New Clause 10 — Review of reform to the annual investment allowance

Part of Bills Presented — Affordable Homes Bill – in the House of Commons at 2:45 pm on 2nd July 2014.

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Photo of Charlie Elphicke Charlie Elphicke Conservative, Dover 2:45 pm, 2nd July 2014

The hon. Gentleman reinforces my point, which is that under Labour there were substantial reductions and changes to capital allowances that were part of the 2008 package. As I said, the main rate of capital allowances was reduced from 25% to 20%, followed by the creation of what was effectively the old first-year allowance—initially at £50,000. A number of other changes went on in parallel, including the phased withdrawal of the industrial and agricultural buildings allowances—IBA and ABA. We need to look at all policies in context and think about what else was going on, and that includes the changes that the Government announced in the Budget of June 2010. No policy can be viewed in a vacuum.

The decision to cut the annual investment allowance from £100,000 to £25,000 from 2012 was made as part of a general, much wider reform of corporation tax, which was set out capably at the time by Stuart Adam of the Institute for Fiscal Studies in his slides presentation “Business and capital taxes”. Writing about corporation tax reform, he said that the headline rate should be cut from 28% to 24% over four years, and that the small companies rate, the allowance for plant and machinery, and the annual investment allowance should all be reduced. It was clear that a reduction in corporation tax was being funded by a reduction in capital allowances. Less tax, less reliefs: that was a very classic, sensible, free-market, pro-growth, pro-business approach. Lowering the headline rate reduced the complexity of the tax system.

I do not think that Catherine McKinnell is right to look back into the past; I think that she would do better to look into the future. Rather than viewing one small nugget of Government policy in isolation, whether instrumentalised or not, we should look across the piece to establish what was really going on. I hope that, as recovery builds, we shall see more business investment, and that the £750 billion on which companies are currently sitting will go into the economy to drive our growth agenda.