U.K. Plans Budget Measures to Boost Capital Investment

(Bloomberg) -- The U.K. Treasury is planning new measures to encourage investment in machinery and factories to help revive Britain’s flagging productivity, two officials familiar with the matter said.

Chancellor of the Exchequer Philip Hammond may use the budget on Oct. 29 to announce the measures, with tax breaks under active consideration, according to the officials, who declined to be named because the policies haven’t yet been finalized.

Britain is struggling to boost the productivity of its workforce, which has flagged since the financial crisis: A typical British worker takes five days to produce what an American or a German does in less than four. The sluggish performance led International Monetary Fund Managing Director Christine Lagarde to say last month that if Britain poured as much energy into improving productivity as it does into Brexit planning, its efforts would be bearing fruit.

U.K. Plans Budget Measures to Boost Capital Investment

With Britain’s departure from the European Union threatening to cut off a supply of workers who are prepared to do low-paid jobs that Britons won’t, Hammond is keen to get companies investing in machinery to make their processes more efficient.

Tax breaks could be used to benefit any company thinking of building a factory or upgrading machinery. One of the officials said the question is when to introduce the measures: Hammond may want to keep some firepower in his back pocket in case Brexit slows the economy. A Treasury official declined to comment.

Productivity Puzzle

The effort is across government: Business Secretary Greg Clark last week named Bank of England Chief Economist Andy Haldane to lead the government’s Industrial Strategy Council, with his main task being to oversee the government’s flagship economic policy and solve the country’s productivity puzzle.

Hammond’s measures could go some way to pacifying the country’s business lobbies, who are clamoring for certainty and stability as Brexit approaches, with the shape of Britain’s departure still far from certain.

British Chambers of Commerce Director-General Adam Marshall told Bloomberg at the ruling Conservative Party’s annual conference earlier this month that Hammond needs to be “radical” in his budget and pull out all the stops to ensure companies that are thinking of pulling investment from the U.K. because of Brexit don’t follow through.

Business Plea

“He should be incentivizing business investment,” Marshall said. “He should be trying to help those companies who are wavering here at home or those companies overseas who are considering their position -- he should be trying to crowd all of them in and get them to commit to those investments in the United Kingdom.’’

Marshall said measures could include raising the current tax-free allowance for capital investment from its current level of 200,000 ($264,000) pounds a year. “Why wouldn’t you have much greater incentives for business investment,?” he said.

The EEF lobby group which represents Britain’s manufacturers is pushing the government to take measures to boost investment. It says in its budget proposal, emailed to Bloomberg, that raising the Annual Investment Allowance from 200,000 pounds wouldn’t be a “powerful enough signal to spur additional investment in tangible assets.”

Instead, it proposes bringing in regional growth funds to leverage private-sector investment. It also recommended changing the depreciation rate for assets over the 200,000 pounds threshold, so that companies are able to recoup expenditure from the tax authorities more quickly.

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