LONDON (Reuters) – Britain’s Finance Ministry presented options on Monday for how the tax system could be reformed to encourage businesses to invest more, something Finance Minister Rishi Sunak said he wanted to do to address the weak country’s productivity growth.
Data from the Organization for Economic Co-operation and Development shows that UK businesses invest the equivalent of 10% of gross domestic product a year, compared to 14% in similar countries, the department said.
Prime Minister Boris Johnson has promised to build a high-wage economy, but to do so his government must improve Britain’s productivity record, which lags behind that of many of its peers.
During the coronavirus pandemic, Sunak introduced a temporary ‘super-deduction’ incentive, allowing businesses to reduce their tax bill by up to 25p for every pound invested, but it is due to expire in April next year.
The two-year tax break is expected to cost 21.3 billion pounds ($26.2 billion), Britain’s budget watchdog forecast in October.
The ministry said options for future incentives include increasing the permanent level of an annual investment allowance or allowance amortization rates, introducing general first-year allowances for eligible expenses in plant and machinery and possibly additional allowances.
A permanent full outlay of capital costs was also on the list, but the department said it would cost more than £11billion a year.
“The government wants to know if it would be well targeted if the funding is available, and if it’s not available, how best to target our approach,” he said.
The ministry said companies should submit their views by July 1.
($1 = 0.8129 pounds)
(Writing by William Schomberg; editing by David Millikne)