The final newsworthy changes were related to increased support for businesses. The chancellor pledged to support business with a range of new measures.
Full expensing on business investment, which allows firms to offset spending on plant and machinery against profits and is due to expire in March 2026, is to be made permanent at a cost of £11bn to the government. For every £1 that a business invests in IT, machinery and equipment, they can claim back 25p in corporation tax.
In our view, this approach goes against the typical Treasury orthodoxy of cutting corporation tax to spur investment intentions in the economy, the gains of which may not in reality lead to higher investment and instead find their way to shareholders.
This is one potential explanation for the ‘productivity puzzle’ in the UK for the last decade. Full tax deductions on eligible capital spending instead creates a much more powerful incentive for businesses to invest in new equipment.
There is some evidence of this working in the US, prompting a corporate ‘arms race’ so that companies do not fall behind their competitors in terms of manufacturing capability and technology.
The benefits may well be fairly limited for such a service- based economy like the UK, but this policy would be consistent with trying to rebalance the economy towards manufacturing and supporting exports.
The government will also extend business rate relief for many small firms, including pubs and other hospitality businesses.
However, with the National Living Wage rising to 9.8 per cent from £10.42 to £11.44 per hour from April 2024, and applying to 21- and 22-year olds for the first time, some businesses will now face higher staff costs.
Eleanor Ingilby is is head of high net worth at Atomos Wealth
