As we noted in our Budget 2016 round up – business investment has had a colossal downgrade from over 7% to 2.6% for 2016.
The Times reports today that the Chancellor had an opportunity to address this, but that there was a U-turn at the last minute. That opportunity is something we had been calling for to help boost investment – i.e. the removal of plant and machinery from the business rates system.
The origin of this report stems from this line in the Office for Budget Responsibility post-Budget economic and fiscal outlook update:
“The business tax measures announced in the Budget would not have a significant impact on investment in aggregate, although one (more significant) measure was dropped late in the process after we had closed the economy forecast. So the level of business investment is about half a per cent higher at the end of the forecast than the final policy package would suggest”
Before the Budget we highlighted that 42% of manufacturers would invest more if plant and machinery is removed from the calculation of business rates.
Today’s report suggests two things.
The first is that the OBR has already given forward warning that their business investment figure is wrong and that in reality it should be 0.5% lower over the forecast period to 2019/20.
Secondly, it suggests that the OBR had already done the necessary leg work for the Chancellor to make the policy change and that they viewed this change as providing a significant boost to business investment, compared to other items announced at Budget.
It also suggests that the Chancellor, having seen the significant downgrade to business investment, decided to cancel something – which in the OBR’s own words – would have delivered a significant impact on that business investment.
Industry will be left further dismayed at the news and the lack of ambition from Government in helping to boost productivity through a more internationally competitive business rates system, as we've noted before other countries such as France have recently stripped plant and machinery from their business rates system.
EEF will continue to make the case for plant and machinery to be removed from the system of business rates at every opportunity to deliver the boost to investment that the economy requires.
Our recent evidence to the House of Commons Communities and Local Government Select Committee inquiry on business rates reform pushed the case to MPs.