The Adam Smith Institute’s latest paper, written by Dr. Tyler Goodspeed, argues that reversing the corporation tax hike and replacing the super-deduction would have significant positive impacts on growth, investment and wages.

• In 2023, the UK’s corporate income tax rate is scheduled to rise from 19% to 25%, and a temporary provision allowing businesses to deduct 130% of the cost of new investment in qualifying plant and machinery will expire;

• Compared to making the 19% rate and 130% deduction permanent, if enacted these changes will lower business investment by 7.6%, output by 2.3%, and average household wages by £2,500;

• If instead businesses were instead allowed to continue to deduct 100% of the cost of new investment in equipment, then relative to current law it would raise business investment by approximately 5% and real output by 1.3%, while extending 100% cost recovery to all asset types would raise investment by almost 10% and GDP by 3%;

• Over 10 years, macroeconomic feedback could offset 34% of the static budgetary cost of corporate tax reform, and 72% over the longer term.