Ahead of the Chancellor’s Budget announcement on March 18, the British Chambers of Commerce (BCC) is urging the government to back long-term business investment, by introducing a permanent Annual Investment Allowance of £500,000*.
This would help to achieve better balanced growth and to tackle the unacceptable uncertainty created by the constant chopping and changing of UK tax structures and incentives. This uncertainty is intensified by the current political and economic climate, including the outcome of the general election.
Under current plans the Annual Investment Allowance limit will return from £500,000 to £25,000 after the latest temporary extension ends on 31st December 2015. In addition to a high, long-term Annual Investment Allowance, the BCC's submission argues that it should be widened** to include improvements to business premises, which would allow companies across the UK to boost productivity, efficiency and hiring.
The case for a long-term Annual Investment Allowance:
- Despite the pick-up in economic activity, the UK economy remains far too reliant on consumer spending, which currently accounts for almost two-thirds of UK GDP, to support growth. The 1.4% fall in business investment in Q4 2014, the steepest decline since the depths of the last recession, is a warning sign that much more needs to be done to promote business investment and achieve better-balanced growth.
- The BCC has more than halved its forecast for business investment in 2015, from 7.5% to 3.5%. If realised this would be the slowest rate of growth for six years.
- Businesses support the Chancellor's ambition to turn the UK into the richest country (by GDP per capita) in the G7 by 2030. However, to transform this ambition into reality we must do more to ensure that we have the highest level of business investment as a percentage of GDP in the G7. This is one of the key targets that the BCC will be using to evaluate the performance of the next government.
- Businesses want greater stability in allowances - Annual Investment Allowance has changed four times since 2008 and is due to change again in 2016 - to help them to invest with confidence.
- The BCC anticipates that the introduction of a high, long-term Annual Investment Allowance will have positive exchequer impacts as a result of higher business investment, stronger growth and a more robust tax base.
Commenting, John Longworth, Director General of the British Chambers of Commerce, said:
“The huge declines in business investment at the end of 2014, and our forecast for 2015 – which predicts the slowest rate of growth for investment in six years - are a warning sign that more needs to be done to support long-term business investment.
“Businesses are operating in uncertain times – with conflict in the Middle East and Russia and a sluggish Eurozone to contend with. Yet the greatest source of uncertainty is political and home-grown. Businesses have grown tired of constant chopping and changing in the UK tax system. They need long-term certainty, rather than short-term incentives, to help support investment decisions.
“A long-term investment allowance would give businesses of all sizes much-needed certainty. Our proposals would also allow for premise improvements to be included in the scheme, which are crucial to firms looking to expand their workforce or enhance their efficiency.
“We also need to boost business investment's contribution to GDP, as this will help us move away from an over-reliance on consumer spending, towards better balanced growth that is sustainable in the long-term. It’s time the government acknowledged that by forgoing some tax receipts in the short term, it will reap the rewards later, as businesses invest, hire and generate bigger profits.
"A permanent Annual Investment Allowance would be a 'triple win' proposition - for business, for jobs, and for government.”
*The BCC called for this in itsBCC Manifesto ‘A Business Plan for Britain’, which includes a wider set of recommendations from the business community, for any incoming government in 2015.
**An 'enhanced Annual Investment Allowance' would specifically exclude property speculation, but would go beyond the Business Premises Renovation Allowance and flat conversion allowances that only apply in certain 'disadvantaged areas'.