Schedule 21 - First-year allowances for expenditure wholly for a ring fence trade
Finance Bill
5:15 pm
Mr Howard Flight (Arundel and South Downs, Conservative)
I beg to move amendment No. 110, in page 251, line 41, leave out '24%' and insert '100%'.
In essence, the amendment would make the 100 per cent. first-year allowance apply to all assets, not only those with an alleged useful life of less than 25 years. Given that the rate of writing-down allowance on long-life assets is 6 per cent., the first-year allowance of 24 per cent. does not seem to be especially generous. Indeed, I should be interested to know how the Government came up with that figure, especially as oil and gas extraction is a long-term project, requiring assets with a useful economic life, which may be 25 years. The logic behind extending the 100 per cent. allowance to all investments is, first, that the proportion of assets in the long-life category is relatively modest, about 10 per cent., so the measure would not have a huge impact on tax revenues.
Secondly, many long-life assets turn out not to be long life, particularly as many of the fields currently being developed may not have a long life. In practice, what falls into such a category may not be used for 25 years. I understand that there was no logic to the Government's having selected 24 per cent. Under the new 40 per cent. tax regime, particularly when long-life assets represent a relatively higher proportion of the total investment, the lower 24 per cent. figure could lead marginally to negative decisions about investment prospects.
It is not a huge issue, but I wonder whether it is worth the candle to make such a theoretical separation. I wonder whether the Government are pinning their hopes on capital allowances keeping investment going and, therefore, whether it would be rather more practical and sensible to give the full 100 per cent. capital allowances to all investments.