Rishi Sunak promotes his super deduction policy as 'bold', but Sky's economics editor isn't so sure.
Imagine you're a hairdresser and your current scissors have become so blunt they're impeding your ability to cut hair. So you invest £100 in some snazzy new scissors. These scissors are so sharp you reckon they should help you generate £105 in income within a few years. Under the existing rules, you can write off that cost against your tax bill. Since 19% of 100 is £19, then in effect the scissors really cost you £81.
And that machine in the factory might well prove the chancellor right. According to Rowan Crozier, chief executive of Brandauer, the upshot of the super deduction is that the company gets an extra £70,000 it can use to write off future tax payments. So it bought the machine and hopes it can contribute to bumper profits in the coming year.
In practice, the best comparison might be 1927, when the economy grew by an estimated 7-8%, which was in part a bounce-back because growth was suppressed by the General Strike the previous year . The super deduction is the dynamo at the heart of this economic rebound.When the chancellor unveiled the policy it was cast as being a bold measure designed to get companies investing. And for many companies that does indeed seem to be happening.
In other words, the very nature of the corporation tax rise is to discourage investment. So if you're a clever pointy-head in the Treasury trying to ensure that doesn't happen, what do you do? Well, you introduce a tax incentive to keep people investing. In other words a bigger than 100% deduction. And it turns out the size of deduction you'd need to cancel out the disincentive is, guess what, 130%.
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