British manufacturers have welcomed Jeremy Hunt’s announcement of permanent tax breaks for investment as the government tries to spur lagging UK productivity after years in the doldrums in its autumn statement.
The chancellor said the tax break, worth £11bn a year by 2028-29, was the “largest business tax cut in modern British history” as he made permanent “full expensing” one of the key growth-boosting measures in Wednesday’s autumn statement.
Under the measure, companies can deduct 100% of the cost of investments in machinery from their profits, effectively giving them back 25p for every pound they invest. A similar tax break was first introduced temporarily in 2021 when Rishi Sunak was chancellor, before Hunt in March announced an extension of three years to 2026. On Wednesday, Hunt responded to demands from businesses by making it permanent.
Stephen Phipson, chief executive of the manufacturing lobby group MakeUK, said it was a “pretty historic move” and “a real vote of confidence in the manufacturing sector”. “We do believe that is really going to change people’s views about investing,” he said. “It’s about business having long-term certainty.”
Hunt was trying to spur economic growth after years in which British business investment has lagged behind rival economies. The Bank of England deputy governor, Dave Ramsden, on Tuesday blamed uncertainty after the Brexit vote for stagnant business investment since 2016.
However, the giveaway is only relevant to the 1% of UK businesses – about 7,000 registered companies – that have capital expenditure in excess of the annual investment allowance of £1m, according to the accountancy firm Blick Rothenberg. “This will benefit only the largest businesses in capital intensive sectors,” said the director, Simon Rothenberg. “The vast majority of owner-managed businesses will see no benefit at all.”
The government also announced measures to speed up planning approvals for some buildings and grid connections, both of which have proven to be obstacles to investments. Rain Newton-Smith, the chief executive of the Confederation of British Industry, which continues to represent many large businesses despite recent scandals, said those changes could “bolster business confidence to invest in high-growth areas like green technologies, renewable energy and advanced manufacturing”. She also welcomed the “stability” that making full expensing permanent offered.
Other spending on manufacturing business announced by Hunt included £2bn for the manufacturing and development of electric vehicles and batteries, £975m for aerospace and £520m for life sciences.
Richard Hagan, the owner of Crystal Doors, a Rochdale-based maker of cupboard doors, said he thought full expensing would “stimulate companies that are profitable” to make investments, although he added that he thought there was little in the autumn statement for smaller businesses that are not making enough profit to spare cash for investment.
Hagan’s company has already invested in machinery to improve productivity. It bought robots to spray glue on doors before they are wrapped, helping it to double its turnover after inflation since Hagan founded it in 1994, while employing the same number of people.
Permanent full expensing is likely to remain in place even if the Conservatives lose the next election. Rachel Reeves, Labour’s shadow chancellor, welcomed the announcement in her response, although she added that it “doesn’t make up for the years of uncertainty that businesses have faced with taxes going up and down like a yo-yo”.
Michael Owens, managing director of the UK arm of the German packaging company Schumacher Group, said his business would benefit from full expensing when it invests in a £6m digital printer capable of printing individual cardboard boxes for the first time, giving it a £1.5m tax break. For businesses thinking of making large investments, it could make a difference, he said.
However, as well as worries about the lack of help for people struggling to get by, Ovens said he thought the statement did not have much for the owners of smaller businesses – instead focusing on help for prominent sectors such as aerospace and automotive.
A government scheme helped Crystal Doors to upgrade its technology. But even with the help, Hagan said the company had “just broken even” on recent tax changes because of the increase in corporation tax in April from 19% to 25%. Julian Jessop, an economist who advised Liz Truss on tax cuts during her ill-fated premiership, said: “Permanent ‘full expensing’ only reverses part of the hit from hiking the main rate of corporation tax to 25%.”
Hagan added that many of the tax breaks felt like “a lifeline for the successful ones” that have the profits to be able to invest. The makers of cheaper goods were seeing falling demand as households struggled with the rising cost of living, he said.
