Corporation tax rise remains, but Chancellor offers a £27bn ‘cut’

Resisting strong pressure from his back benchers to roll-back the planned increase in corporation tax from 19p to 25p, the Chancellor today offered a break to business with one measure he said represents a corporation tax cut of £9bn a year over the next three years.

As a replacement for the previous Super Deduction scheme introduced by former Chancellor Rishi Sunak, which expires at the end of this month, the current Chancellor announced the scheme, alongside help for SMEs.

He said: “Even after the corporation tax rise this April, we will have the lowest headline rate in the G7.

“Only 10% of companies will pay the full 25% rate, but even at 19% our corporation tax did not incentivise investment as effectively as countries with higher headline rates. The result is less capital investment and lower productivity than countries like France and Germany.

“We’ve already taken measures to address this. For larger companies we had Super Deduction which ends this month, for smaller businesses we have increased the annual investment allowance to £1m meaning 99% of all businesses can deduct the full value of all investment from that year’s taxable profits.”

He added: “We will introduce a new policy of full capital expensing for the next three years, with an intention to make it permanent as soon as we can responsibly do so. That means that every single pound a company invests in IT equipment, plant or machinery, can be deducted in full and immediately from taxable profits.

“It is a corporation tax cut, worth an average of £9bn a year for every year it is in place and its impact on the economy will be huge.”

He said the Office of Budget Responsibility estimates that it will increase business investment by three per cent every year it is in place.

Mr Hunt also announced plans to help the life sciences and creative industries sectors with an enhanced credit scheme which means that if a qualifying SME spends 40% or more of their total expenditure on R&D they will be able to claim a credit worth £27 for every £100 they spend.

He said: “That means an eligible cancer drug company spending £2m on R&D will receive over £500,000 to help them develop breakthrough treatments. It’s a £1.8bn package of support helping 20,000 cutting edge companies.”

And he highlighted the value of the film and TV industry, offering support through an expenditure credit with a rate of 34% for film, high end television and video games and 39% for the animation and children’s TV sectors.

He pledged to maintain the qualifying threshold for high end television at £1m and extend for another two years the current 45 and 50% reliefs for theatres, orchestras and museums.

He acknowledged that energy costs are an increasing headache for businesses, excacerbated by Russia’s invasion of Ukraine that sent prices spiralling throughout Europe.

The energy bill relief and energy discount relief schemes were introduced to support businesses and Mr Hunt said he will extend the climate change agreement scheme for two years to allow elibigle businesses £600m of tax relief on energy efficiency measures.

But he said the aim is to insulate the UK from future exposure to unexpected volatility in the energy market, and he focused on carbon capture usage and storage (CCUS), which is a hotbed of activity throughout the North.

He announced he will allocate up to £20bn of support for the early development of CCUS, starting with projects from the east coast to Merseyside and North Wales, paving the way for CCUS everywhere across the UK on the run-up to 2050 which he said will support up to 50,000 jobs, attract private sector investment and help to capture up to 20 to 30 million tonnes of CO2 per year by 2030.

The Chancellor also re-classified nuclear power as environmentally sustainable which will give it access to the same investment incentives as renewable energy, alongside more public investment.

And he announced the launch of a competition for small modular reactors which will be completed by the end of 2023. He said if it is demonstrated as viable, the Government will co-fund the exciting new technology, which is at the heart of the North West.

Last June, engineering giant Rolls-Royce, which was formed in Manchester in 1904, announced it had chosen to return to the city and base its small modular reactors division’s head office in the city.

Ged Barlow

Ged Barlow, chief executive of Net Zero North West, said: “News of the £20bn investment into Carbon Capture and storage projects across the UK is great news for NZNW.

“This funding will substantially help projects such as HyNet in the North West to speed up the decarbonisation ambitions, whilst creating and safeguarding green jobs for our local communities that will invest back into the local economy.

“The shift to full capital expensing is also a significant measure to help business invest in green technology, which is vitally important as firms around the region push ahead in the race to net zero.”

Jonathan Prescott, partner at Praetura Ventures, said: “The changes to the research and development tax credit scheme are an example of giving with one hand while taking away with the other. It’s not yet clear which businesses will qualify for the enhanced credit package, so it’s likely huge swathes of Britain’s SME community – that would otherwise be primed to invest in innovation – will now have limited access to the support.

“By incentivising larger businesses more than the wider start-up community, the Treasury risks undermining the Chancellor’s vision to ‘make the UK home to the next Silicon Valley’.”

Meanwhile, Danni Hewson, head of financial analysis at Manchester investment platform AJ Bell, said: “Billed as a Budget for growth, there’s not much for businesses to get excited about. ‘Full capital expensing’ is pretty headline grabbing but the problem is it replaces the Super Deduction which at 130% was a tad more generous.

“Businesses are also having to factor in the increase in corporation tax, so it feels a bit like they’ve been short-changed on this one.

“Getting businesses to look past the current economic uncertainties and increased costs for things like energy and labour is a must if the economy is going to achieve even the 1.8% growth the OBR is forecasting for next year and there will be some sectors taking a long hard look at the small print to see exactly what investments are covered by the scheme.

“And there will be plenty of smaller business owners with their heads in their hands after today’s Budget because despite the fact there has been extended help for households with energy costs, non-domestic users seem to have been left in the lurch, though putting more money in consumers pockets will help to a degree.”

Danni added: “One sector that had shouted the loudest in the run up to the Budget was hospitality and there will a few pints pulled in celebration today after the news that duty on beer in pubs will be up to 11p lower than that paid in supermarkets. The disparity has long been a source of contention and at a time many pubs are fighting to keep their doors open every penny is likely to count.

“Businesses will also benefit from moves to try and retain and return people to the workplace with a smorgasbord of announcements from pension changes to childcare reform. But in the case of the latter, it will take several years before it’s fully rolled out.

“This was billed as a boring Budget, it wasn’t that, but it also lacked a degree of oomph which business leaders had been calling for.”

Michael Sandys

Michael Sandys, Federation of Small Businesses area Leader for Liverpool City Region, said: “The Chancellor had set high expectations for supporting small firms during these challenging times, but today’s Budget will leave many feeling short-changed.

“The disappointing lack of new support in core areas proves that small firms are being overlooked and undervalued. Budgets are about tough choices. With today’s billions being allocated to big businesses and households, the UK’s 5.5 million small businesses and the 16 million people who work for them will be wondering why they have been missed out.”

He said key criticisms include a lack of support for small firms struggling with steep energy costs alongside help for households. On business tax, support was directed at big businesses – an extra £27 billion – with the Government arguing small firms are already catered for. FSB believes proposals to help people with health conditions get back to work are ill-designed, won’t work and that the work capability assessment changes could be delayed for years.

He added: “The Chancellor has failed to take any action to make it easier for small firms to recruit people locked out of the labour market. Those with health conditions and disability have been let down by a government that does nothing to work with small employers and is continuing with its failing Jobcentre-focused approach.”