BT Group PLC (LSE:BT.A) shares rose on the government’s announcement of a new tax policy, which is set to boost the telecoms company’s rollout of superfast broadband through its Openreach division.
Chancellor Jeremy Hunt said on Wednesday that under the new three-year policy of “full capital expensing”, businesses that spend more than £1mln per annum on investment in new IT equipment, plant and machinery can “in full and immediately” deduct every pound spent from that year’s taxable profits.
The program is worth about £9bn a year, Hunt said. “The impact on the economy will be huge.”
The Office for Budget Responsibility said the policy will increase business investment by 3% for every year it is in place.
EY’s head of tax policy Chris Sanger commented that, notwithstanding the constraints of the new policy, it is expected to encourage greater investment, even if in reality it only represents a cashflow benefit.
“In practice, this represents a very slightly larger cash flow benefit than the super deduction (which was £24.7 for every £100 spent), since it applies to a corporation tax rate of 25%, not 19%,” Sanger said.
“Invest now, pay later, seems to be the Chancellor’s ethos here.”
Sanger added that the level of additional investment achieved may depend on how confident business is that the Chancellor could make it a permanent measure, which he vowed to do so if it can be afforded.
“Limiting the relief to just three years helps the Chancellor to balance his books and actually generates extra tax receipts in 2027/28 as the timing effect reverses, but it doesn’t help businesses with investments that have long lead times," he said.
He noted that the Annual Investment Allowance already deals with projects below £1mln and many of the target projects may well fall into this category.
“To get those businesses investing, the Chancellor may need to follow up on today’s announcement, but the sooner the better if he is to drive the greatest levels of investment," Sanger concluded.
Following the Chancellor’s announcement, BT Group shares added 1.7% at 145.95p on a very tough day for the FTSE 100.
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