Clause 11

Part of Finance (No. 3) Bill – in a Public Bill Committee at 9:30 am on 12 May 2011.

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Photo of David Hanson David Hanson Shadow Minister (Treasury) 9:30, 12 May 2011

My hon. Friend backs up my point. The Institute of Hospitality said that

“20-40% of a hotel’s cost and 50-90% of a restaurant’s fit-out costs could qualify for capital allowances.”

Worryingly, it also made the following statement:

“Hospitality businesses that are planning to spend more than £25,000 on plant and machinery are strongly advised to do so before April 2012 when the annual investment allowance will drop from £100,000 to £25,000.”

Effectively, if the measure is agreed by the House, businesses will spend the next six months bringing forward to this year capital expenditure that they may have planned for future years. They will qualify for the allowances and cause an expense to the Treasury this year. In future years, that capital expenditure will dry up, because they will have brought it forward.

How does that go back to the points that I made about the growth strategy? Perhaps that is one reason why the Bank of England has downgraded the growth figures. That decision recognises that not only do we have massive public spending cuts that go too far, too deep, too fast, but we will find capital expenditure brought forward, which means that there will be less in the future.

An article in Business Money News earlier this month states:

“Small companies lose out to pay for big company tax cuts.”

It goes on:

“Many small businesses will have to rethink their investment plans. In most instances, they will lose more than they gain from the 1% cut in the small companies’ rate and may not benefit from the cut in the main rate of corporation tax for many years—if ever.”

It concludes:

“These changes will hurt many small businesses already struggling in the recession. It is hard enough to find the funds to invest in and build your business as it is: cutting capital allowance effectively puts up the cost of such investments” to such companies.

The chief executive of the EEF, Terry Scouler, said:

“Capital allowances are how the tax system recognises the cost of investing in new machines and equipment. Cutting the level of capital allowances would make investing in the UK”—[Interruption.]