British Chancellor Jeremy Hunt announced in his Autumn Statement on Nov. 22 that writing off the full cost of qualifying plant and machinery investment will be made permanent. This is good policy, according to an analysis published by the Tax Foundation, a non-partisan tax policy nonprofit. It would lift investor confidence and boost the United Kingdom's overall economy. This measure follows a series of changes implemented by the UK government to enhance its cost recovery provisions.
The first major change took place last year. According to the Tax Foundation analysis, authored by Alex Mengden, in 2021, the United Kingdom government introduced a 130% super deduction on qualifying machinery and equipment, "transforming the UK’s cost recovery provisions from one of the worst to the best." Last spring, the super deduction was phased to full expensing, and the statutory corporate tax rate increased from 19% to 25%.
This transformation came with significant financial implications. "Worth over £10 billion a year, full expensing is the biggest business tax cut in modern British history," Hunt said in his statement.
The Tax Foundation further elaborated on these benefits. According to the Tax Foundation analysis, which was published on Nov. 22, making the full expensing permanent would increase the United Kingdom's GDP by as much as 0.9%, investment by 1.5% and wages by 0.8%.
However, this progress could be undone if not sustained. "The expiration of full expensing in 2026 would have forfeited these gains by returning to one of the OECD’s least competitive cost recovery provisions. Future budgets can build on this crucial step forward by extending full expensing to all plant and equipment," the analysis stated.
