Protecting increased export spending from taxes will unlock a sink of economic growth by boosting engagement with trade among Britain’s small businesses, a new report recommends today.
According to the Center for Policy Studies (CPS), allowing companies to reduce their tax bill by offsetting investment in exports would strengthen incentives for small businesses to participate in trade.
The low involvement of UK small businesses in international trade prevents Britain from tapping into a pool of unrealized growth.
UK small businesses that export are 21% more productive than those that don’t, but only one in 10 UK businesses export, according to the CPS.
The introduction of an “export tax credit” that allows companies to offset their export expenses against their corporate tax obligations would encourage small businesses to participate in trade.
The credit could be modeled on existing tax relief schemes for businesses, such as the temporary super-deduction and the R&D tax credit, the CPS said.
Firms “that export are more productive, earn more money and pay higher wages than those that don’t. If we boost trade, the economy benefits,” said Nick King, author of the report, “Trading Up: Supporting UK exports in a post-Brexit world,” and CPS Fellow.
Small businesses make up around 99.9% of all businesses in Britain, employing over 16 million people in the UK.
Experts fear the UK’s economic recovery from the pandemic is being hampered by the government targeting businesses to boost Treasury revenue.
In April, businesses will grapple with a 1.25 percentage point hike in National Insurance.
Last week, the country’s main business group, the Confederation of British Industry, called on the government to scrap the tax hike.
The group also said the super-deduction scheme – which allows companies to deduct 130% of qualifying investment expenditure from their corporate tax bill – should be used as a model to create permanent investment relief to reverse the trend of weak productivity growth in Britain.
Chancellor Rishi Sunak has made boosting business investment his top priority to achieve sustainable economic growth.