The leaders of the main parties have today attempted to woo businesses with a raft of pledges. Boris Johnson has promised to put Corporation Tax cuts on hold to “help fund the NHS,” while Opposition leader Jeremy Corbyn has turned his attention towards the Apprenticeship Levy. Our Research Director, Sam Dumitriu, comments below.
On Business Rates
“The Conservatives have committed to “launch a fundamental review” of Business Rates at their first budget. If elected, they should replace business rated with a tax on commercial landowners. In their current form, Business Rates discourage investment in commercial property, they impose a large administrative burden upon smaller businesses, and can create cashflow constraints for smaller firms. Moving to a commercial land tax solves all three problems. It might be tempting to simply reduce the burden by cutting business rates, but landlords will be able to raise rents in the long-run, leaving businesses no better off.”
On R&D Tax Credits
“There is a strong case for modernising the R&D tax credit. For example. Data sets are essential to the R&D projects of many tech startups in AI and machine learning, but don’t qualify as an R&D expense. Boris’s commitment to review the scope to consider whether the credit should apply to “areas of investment such as cloud computing and data” could have a significant impact on innovation.”
On Scrapping Cuts to Corporation Tax
“Further cuts to the headline rate of Corporation Tax aren’t the best way to stimulate growth. Osborne’s rate reductions weren’t “self-funding,” as some have suggested. Revenues increased as a result of base-broadening measures, i.e. cutting capital allowances. The actual incentive to invest for businesses barely shifted. This improved following Budget 2018, when Philip Hammond created the Structures and Buildings Allowance, increased the write-down rate for certain types of investment and expanded the Annual Investment Allowance.
“To boost investment, the next government should use the additional revenue to expand capital allowances. Removing anti-investment distortions in the tax system would help manufacturers in left-behind regions, too. The UK’s historically ungenerous capital allowances may explain the UK’s rapid deindustrialisation. The 1 percentage point increase in the Structures and Buildings allowance is a welcome move.”
On Reforming the Apprenticeship Levy
“Labour’s pitch to business involves reforming the Apprenticeship Levy to give employers more flexibility. In our Management Matters report we called for the Levy to be rebranded as a general Training Levy. The status quo is too bureaucratic and inflexible, and is leading spending on training to fall. Under a more flexible levy funds could still be restricted to ensure they’re only spent on developing in-demand skills. The reform should also be paired with measures to allow the self-employed to benefit from tax breaks when they fund their own training.”