Chancellor’s eye-catching policy could end up rewarding investment that would have happened anyway
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- Budget 2021: key points at a glance
One can usually take a mental break when the budget speech turns to capital allowances. It’s the tinkering bit. This time was different. Rishi Sunak’s “super deduction” regime will allow businesses to offset 130% of investment spending on plant and machinery against profits for the next two years. So spend £10m on new equipment and reduce your taxable income by £13m, as the chancellor put it.
It’s an eye-catching pitch to companies as they await the hike in corporation tax in 2023. The cost to the Treasury over the next two years will be £25bn, which is enormous. The Office for Budget Responsibility calculated it is 10 times more generous than the equivalent temporary capital allowance measures introduced after the 2009 financial crash.
