Rishi Sunak announces ‘superdeduction’, biggest business tax cut in British history

Chancellor says the UK ‘needs an investment-led recovery’

Rishi Sunak has unveiled what he described as the biggest business tax cut in British history, offering companies the chance to reduce their bill by 130 per cent of any amount invested.

The chancellor said the unprecedented move would deliver a significant boost to the UK’s economic recovery in the wake of the coronavirus pandemic.

But he admitted the idea, dubbed the ‘super deduction’, which would effectively pay companies to invest, had never been tried before in the UK.

The gamble was necessary because the country “needs an investment led recovery”, he told MPs as he unveiled his budget.

He said the move was supported by the independent Office for Budget Responsibility, which said it would boost business investment by around 10 per cent, or £20bn a year.

Mr Sunak said the change would make the UK’s tax regime for business investment “truly world leading”.

At the moment businesses can only reduce their tax bill by a fraction of the money they have spent on investment.

Labour leader Sir Keir Starmer said he wanted to see the details of the scheme, but added: “It is unlikely to make up for the last ten years, when the levels of private investment growth have trailed other countries”.

The changes are due to come into effect at the start of next month and will be worth up £25 billion to companies over two years.

Setting out how it would work, Mr Sunak said that under existing rules a construction firm which bought £10m of new equipment could reduce its taxable income that year by £2.6m.

However, under the new scheme that reduction would be £13 million.

In its assessment the OBR added a note of caution, saying the super deduction “largely brings forward planned investment from future years.”

The British Chambers of Commerce said it “particularly welcomed” the ‘super deduction’ incentive, saying it responded to the organisation’s call to encourage businesses that can to invest and grow. 

Marissa Thomas, head of tax at accountants PwC, pointed out that the scheme would return to businesses a “substantial proportion” of the money raised by Mr Sunak’s plan to increase the rate of corporation tax.

The National Institute of Economic and Social Research said the scheme “may be very successful in getting profitable firms to bring forward investment, though at significant fiscal cost.”

It also warned that combined with the rise in corporation tax “it creates a large cliff-edge for corporate taxation in 2023”.