Rishi Sunak's 'super-deduction' tax giveaway will benefit London nearly twice as much as Yorkshire, says the Centre for Progressive Policy

The Government's commitment to its 'levelling up' agenda has come under fire after new analysis showed the flagship super-deduction policy from Rishi Sunak's Budget will give London a tax break nearly twice as big as Yorkshire's.

A new report by the Centre for Progressive Policy says the Government's economic recovery policies will benefit the capital over the rest of the UK.

And it says the 'super-deduction', which allows firms to claim a deduction from their tax bill if they invest in new equipment for their business, offers the greatest advantage to London.

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Based on pre-pandemic business patterns the think-tank estimates the policy will lead to a tax break per head of £512.89 in London but just £276.14 in Yorkshire and the Humber.

Its report out today also says 6.5 million people living in deprived local authorities will not benefit from the various 'levelling up' funds unveiled by the Government in recent months.

And it says the economic support measures put in place during the pandemic have disproportionately helped London, which has a slightly smaller population than the North East and North West combined but has seen over £7bn more spent on measures such as the job-saving furlough scheme.

The super-deduction was by far the most expensive policy for economic recovery outlined at the Budget, costing approximately £25bn. It allows firms to reduce their tax bill by more than the total cost of any investments, meaning they will be financially incentivised to make large purchases and invest in growth.

Chancellor Rishi Sunak at the 2019 Conservative conference in Manchester. Pic: PA

Explaining the plan in his Budget speech, Richmond MP Mr Sunak said: “Under the existing rules a construction firm buying £10 million of new equipment could reduce their taxable income in the year they invest by just £2.6 million. With the super-deduction, they can now reduce it by £13 million. We’ve never tried this before in our country."

It’s hoped the move, in place for the next two years, will spur businesses sitting on large financial reserves to splash out by allowing them to make significant corporation tax savings.

But according to CPP London will be the biggest beneficiary of this policy "because of high levels of investment, reflecting its large economy, and a concentration of investment in sectors like business services where investment tends to be in machinery and equipment".

Its report says: "The super-deduction is poorly thought through. Even before considerations about whether this is just bringing forward investment that would have otherwise happened, the policy design will not do anything for levelling up.

"This policy will concentrate tax breaks in London and the South East helping business services and financial services firms."

Ben Franklin, Head of Research at CPP, says: “The scale of inequalities between and within places requires a generational effort to level up with greater investment in public health, adult skills, childcare and youth services directed at the poorest parts of our society.

"Instead, our analysis reveals the bulk of recovery efforts will be on a tax break for London driven by financial services and business services. The government then reverts to spending cuts and tax rises by 2023.

"Given this outlook, we can only assume that government has either failed to grasp the nature, scale and urgency of inclusive recovery or has given up on its own levelling up agenda. The government must urgently change tack to ensure that local communities with the greatest need are sufficiently funded to deliver vital services.

"Focusing on rebooting locally led industrial policies which can create good, well paid jobs in traditionally left behind places would deliver the government’s levelling up agenda more effectively than these ill thought through tax break schemes.”

A Treasury spokesman said: “We are totally committed to levelling up communities across the whole of the UK as we build back better.

“The super-deduction will help firms to grow wherever they operate from. The independent OBR have forecast that, at its peak, the super-deduction will raise the level of business investment by 10%, or roughly £20bn a year nationally.

“To help level-up across the UK we have announced a £4.8bn Levelling Up fund that will support improvements to the fabric of everyday life, like highstreets and train stations, and Freeports that will boost growth and create thousands of high quality jobs in the North.”