Capital expensing scheme could mean stealing investment from the future
Chris Denning · March 16th 2023 · read
There is a big flaw in the capital expensing scheme.
As expected, the Chancellor announced a replacement for the Super Deduction, which concludes at the end of this month (March 2023). The successor is Full Capital Expensing which is a 100% tax relief on plant, machinery and IT equipment purchased after 1 April 2023.
The problem is Full Capital Expensing isn’t funded after the next election. It’s only an aspiration to make it permanent, when conditions allow.
The effect of this will be stronger investment in the short term but worse in the long term if the scheme isn’t made permanent. Without the permanent impact of Full Capital Expensing all you are doing is stealing some investment from the future because businesses might think it sensible to move forward their investment decisions to take advantage of it, with the expectation it won’t be continued.
We need to make Full Capital Expensing permanent for it to actually impact long-term growth. Investments are long-term decisions so you need long-term frameworks in place to permanently drive up investment. As capital expensing is just a temporary measure it doesn’t quite cut it.
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