Expenditure incurred on assets leased by small or medium-sized enterprise

Part of Finance Bill – in a Public Bill Committee at 11:00 am on 24th June 2004.

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Photo of Mr Howard Flight Mr Howard Flight Shadow Chief Secretary To the Treasury, Economic Affairs, Shadow Chief Secretary to the Treasury 11:00 am, 24th June 2004

I beg to move, That the clause be read a Second time.

We have tabled new clauses 4 and 5 at the request of the CBI. New clause 4 provides for the first year allowances available under the Capital Allowances Act 2001 for assets purchased by small or medium-sized companies to be available also for assets that such companies lease. The Government's increases under the Companies Act 1985 in the small and medium-sized enterprises thresholds have been welcomed throughout and should substantially increase the number of companies able to qualify for first year allowances for plant and machinery, but SMEs that lease plant and machinery do not currently benefit from first year allowances.

The evidence from the surveys undertaken by the CBI shows that the performance of the SME sector is lagging behind the trend of economic recovery. In manufacturing, the level of investment would arguably benefit from further encouragement. Enhanced first year allowances might therefore be extended to SMEs leasing plant and machinery, which would also help to address the productivity performance issue.

Asset finance, including leasing, is a crucial source of investment finance for SMEs. The Finance and Leasing Association estimates that over half its members' business finance goes to businesses with a turnover below £5 million. Over time, the revenue effect of such an extension should be neutral. In the case of assets leased by SMEs, it should be over a relatively short period.

I would welcome the Government's response to the new clause. I look forward to hearing their overall position on SMEs and on whether the arrangement should be extended to leasing.