What could a Labour government mean for capital investment projects and growth?

Following Labour’s landslide election victory, and the King’s Speech 2024, Aubrey Calderwood details what we know so far in relation to capital allowances and what growth incentives we could expect in the new Chancellor of the Exchequer’s greatly anticipated first fiscal budget.

Positive outlook for businesses

In their manifesto, the Labour party said it would cap corporation tax at the current level of 25%, and that it would act if tax changes in other countries pose a risk to UK competitiveness. To that extent then, businesses can look forward to a long period of certainty on taxation levels which, in turn, will allow them to make more strategic long-term investment decisions.

Clarity on full expensing for investment

In its most recent budgets, the Conservative government introduced a series of measures aimed at stimulating investment in capital projects. These included permanent ‘full expensing’ for investment in new plant and equipment, which meant that 100% of the costs could be written off against taxable profits in the year the expenditure was incurred. In addition, the Conservatives confirmed that the £1m Annual Investment Allowance (AIA) would be made permanent after many years of fluctuating rates. Both of these measures encouraged investment in new property assets and the refurbishment of existing premises.

It is encouraging, therefore, that Labour has stated it will retain a permanent full expensing system for capital investment and AIA for small businesses. It has also said that it will give firms greater clarity on what qualifies for allowances to improve business investment decisions. It is interesting to note though that Labour acknowledges that the AIA is particularly helpful to small businesses, so that could be an indication that they intend to introduce some restriction on the size of business that can claim the relief. However, that should be relatively inconsequential to overall investment levels given the full expensing measures that will continue to be available. Unlike the Conservative government, Labour currently has no plans to extend full expensing to leased assets.

Full expensing could encourage brownfield and greyfield development

One of the more interesting proposals in the Conservative manifesto was a commitment to extend full expensing to the delivery of brownfield housing in 20 key inner cities. Capital allowances have never been available for the development of residential property. However, if Labour is to meet its 1.5m housing target over the term of the Parliament, full expensing for the development of brownfield and greyfield housing land would be a very welcome stimulus for the developers of such property. At present, only land remediation relief (LRR) is available for the removal and remediation of contaminated land in such areas and, whilst a welcome and generous incentive for investors in particular, full expensing could be a game-changer.

Anticipation for the new Chancellor’s first Labour budget

Overall, it would appear that Labour is still focused on growth through investment in capital projects, but the devil will be in the detail when the new Chancellor of the Exchequer, Rachel Reeves, delivers her first budget. The date of this is expected to be announced before the first House of Commons summer recess on 30 July 2024.