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Jeremy Hunt is planning to make one of the biggest business tax cuts in 50 years even more generous, official documents show.
The Chancellor is examining ways to expand a flagship £10bn tax break that allows companies to shave 25p off their tax bill for every £1 invested.
Documents released alongside Mr Hunt’s Autumn Statement speech show the Treasury will consult on whether to include leased assets in the policy, in a move that economists said will bring “significant benefits” to small businesses.
“The move to full expensing also provides us with an opportunity to permanently simplify capital allowances,” the documents say.
“The Government will therefore launch a technical consultation on wider changes to simplify the UK’s capital allowances legislation.”
The move will build on plans laid out in spring when the Government said it started “exploring the case for expanding the scope of full expensing to include assets for leasing with an industry working group”.
Treasury documents published on Wednesday said: “The Government will continue to carefully consider whether there is a case to do so and publish a technical consultation in due course to seek further input from a wider range of stakeholders.”
Businesses welcomed Mr Hunt’s decision to make the full expensing policy permanent but have called for the policy to be broadened.
Fhaheen Khan, senior economist at Make UK, the manufacturers’ lobby group, said: “Making the full expensing regime permanent will give businesses the stability and certainty they have been looking for to plan investments going forward.
“However, the capital allowance puzzle is only near completion and to make sure that the system is not just generous and long-term, but also accessible to all businesses, the Treasury must consider extending the scheme for leased plants and machinery which would result in a minimal additional cost to the taxpayer.”
The Confederation of British Industry (CBI) estimates that extending the full expensing policy to leased assets would cost the Exchequer between £170m and £280m a year by 2026-27.
Nearly 15pc of manufacturers access plant and machinery through leasing in the UK and almost all of these companies are small and medium-sized businesses, according to Make UK.
Mr Khan said: “These companies will find limited access to full expensing for big ticket investments if they are not able to take advantage of leasing too.”
However, others warned that simplifying the rules around full expensing was vital to prevent a rise in “unproductive” debt-fuelled investments that qualify for a second tax deduction on debt interest.
The Institute for Fiscal Studies (IFS) said this could lead to a rise in “low-return” investments that would be unviable without extra tax relief.
Stuart Adam, senior economist at the IFS, said: “As a rule, the tax system should treat all investment equally, to avoid creating a bias towards investing in some assets rather than others. It would be better if full expensing were extended to cover all investment, not just plant and machinery.”