Updated: Jul 5, 2020
This years’ budget is on 22 November and the calls from business for more incentives to boost investment and economic growth are well underway.
Can the Chancellor afford to give away anything based on the anaemic growth forecasts for 2018 (1.4% GDP), urgent calls for more cash to support health and other vital public services alongside general concerns around a ‘hard’ Brexit (whatever that means)? Can he afford not to?
Significant and differential changes to the current capital allowances system are bound by EU state aid rules which mean geographical or industry specific incentives require negotiation and approval. The relatively recent extension of 100% First Year Allowances to zero-emission goods vehicles and enhanced capital allowances for plant and machinery in enterprise zones are both live examples of incentives governed and restricted by EU state aid rules.
When the UK leaves the EU on Friday, 29 March 2019, the relevance of such restrictions to government policy is far from certain. Indeed, subject to ongoing trade negotiations, there could be both greater freedom and opportunity to re-examine the role capital allowances and other taxes play in UK business investment decisions.
That’s exactly 1 year 4 months and 7 days from this year’s budget, or in snooker parlance the maximum achievable break. Let’s hope that’s what David Davis achieves when he leaves the negotiating table with his EU counterparts. A post Brexit deal that gives the government more freedom to create the type of capital allowances incentive system that the country needs. One that is simpler, allows and encourages differential investment in parts of the country and industry sectors that need it most.
Brexit negotiations aside, major capital investment takes time to plan and implement and the Chancellor has an opportunity, moreover obligation, to share what incentives all businesses might expect to see in a post Brexit world. He may not have the cash now but he does have an opportunity to shape the future when the real expenditure is incurred.