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.

Alert me about debates like this

Photo of John Healey John Healey The Economic Secretary to the Treasury 11:00 am, 24th June 2004

As the hon. Gentleman says, the intention of the new clause is to extend enhanced first year capital allowances for SMEs to expenditure by lessors, which are normally large businesses, on the equipment leased to SMEs. The advocates of that move generally argue that part of that benefit to lessors could be passed to SMEs, but nothing in the new clause would require them to do that. I am not convinced that any consequent reductions in rental

costs to SMEs would be more than marginal. If that is right, the high Exchequer cost—almost £500 million over 3 years—would be entirely deadweight. That does not represent good value for money.

We originally introduced the first year allowances to address the cash-flow constraints faced by smaller businesses and to provide a boost to small business investment. Smaller businesses that lease their plant and machinery do not face the same cash-flow problems because their rental payments are spread over the life of the lease.

As part of the ongoing reform of corporation tax, we are including the tax treatment of leased assets, and we will consider further whether the capital allowance system can be modernised in order to produce a regime that is modern and competitive. We explained that in regular meetings that we had with the Finance and Leasing Association, which was the main proponent of the new clause. The CBI is heavily involved in the corporation tax reform process, so it is also aware of the consideration that we are giving to these issues.