In its pre-Budget submission, the CBI is calling on chancellor George Osborne to stimulating infrastructure investment through new models of private finance, including investment by pension funds. It proposes pooled investment platforms and improved ‘baton passing’ between the construction phase and long-term financing.
The idea is that the new capital allowance, or ‘fall-back depreciation’, would cover infrastructure assets not currently qualifying for capital allowances. This would apply only to future spending, to minimise cost to the exchequer and ensure that the proposal incentivises new private infrastructure spending.
The CBI told the chancellor that a the outset this would cost an average of up to £200m per year if assets are depreciated over 25 years (4% depreciation rate); or an average of up to £130m per year if assets are depreciated over 40 years (2.5% rate).
The CBI argues that this move would unlock new infrastructure investment, ensure that the tax system treats different essential assets in the same way, and improve the attractiveness of the UK as an investment location.
CBI chief economic adviser Ian McCafferty said: “We should ensure our tax system encourages rather than stifles private sector investment through better use of capital allowances. We also need to encourage innovation through our tax system, and design environmental taxes which promote sustainable, value-added growth.”
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