Business and energy policies
Helen Miller
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IFS hosts two ESRC Research Centres.
Range of measures aimed at business
• Extension of business rate discounts and enhanced capital
allowances for enterprise zones
• Some small pots of money for specific initiatives around research
and innovation
• Simplification of employee benefits and expenses, employee share
schemes and partnerships (following OTS recommendations)
• Increase funding to support export finance
•
direct loans of up to £50 million to overseas buyers of UK exports
•
Budget 2014 doubled total funding for scheme to £3 billion
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Main corporate tax rate
32%
30%
28%
26%
24%
22%
20%
2015
2013
2011
2009
2007
2005
2003
2001
1999
1997
18%
• Main statutory rate will be cut to 21% in April 2014 and 20% in
April 2015
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1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19
Corporate tax revenues as a share of
total revenues
Corporate tax revenues
12%
10%
8%
6%
4%
2%
0%
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Annual Investment Allowance (AIA)
• 100% allowance that allows immediate deduction of expenditure
on most plant and machinery from taxable profits, up to an annual
limit
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Annual Investment Allowance (AIA)
500,000
Annual limit for AIA, £
AIA limit
400,000
300,000
200,000
100,000
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
0
• AIA set at £250,000 for 1 Jan 2013 – 31 Dec 2014. Would have
returned to £25,000 in January 2015. Now £500,000 from April 2014
to end of 2015
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Annual Investment Allowance (AIA)
Annual limit for AIA, £
500,000
AIA limit
Budget 2014
400,000
300,000
200,000
100,000
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
0
• AIA set at £250,000 for 1 Jan 2013 – 31 Dec 2014. Would have
returned to £25,000 in January 2015. Now £500,000 from April 2014
to end of 2015
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Annual Investment Allowance (AIA)
• Increasing AIA limit to £500,000 from April 2014 to end of 2015
– £2bn upfront cost, largely recovered in cash terms later
• Reduces disincentive to investment
– but why restrict AIA to only plant and machinery – this distorts the
treatment of different assets
– and why favour investment in that takes place April 2014 to end
2015?
• Constant changes create an administrative burden
• Instability is highly undesirable
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Other measures in the corporate tax system
• R&D tax credits
– SMEs can deduct 225% of allowable R&D costs from taxable profits
– part of the credit is repayable in cash for loss-making SMEs
– repayable credit rate increasing from 11% to 14.5% from April 2014
(previous changes: 1 August 2008: 14%; 1 April 2011: 12.5%; 1 April
2012: 11%)
– cost: £50m 2015-2016
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1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19
Oil and gas revenues, £billion
North sea tax revenues
14
12
10
8
6
4
2
0
OBR December 2013 forecast
OBR March 2014 forecast
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Other measures in the corporate tax system
• North Sea fiscal regime
– revenues from North Sea have been falling over time and the OBR has
revised down its forecasts
– government to undertake a review of the taxation of North Sea
activities in collaboration with a new ‘oil and gas body’
– aim to incentivise exploration as fields mature
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Energy measures
• Compensation for ‘energy-intensive industries’
– for higher electricity costs resulting from the renewables obligation
and small-scale feed in tariffs for renewable generation
– remove competitive disadvantage of energy-intensive companies
– unclear what the best method of compensation is
• Carbon Price Support Rate (CPSR)
– CPSR introduced in April 2013 to ‘top up’ the EU Emission Trading
Scheme carbon price to meet the Carbon Price Floor (CPF) set by the
government
– applies to all UK generators of fossil-fuel-based electricity
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Carbon Price Support Rate (CPSR)
£ per tonne CO2 (2013 prices)
30
Carbon Price Floor
EUA price (forecast)
25
20
15
10
5
0
2013
2014
2015
2016
2017
EUA price shows the forecast price of purchasing an EU ETS permit to emit
one tonne of CO2
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2018
Carbon Price Support Rate (CPSR)
30
£ per tonne CO2 (2013 prices)
Carbon Price Floor
25
EUA price (forecast)
Carbon Price Support Rate
20
15
10
5
0
2013
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2014
2015
2016
2017
2018
Carbon Price Support Rate (CPSR)
30
£ per tonne CO2 (2013 prices)
Carbon Price Floor
25
EUA price (forecast)
Carbon Price Support Rate
20
CPSR (Post-Budget)
CPF (Post-Budget)
15
10
5
0
2013
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2014
2015
2016
2017
2018
Carbon Price Support Rate (CPSR)
• Budget 2014: CPSR cap of £18/tCO2 from 2016-17 to 2019-20
– cost: £340m, £615m & £870m in 2016-17, 2017-18 and 2018-19
• Provides savings for businesses and households in the short run
• The policy relies on the credibility of the price signal
– this is damaged by the cap
– 2020s CPF trajectory review hints at further changes
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Other environmental measures
• Cuts to air passenger duty for long-haul flights
– reduces cost of around 9 million flights by between £17 and £58
– 0.3 million tonnes more carbon dioxide emissions
– costs £225m in 2016-17
• Company car taxation
– 2% increase in the tax on most cars in each of 2017-18 and 2018-19
– continuing recent series of increases
– raises £480m in 2018-19
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Summary
• Range of measures aimed at promoting investment
• Most were relatively small and are unlikely to make a substantial
difference to the weak performance of UK investment and exports
• The exceptions to this were generous capital allowances and
policies to lower the cost of energy
• Unwelcome theme was temporary policies or frequent changes
that add uncertainty
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