Consider criticisms of super-deduction, say MPs

The cross-party committee sets out its views in a report published this week - ‘Jobs, growth and productivity after coronavirus’.

The MPs say that the evidence submitted to their inquiry “generally agreed that the super-deduction would incentivise business investment. However, there were criticisms of its coverage.” These included Giles Wilkes of the Institute for Government describing the restriction to plant and machinery rather than intangible capital as “slightly atavistic,” and Kitty Ussher of the Institute of Directors calling for it to be extended to human capital.

Additionally, the committee notes, in written evidence, the Finance & Leasing Association, the ICAEW and the British Chambers of Commerce called for the super-deduction to be extended to leased assets. And the Women’s Budget Group and the TUC criticised it for carrying a large deadweight cost.

The committee also observed that the super-deduction “seems not to have had the impact on business investment that was originally expected. Officials from the Office for Budget Responsibility told us that investment had grown by less than they expected due to supply-chain bottlenecks and uncertainty, while Andrew Bailey, Governor of the Bank of England, has told us that “it is not at the moment having the impact that was expected,” due to the same two factors. The (now former) Chancellor had said that the super-deduction had helped but “not as much as one might have originally thought”.

Regarding possible replacement incentives for the super-deduction, the committee notes that the CBI suggested that from 2023 there should be full expensing of capital allowances over the lifetime of an asset to have a real incentive around business investment, while MakeUK called for a focus on extending the Annual Investment Allowances as well as increasing R&D tax credits whilst making such schemes easy to access.

The committee notes that a consultation on reforms to capital allowances was launched in May, and that, prior to his replacement, the Chancellor expected to announce reforms in the autumn of 2022, to be enacted in Spring 2023.

Other tax-related conclusions of the report included:

• The target to spend 2.4 per cent of GDP on research and development (R&D) is an important aspect of growth policy. The committee re-iterate their disappointment over the pushing back of the target to spend £22 billion of public money on R&D and continue to warn against any further slippage.
• Witnesses thought there was not currently a pressing need for tax rises.
• The committee received a large number of proposals for reform of the Apprentice Levy in England. A full review is needed, and the Treasury should confirm that it is going ahead with such a review. (NB. At the 2022 Spring Statement, the Chancellor said that over the summer “we will consider whether the current tax system, including the […] Apprenticeship Levy, [is incentivising] the right kinds of training”; but it has since been reported that the Treasury has said “there will be no formal review.”)

More generally the committee:

• Expressed concern at the ‘chop and change’, a risk of fragmentation and lack of long-term thinking in economic strategy, following the abolition of the Industrial Strategy and its replacement with the Plan for Growth.
• Said that while a focus on reforms to tax incentives is a good start, wider economic certainty, coherence and stability in the Government’s growth policy - which is currently deficient - will be key to improving investment.
• Called for additional resourcing for ‘long covid’ treatment, to enable those suffering from long-term sickness to re-enter the workforce in greater numbers.