Newton-Smith, the CBI’s chief economist, said.
Firms will be saddled with a 1.25 percentage point national insurance hike in April.