Officials in Chancellor Rachel Reeves’s department have been instructed to develop “pro-growth” policies to soften the impact of revised productivity estimates from the Office for Budget Responsibility (OBR). The watchdog is expected to lower its projections by 0.1 to 0.2 percentage points, which could leave a shortfall of between £20 billion and £30 billion in the public finances ahead of the autumn budget on 26 November.
Among the measures being considered are a reduction in the amount companies pay on patents and an expansion of tax incentives for early-stage startups that grant share options to employees.
Reeves is also weighing up an extension of the “full expensing” investment relief introduced by former chancellor Jeremy Hunt in 2023. Under the current policy, businesses can claim back £250,000 in corporation tax for every £1 million invested in new equipment and expansion.
The Treasury is now examining whether to extend this relief to cover intellectual property transactions, such as the purchase of patents, software, or licences. Internal modelling suggests the proposal would cost just under £1 billion but could deliver productivity gains worth between £6 billion and £10 billion by the end of the current parliament figures that would be “scored” by the OBR.
The move draws on research by economists Paolo Surico and Joseba Martinez, who found that a similar policy in the United States led to productivity gains as high as tenfold within five years.
Liberal Democrat MP Chris Coghlan, who has urged the Treasury to adopt the proposal, said: “This could reduce the chancellor’s anticipated £20 billion black hole from the OBR’s productivity downgrades by 20 per cent. It’s a win-win increasing the value of UK startups producing cutting-edge science and incentivising British companies to rapidly bring in innovation to boost productivity.”
Ministers are also reviewing the Enterprise Management Incentive (EMI) scheme, introduced by Gordon Brown in 1999, which allows startups to offer share options to staff under special tax terms. The current limits companies with fewer than 250 employees and assets below £30 million have not changed in more than a decade, and the Treasury is considering raising them to support the UK’s expanding tech sector.
Dom Hallas, from the Startup Coalition, said: “The EMI scheme has been the jet fuel powering our startups’ growth, but asset caps and employee ceilings have not kept pace with the acceleration of the UK’s ecosystem. The chancellor should absolutely consider how to evolve EMI to catch up with the dramatic increase in venture capital flowing into the UK.”
A Treasury spokesperson declined to comment directly on the proposals, saying: “We do not comment on speculation around tax changes outside of fiscal events.”
