Rishi Sunak said the UK will have a “pro-business tax regime” but more needs to be done to encourage immediate investment.

Laying out the measure in today's Budget, the Chancellor told MPs: “While many businesses are struggling, others have been able to build up significant cash reserves. We need to unlock that investment, we need an investment-led recovery.

“So today I can announce the ‘super deduction’. For the next two years, when companies invest they can reduce their tax bill, not just by a proportion of the cost of that investment, as they do now, or even by 100 per cent of the cost, the so-called full expensing some have called for – with the super deduction they can now reduce their tax bill by 130 per cent of the cost.”

It is forecast to boost business investment by 10 per cent per cent, or around £20 billion extra per year, Mr Sunak said.

He also said he did not believe it would be right to increase the rates of tax on working people, telling MPs: “I believe our approach, while bold, is compatible with our duty as a fiscally responsible and business-friendly government.

“This is the right choice and I’m confident it will command public assent.”

However, the rate of corporation tax, paid on company profits, will increase to 25 per cent in April 2023, the Chancellor said, but small businesses with profits of £50,000 or less will continue to be taxed at 19 per cent.

He told MPs: “Even after this change the UK will still have the lowest corporation tax rate in the G7 – lower than the United States, Canada, Italy, Japan, Germany and France.”

He added: “First, this new higher rate won’t take effect until April 2023, well after the point when the OBR expect the economy to have recovered. And even then, because corporation tax is only charged on profits, any struggling businesses will, by definition, be unaffected.

“Second, I’m protecting small businesses with profits of £50,000 or less, by creating a small profits rate, maintained at the current rate of 19 per cent. This means around 70 per cent of companies – 1.4 million businesses – will be completely unaffected.”