Today we are taking a break from our usual FDI round-up to highlight the key takeaways for foreign investors from the UK’s Spring Budget. In addition to the establishment of 12 investment zones, chancellor Jeremy Hunt unveiled a swathe of measures on March 15 to boost Britain’s competitiveness and equip the country with “the best investment incentives in Europe”.
OECD’s most competitive capital allowance
Under a new ‘full expensing’ capital allowance programme, set to run for the next three years, businesses will be able to fully deduct investments in equipment, plant and machinery from taxable profits. Delivering the budget, Mr Hunt said the policy “is in line with the government’s vision for the UK to be the best place in Europe for companies to locate, invest and grow” and that he intends to make it permanent “as soon as we can responsibly do so.”
The Office for Budget Responsibility forecasts that the policy will increase business investment by 3% for every year it is in place. The government claims it will reduce corporation taxes by £9bn per year and that it is the most competitive capital allowances regime in the OECD.
R&D and technology
Policies to spur innovation and high-growth industries include a £20bn package to support the development of carbon capture usage and storage technology. Changes to research and development (R&D) tax credits will collectively provide £1.8bn worth of support to 20,000 R&D-intensive businesses.
The government is also enhancing its British Patient Capital programme which was launched in 2018 to enable long-term investment in innovative UK companies. The programme will run for another 10 years with an increased focus on R&D-related industries, and will inject at least £3bn in government funding across industries including life sciences and clean technologies.
To enhance its levelling-up agenda, the government is responding to calls for more fiscal devolution to ensure communities capture the returns from local investment. The government will start by granting multi-year single settlements to the West Midlands and Greater Combined Manchester Authority, and allow them to fully retain local business rates. These benefits will be rolled out to other local councils over time to improve their financial autonomy.
The government will also consult on transferring responsibilities for local economic development currently delivered by Local Enterprise Partnerships to councils from April 2024.