BT Calls for Tax Relief to Aid UK FTTP Broadband and 5G Builds

BT Group’s Chief Financial Officer, Simon Lowth, has today called on the UK government – ahead of next month’s 2023 UK Budget – to consider the introduction of “a much more competitive system of capital allowances” in order to help operators roll-out new gigabit-capable broadband and 5G mobile networks.

Until recently, those deploying new fibre optic cables could benefit from a number of government measures, such 100% relief from business rates (this still exists in Scotland) and a special “Super Deduction“, which gave a big tax break to businesses that invested in new plant and machinery assets.

However, relief from the “Fibre Tax” (business rates on new fibre) came to an end last year and the “super deduction” is due to expire this year. But admittedly, the latter deduction was always expected to be offset in later years by the subsequent increase in the corporation tax rate to 25% from April 2023.

The reality is that the government may have little financial flexibility to make major tax breaks this year, although BT warns that we’re currently a long way from Chancellor Jeremy Hunt’s “ambition” for the UK to have “nothing less than the most competitive tax regime of any major country“. But they might have a solution.

Simon Lowth, BT Group CFO, said:

Tax is a significant consideration in how businesses make investment decisions. Not least, taxation levels affect how much cash a business will have to make these investments. For a business like BT which invests £4.8 billion each year in building and maintaining digital networks, available cash is a critical consideration for us to take into account.

Moving to a system of full expensing – or introducing more generous first year allowances set at 75% – would provide a significant boost to companies which are looking to make large scale investments.

Introducing such a measure next month would be a strong statement on the direction of the UK. To improve business certainty, we believe an initial four year period would be appropriate, after which the Government should review what sectors or assets would benefit from longer term support. Taking this action helps all of the UK:

➤ A boost to investment decisions across the economy. The CBI has estimated that full expensing could boost business investment by £40 billion a year by 2026.

➤ Four years would give more businesses the certainty they need to respond to a generous new scheme, more in tune with the investment cycles that businesses operate against.

➤ The UK would be propelled to the top of international rankings for the competitiveness of its capital allowance regime, at a critical time for unlocking business investment.

➤ It would not adversely impact the Chancellor’s ability to meet his fiscal targets, which are on a five year rolling horizon.

➤ There would be time for the Treasury to evaluate its effectiveness ahead of deciding on a longer-term solution.

Interestingly, BT’s related report on all this specifically highlights how the Super Deduction freed up cash that enabled BT to raise investment in Openreach, “allowing them to pursue a bigger, quicker target for broadband investment” (e.g. raising the FTTP rollout target from 20 million to 25 million households). But regulation and the aggressively competitive market will have also played into that.

“The effect of a hard stop to the Super Deduction – alongside a newly higher corporate tax rate – will clearly serve to add to the rising costs which all businesses are currently facing, as well as limiting the scope to make further investments to improve digital connectivity in future,” said the report. But they stopped short of saying that it would slow their build, although Openreach has already had to focus on making cost savings (here).

At the end of the day, few people are expecting major tax breaks to surface in next month’s budget. But it would be nice to see digital infrastructure builders, in general, being given a bit more support on the taxation front to help with their delivery plans.