Tax – a lever for investment

George Anastasi, Senior Policy Manager

Tax policy can be a powerful lever for investment, particularly when it comes to encouraging businesses to play their part in achieving net zero. By offering tax incentives, simplifying capital allowances, and shaping consumer behaviour through VAT adjustments, government can steer businesses towards more sustainable choices and encourage business growth.

The FLA has been working with the Treasury to make full expensing available for assets used in leasing, offering businesses the opportunity to claim capital allowances and bolster capital investment in plant and machinery. This move not only reduces costs for leasing but also encourages businesses to embrace green technologies which may often be leased.

However, the potential of tax policy as a driving force for investment doesn't end there. The extension of full expensing to leasing creates an ideal backdrop for further simplifying and rationalising the capital allowances regime. By streamlining this complex system, businesses can gain a clearer understanding of eligible assets for tax relief, paving the way for more investment in in low-carbon technologies and sustainable infrastructure.

Another compelling aspect of tax policy lies in its ability to shape consumer behaviour. Modest changes to the VAT system can have a far-reaching impact on business investments, as they directly influence consumer choices. For instance, reducing the VAT rate for public electricity charging to match domestic charging at 5% can create a significant opportunity to drive investments in electric vehicles.

Fairer support for employees acquiring EVs through salary sacrifice can also lower financial barriers for staff considering going electric, as consumers look to their employers for help on their green journey.

Overall, the impact of modest fiscal measures can go well beyond the immediate financial benefits for businesses; it sets the stage for a greener, more prosperous future for both the economy and the environment.

To find out more about our tax policies click here.

Published 10 Aug 2023