UK finance minister seeks to boost business investment with tax breaks

LONDON (Reuters) - Britain announced measures to incentivise business investment on Wednesday, seeking to cushion the blow from a rise in corporation tax and the end of a generous tax break on capital spending, as well offering credits to encourage research.

Finance minister Jeremy Hunt said companies would be able to offset 100% of their capital expenditure against profits, in a less generous replacement for the expiring "super-deduction".

"If the super deduction was allowed to end without a replacement, we would have fallen down the international league tables for tax competitiveness and damaged growth," Hunt told parliament in his budget statement on Wednesday.

He said "full expensing" would run for three years, and he intended to make it permanent.

Forecasters believe it will increase investment by 3% a year, he added.

It will replace the super-deduction, a two-year scheme introduced by Rishi Sunak in 2021 when he was finance minister offering tax relief of up to 130% on equipment.

The incentive comes as companies face a jump in corporation tax from 19% to 25% in April, a measure opposed by business leaders and some of Hunt's fellow Conservative lawmakers.

Hunt said the full expensing tax break was worth an average 9 billion pounds a year.

Shares in BT, the telecoms group spending billions of pounds building a fibre network, rose 1.6%.

The super deduction enabled BT to cut a tax bill of around 400 million-500 million pounds in the current year to about 50 million pounds, a trader said, and the new measure could allow it to offset the investment again next year.

Paul Johnson from the Institute for Fiscal Studies (IFS), however, said only guaranteeing full expensing for three years made it hard for companies to have the certainty to invest.

"The way that's just been messed around with year on year is actually more damaging than the overall level," he told the BBC.

Smaller research-intensive companies, like those in life sciences and biotech, were also given an extra boost by Hunt.

He announced that if 40% or more of their total expenditure was on research and development, they will be able to claim a credit worth 27 pounds for every 100 pounds.

This would help 20,000 "cutting-edge companies" turn Britain into a "science superpower", he said.

The chief executive of UK BioIndustry Association, an industry group, said this would help Britain develop new medicines.

"(Hunt) is rightly focusing UK taxpayer support to enable life science entrepreneurs to crowd in more private investment, help keep the UK at the cutting-edge of international science, and create new high value jobs across the UK," Steve Bates said.

($1 = 0.8292 pounds)

(Reporting by Paul Sandle, Sarah Young and Danilo Masoni, additional reporting by Farouq Suleiman, Editing by Angus MacSwan)