WI British Tax Breaks to Manufacturing in 1872

[John Fredrick Parker]

... or thereabouts. This is from the thread on preventing British relative decline in Europe. Robcraufurd had a great idea:

If we work on the assumption that an investment in industrial machinery provides at least a limited fix to the decline issue, then providing an incentive to invest is obviously necessary. Prior to 1965 companies were taxed under the same rules as individuals. But what if Robert Lowe, the chancellor in 1868-1873- and, incidentally, the man who created modern company law- had proposed a change to the income tax regime to allow companies to deduct the cost of machinery purchased from their chargeable profits?

It's not entirely unrealistic, given that Lowe reforms taxes in various other ways, and it's simplistic enough to be plausible as a Victorian reform (as opposed to the convoluted nightmare of capital allowances we have today). There should be little problem funding it given that 1870-1874 saw the government run surpluses each year and drop the rate of income tax to boot. On the other hand, it's an entirely hindsight-driven suggestion and, given that the rate of tax was 4d in the pound, might not be enough of an incentive for business-owners to plough money into machinery.

So my question: what are the effects of this change in policy?

 

[John Fredrick Parker]

Here's a possibility -- the machinery tax cut leads to British manufacturing capacity to grow at the same rate the US manufacturing does (still much slower than UK industry had grown 1830-60)

Does this seem plausible? If so, that would mean Britain had a manufacturing output by 1900 about that of the US, and much higher than Germany, or the rest of Europe (except Germany) put together.

 

[robcraufurd]

I've done a bit of additional digging into the Victorian tax system. Something similar is put in place in the Customs and Inland Revenue Act 1878, where depreciation becomes an allowable expense for tax purposes. This spreads the tax relief over the useful life of the asset, rather than giving it all in the first year. To quantify the effect I had a quick look at the advertisements in the Leeds Mercury. In 1878, a 3hp combined vertical engine and tubular boiler would have set you back £74. Ultimately you can save tax of £1 4s 8d by making the purchase, either in a lump sum or across five years (say) at 4s 11d a year.

Either way, it's not much of a incentive simply because the tax itself is so low. I think for a real effect, you'd have to see an initial measure put in place in the early 1870s and then enhanced later in the decade- for instance, by allowing an additional tax credit to bring the deduction over 100%. Given that all the iniquitous taxes on the poor (paper and soap duty) are out of the way, I doubt there'd be much domestic controversy over the changes.

 

[John Fredrick Parker]

Strikes me as perfectly plausible as well; much obliged

 

[John Fredrick Parker]

Are there no more thoughts?

 

[John Fredrick Parker]

Are there no more thoughts?

 

[Alratan]

I'd say that it would have interesting effects on investement patterns, but on the risk is that you see a bubble with excess investment in plant, leading to training and technical education neglected even more than iOTL. Perhaps being able to offset that as well might be the answer.