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UK firms to delay investment plans as higher tax rates reduce their incentive to invest

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Almost half of medium-sized British companies plan to delay investment plans due to last month’s rise in corporation tax, a survey published on Monday found.

Low business investment is one of the reasons economists give for the weak growth in British productivity and living standards over the last decade, and businesses have complained that higher tax rates reduce their incentive to invest.

Britain’s headline rate of corporation tax rose to 25 percent in April from 19 percent the year before, under the enactment of a policy announced in March 2021.

Accountants BDO said 46 percent of businesses surveyed with a turnover of between 10 million and 300 million pounds ($12 million and $379 million) reported that the rise in corporation tax would delay investment, while 39% said it would slow hiring or lead to job losses.

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To try to limit the impact on investment, finance minister Jeremy Hunt said in March that businesses would be able to immediately offset investment in plant and machinery against tax, a policy known as full expensing.

“The recent rise in the headline corporation tax rate will dampen current business investment plans, although the positive reaction to the new full expensing capital allowances regime suggests this may only be a short-term effect,” said Paul Falvey, a tax partner at BDO.

Britain’s overall tax burden remains lower than that in almost all other European countries, but it has risen steadily in recent years, reflecting an aging population and slow economic growth, and is on track to reach its highest level since World War Two.

Hunt told businesses at the British Chambers of Commerce’s annual conference last week that he wanted to reduce their taxes but did not know if that would be possible when the government is next scheduled to set out its budget plans towards the end of the year.

The BDO survey was based on responses from 512 companies polled between March 30 and April 16.

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