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leading independent tax policy
research organization. Since 1937,
our research, analysis, and experts
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Marginal Effective Tax Rates and the
2021 UK Budget
· The 2021 UK budget introduces a two-year super-deduction of 130 percent
for plant and equipment and a delayed corporate tax rate increase from 19
percent to 25 percent in 2023.
· These policies have differential impacts on marginal effective tax rates
(METRs) for different assets, implying investment incentives will not be
· While METRs will fall initially for equipment, by 2023 the METR will be higher
than prior to the budget announcement.
· The METR on investments in intellectual property (IP) will rise initially before
falling below the pre-budget level once the corporate tax rate comes in.
· Temporary policies and delayed tax hikes create contradictory incentives
for businesses, and the UK budget will likely result in a whiplash effect for
investment activity over the coming years.
Vice President of
American Enterprise Institute
TAX FOUNDATION | 2
The 2021 UK budget announced by the Chancellor of the Exchequer Rishi Sunak on March 3, 2021
included two important corporate tax provisions that will impact incentives for business investment.
First, the Chancellor proposed raising the corporate income tax rate from 19 percent to 25 percent in
2023. In addition, he proposed a temporary 130 percent super-deduction for investment in plant and
equipment for the next two years.
On its own, raising the corporate income tax rate to 25 percent in 2023 will redu