America

UK needs ‘boosters for growth’ as ​​tax hike threatens investment

December 6, 2021
Henry Club

The Confederation of British Industry said in its latest forecast that a “short-term recovery” in capital expenditure would end in 2023 due to a tax hike on companies.

Investment in the United Kingdom has lagged behind that of other advanced economies for decades, and business lobby groups forecast a blow Prime Minister Boris Johnson’s aspirations To build a high wage and high productivity economy.

The CBI said business investment will rise above pre-pandemic levels by the end of next year, before companies are hit by a hike in corporate tax and tax breaks on certain investments in plant and machinery.

The corporate tax rate will increase from 19% to 25% in April 2023. UK Finance Minister Rishi Sunak announced the hike in March this year to help pay for the cost of the pandemic and reduce government borrowing. The tax breaks on plant and machinery introduced earlier this year will also expire in April 2023.

Investment stagnated after the Brexit referendum in 2016 as companies were stymied by uncertainty over Britain’s future trading relationship with the European Union. This has further declined since the start of the Covid-19 pandemic.

The CBI said capital spending by UK companies declined by 11.6% between the third quarter of 2019 and 2020.

By the government’s own admission, business investment was already low by the standards of other advanced economies. A UK Treasury factsheet published in April stated: “Most of the UK productivity gap with competitors is due to our historically low business investment compared to our peers. Weak business investment has contributed to the slowdown of productivity growth since 2008. played an important role.”

Investment in technology, skilled labor and innovation are key to increasing productivity, and boosting growth and income without driving up prices too much. CBI’s warning has come on rising inflation. hit this one 10-year high 4.2% in October, and the Bank of England’s chief economist has warned that it could rise to more than 5% by early 2022.

CBI Director General Tony said, “I have learned from speaking with firms of all sizes that they have an ambitious investment mindset, and are eager to implement growth plans. But the intentions have melted, we are in 2023. Coming to the edge of a cliff.” Denker said in a statement.

He said the tax break has been successful but the industry “needs to scale up investment, particularly targeted measures to encourage it in green technologies. A booster to growth is needed to protect and build our recovery.” Is.”

The UK economy should grow by 6.5% in 2021, according to estimates from the UK government’s own Office for Budget Responsibility. But the economy will not recover to its pre-pandemic size until the first quarter of next year, the Bank of England predicts.

The recovery has been stalled by Brexit, which the OBR believes will cause more long-term damage to the economy than the pandemic.

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