The chancellor has been asked to explain the claim that his budget tax plans will increase investment when the government’s own forecasts show levels falling.
Rishi Sunak told parliament yesterday that he believed his “super-deduction” corporation tax relief will not only bring forward business spending for two years but “will increase the amount of investment as well”.
Last week’s forecasts from the Office for Budget Responsibility (OBR) revealed that cumulative business investment between the start of this year and the start of 2026 will be £8 billion lower than in its November projections.
In the budget the chancellor announced 130 per cent relief on corporation tax for two years, starting on April 1, to encourage investment and super-charge growth as the economy reopens. The policy will cost £25 billion but bring forward £20 billion of spending and add 0.75 per cent to GDP in the short run, the OBR said.
Its forecasts show that investment tails off from June 2023 compared with the November outlook, in what appears to be a direct consequence of a sharp increase in corporation tax from 19 per cent to 25 per cent in 2023.
By the end of 2025 the cumulative level of investment is lower than it was projected to be in the November forecast, before the “super-deduction” was announced, the OBR data shows.
Anneliese Dodds, the shadow chancellor, said: “The chancellor claims that his massive tax break for some of the biggest businesses will, on its own, bring more investment. However, the OBR is clear it won’t. He needs to come back to the House and explain this statement. The truth is that the government’s plan for growth is in tatters.
“There’s a £70 billion investment gap between the UK and other major economies and the measures introduced last week will do very little to close it.”
Sunak was responding to a question from Mel Stride, the Conservative chairman of the Treasury select committee, on what was being done to ensure the “increase in corporate investment in the shorter term is continued into the medium and longer term”.
The chancellor said: “He’s right that it will bring forward investment but I do believe it will also increase the amount of investment as well given the attractiveness of doing so.”
A Treasury spokeswoman said: “The super-deduction will encourage firms to invest in productivity-enhancing assets that will help them grow. The independent OBR has forecast that, at its peak, the super-deduction will raise the level of business investment by 10 per cent, or roughly £20billion a year.”