Spring Budget predictions

Amanda Tickel, head of tax and trade policy at Deloitte, comments on how the Chancellor might use tax to handle investment and net zero challenges in the budget on 15th March. 

Investment

“There have been calls for a replacement of the super-deduction which is due to end on 31st March, but the government will need to balance tight purse strings with encouraging investment when the 6% corporation tax rate rise comes into place in April. A simple alternative to the super-deduction to encourage investment would be a capital allowances top-up. Currently if a profit making business purchases equipment for £1,000 they receive £45 of tax relief in the first year - if their £1m Annual Investment Allowance has been used up. If the government introduced a 25% top-up allowance, this would increase the tax relief to £107.50, making this kind of investment more attractive.” 

“I’d also expect the Chancellor to give more detail on investment zones, as these could provide equivalent tax relief to freeports, or extra measures like additional employment tax reliefs to attract high-earning specialists. The Chancellor has confirmed there will be 10 investment zones, each centred around a university. The government could build on current innovation programmes focussed on research and development centres that bring together business, science and education to generate economic growth and innovation.”

Net Zero 

“With net zero goals drawing closer, the Chancellor may consider how else he can use the tax system to contribute to the green agenda. In his Autumn Statement, he pledged a further £6bn for an initiative to insulate homes and upgrade boilers, but no details have been announced yet. He could take inspiration from our neighbours in Germany and France who implemented schemes including interest free loans, grants or reduced VAT on retrofit work. This sort of government support could build momentum for more demand in energy-efficient retrofits, which could in turn benefit the supply side, with British SMEs providing high-wage and high-skill green jobs. 

“Another way to accelerate the green re-skilling movement could be to tie any green tax incentives to the apprenticeship levy. Incentives could be linked to employer investment in apprenticeships or other technical training, similar to a US measure which introduced significant tax breaks for green energy projects. This could serve as a model for designing UK tax incentives that encourage employer investment in technical skills and would allow the government to target certain sectors for growth and skills development.”