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After the Super-Deduction
Assessing Proposals for the Reform of Capital Allowances
• For many years, the UK has adopted a strikingly ungenerous approach to capital cost
recovery – the ability of firms to write off investment against tax. This has coincided with
consistently low levels of business investment.
• The government has considered making the system of capital allowances more
supportive of investment and published a number of reform options in March’s Spring
• Based on our original economic modelling, each of the reform options outlined by
the Treasury would reduce marginal effective tax rates on new investment and boost
investment, wages, and economic growth.
• Their most ambitious option – a watered-down version of full expensing for plant and
machinery – would have the greatest impact, increasing long-run GDP by 0.7 percent.
• Going beyond the Treasury’s initial suggestions by extending genuine full expensing to
structures and buildings would more than triple the economic impact of capital allowance
reform, boosting long-run GDP by 2.5 percent.
• The government should be as bold as possible when it comes to permanent reform of
capital allowances. High up-front revenue losses should not necessarily be prohibitive,
given their transitory nature, and can be reduced using an approach known as neutral
Tom Clougherty Research Director & Head of Tax at the Centre for Policy Studies
Kyle Pomerleau Senior Fellow at the American Enterprise Institute
Executive Vice President, Tax Foundation
The authors are grateful to Karl Williams (senior researcher at the Centre for Policy Studies) for his work on the policy costings contained in this report.
TAX FOUNDATION AND CENTRE FOR POLICY STUDIES | 2
With the Conservative leadership election over and Liz Truss appointed Prime Minister, it is
clear that the headline rate of corporation tax will remain at 19 percent. This is good news
for the British economy. Corporate income