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As I have already explained, the Chancellor or the Exchequer set out a business tax package in the Budget that included rate cuts and reductions in allowances that are good for business and growth overall. Amendment 49 proposes that clause 1 be amended to reduce the main rate of corporation tax to 26% for those companies whose tax bill will increase by more than 1% as a result of the reduction in investment allowances. That is a somewhat complex mechanism, but it provides an opportunity to raise the matter of capital allowances.
As part of a package to improve the UK's competitiveness, it was announced that from April 2012 there would be reductions in the rates of writing-down allowances for plant and machinery and a reduction in the annual investment allowance. The Government will reduce the main rate of corporation tax to 26% that year-2012-and by that reduction, alongside changes to allowances, we will achieve the results that the amendment seeks. Furthermore, by not implementing the changes to allowances for two years, but reducing corporation tax rates next year, we are giving companies a full year to benefit from the reductions in rates, alongside current levels of allowances. Further reductions in the main rate of corporation tax follow in later years and capital allowances remain broadly in line with average rates of economic depreciation. To answer the shadow Minister's questions, no changes are made to the so-called investment allowances in this Finance Bill and none is planned for the next financial year.
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