CPS: Shield exports from tax to boost Global Britain and small business

Shielding spending on ramping up exports from taxes will unlock a well of economic growth by boosting engagement with trade among Britain’s small businesses, a new report recommends today.

Allowing firms to cut their tax bills by offsetting investment in exports would strengthen incentives for small firms to participate in trade, according to the Centre for Policy Studies (CPS).

Low involvement with international trade among the UK’s small businesses is preventing Britain from tapping into a pool of unrealised growth.

UK small firms that export are 21 per cent more productive than those that do not, but just one in 10 British businesses export, according to the CPS.

Introducing an “export tax credit” that allows firms to offset spending on exports against their corporation tax liabilities would encourage small businesses to participate in trade.

The credit could be modelled on existing business tax relief schemes, such as the temporary super-deduction and the R&D tax credit, the CPS said.

Businesses “who export are more productive, make more money and pay higher wages than those who do not. If we boost trade, it is the economy that benefits,” Nick King, the author of the report, entitled ‘Trading Up: Supporting UK exports in a post-Brexit world’, and a fellow at the CPS, said. 

Small businesses represent around 99.9 per cent of all firms in Britain, employing over 16m people in the UK.

There is concern among experts that the UK’s economic recovery from the pandemic could be hamstrung by the government targeting businesses to boost revenue for the Treasury.

In April, firms will be saddled with a 1.25 percentage point national insurance hike.

The country’s top business group the Confederation of British Industry last week called on the government to scrap the tax hike.

The group also said the super-deduction scheme – which allows businesses to net off 130 per cent of qualifying investment spending against their corporation tax bill – should be used as a template to create a permanent investment relief to reverse the trend of poor productivity growth in the UK.

Chancellor Rishi Sunak has made boosting business investment as his top priority to achieve sustainable economic growth.