The tax relief on new plant and machinery announced by Jeremy Hunt as chancellor in 2023 was billed as a major part of the solution to the problem of Britain’s low economic productivity. Labour supported the measure at the time and have now promised to make it permanent.
An analysis by the thinktanks Demos and Common Wealth has found that the measure, known as full expensing, will cost nearly £30bn in lost tax revenue and spur a maximum of £10.5bn in fresh investment. The Treasury says the move will generate £15bn in investment, still only half what it has cost the taxpayer.
Andrew O’Brien, policy director at Demos, said: “Full expensing is not the silver bullet to boost business investment that some had hoped.”
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Under the measures rolled out in 2023, companies can offset the full cost of any new IT equipment, plant and machinery against tax.
The move was designed to boost Britain’s low investment, which has been the weakest of any G7 country for several years as a proportion of economic output. Many economists blame this lack of investment by British companies for the country’s low productivity rates, which have never recovered since the 2008 financial crash.
It’s almost like the Tories were just giving cash to their mates - not a bug but a feature.
This seems like a good place to sort out that £20bn black hole.
I’m having difficulty adjusting, as an American living in the UK. Twenty billion dollars is what an oligarch spends to destroy a social media platform. It is not, in my experience, a sum that spells years of ruin for a national budget.
You have to understand that these articles and especially the discourse on the internet are full of hyperbole and overreaction.
Yes, coming from American news media, they may be unfamiliar.
It’s true. In my country even a pitch perfect normal reaction to common current events would be rioting, so overreacting is usually out of the question.
Ah, like on Jan 6th with the new president celevratory riot. Dont worry, the French will show you that rioting is just a normal part of the democratic process. They also had guillotines at some of theirs, historically.
I’ve always admired them for that, as one revolting people to another
There’s also questions about whether this black hole even exists.
Population and GDP wise, its a bigger relative sum. However, it doesn’t really cost that. It meant they could expense equipment down immediately against tax. However, the usual way is to expense it over a number of years with a depreciation scheduke. So they have a lower tax bill now to encourage investment, but they will still pay the same amount of tax overall, just delayed.
Its more that the scheme was not very successful. However, given that it effectively cost nothing except the borrowing costs on 20b, and maybe have cobtriubuted 10billion, it could be beneficial. In the context of budgetary concerns, a lower return than hoped is poor spending and policy. Framing it as a big giveaway is disingenuous though.
the thing is, it’s a gap between the money the government is spending and the amount of money it gets through taxes and other incomes each year.
So it’s money that has to be borrowed from folks, every year to keep things going as they are. And each time that money is borrowed it needs interest paid on it which makes the problem worse. Especially with the high interest rates around the world.
So british people are working hard, paying their taxes and a percentage of those taxes is going towards servicing debt that has been built up, by poor spending decisions in the past.
It’s like payday loans for governments. you’ve either got to get spending under control, make more money somehow (tricks in the car park or maybe sell crack) or eventually reach the end of the road.
My experience, again, is American. I am used to governments spending into debt and looking strong doing it.
All I’m saying is that it’s hard to understand, not that our way is better.
fair. US debt to GDP seems to be around 100-120%[1] whereas in the UK there was briefly a spike of debt to 100% of GDP[2].
As a much smaller nation whose currency isn’t used as a world trade mechanism, britain devalue its currency too much, so there are fewer economic levers to pull when managing debt.
[1] https://www.macrotrends.net/global-metrics/countries/USA/united-states/debt-to-gdp-ratio [2] https://www.msn.com/en-gb/money/other/uk-debt-hits-100-of-gdp-adding-to-rachel-reeves-headache/ar-AA1qSNYF
