Eureka! Tenfold increase in capital allowances in Autumn Statement

The Chancellor George Osborne has shown that it is a Government for growth.
The Chancellor George Osborne has shown that it is a Government for growth.

Manufacturers will breathe a collective sigh of relief after fierce campaigning for higher capital allowances finally paid off in the Autumn Statement.

The Chancellor George Osborne reeled out the clichés that there is “no quick fix” and it remains a “hard road ahead” to solving the UK’s economic problems, but did the Autumn Statement pave the way to a recovery?

The UK is facing five more years of austerity, as the nation’s books won’t balance until 2018. Growth is falling, but business will feel there are reasons to be cheerful.

In a strong statement delivered with a real sense of conviction, the big talking points for business are:

Capital Allowance Relief

“Instead of a £25,000 cap on capital allowance relief, we are raising it to £250,000,” boldly stated the Chancellor.

What are capital allowances? Companies deduct capital allowances from their taxable income, so they pay less tax with higher allowances. The higher the allowances, the less time it takes to write-off a large investment such as a new machine against tax.

From January 1, 2013, the Annual Investment Allowance for plant and machinery will increase tenfold from £25,000 to £250,000 for two years, which he said will bring 99% of all business investments in Britain in line for tax relief, encouraging them to reinvest their profits.

Mr Osborne said that the decision was a “huge boost to all those that run a business.” Many will agree. Manufacturers and trade bodies including EEF and The British Chambers of Commerce have long called for such an investment-friendly change but it has been overlooked for years and cut from £100,000 to £25,000 by the Coalition Government in April.

The penny has finally dropped that the UK capital allowances regime is very uncompetitive compared with its G20 peer group and a U-turn ensued.

Lee Hopley of EEF said “Prioritising resources towards measures to boost business investment through increasing the Annual Investment Allowance was a positive pro-growth announcement from the Chancellor.

“This move starts to provide the foundations of a strategy that is serious about support more globally focussed companies choosing to invest and grow in the UK.”

Click here for Lee Hopley’s blog, Chancellor gets down to business

Exports

Mr Osborne said that “big steps will be taken to help business export”. Funding for UK Trade and Investment will rise by 25% a year so that it can invest in more regional agents and build more overseas chambers.

There is also a new £1.5bn export finance facility to support selling British goods abroad, the detail of which will follow.

Business Bank

The Chancellor confirmed that £1bn of government money will fund the Business Bank, which will address the long-term structural gap in lending to small businesses. The Government is also looking to attract private investment that will support long-term lending to small and medium-sized companies.

Skills

The Chancellor announced that Employer Ownership of Skills funding will increase by £90m to £340m. Siemens, Sembcorp and Nissan are some of the 34 businesses that have already been successful with bids to design the vocational training programmes creating tens of thousands of opportunities for young people.

A continuation of the Government’s desire to fund schemes alongside private investment, the first round of winners taking part in the Employer Ownership Pilot received a share of £67m and themselves invested a combined total of £98m. Siemens, Arla Foods UK and BAE Systems have widened the scheme to train employees within their supply chains.

Schools have reaped an Autumn harvest with a £1bn bonanza to expand good schools as well as build more free schools and academies.

An extra £270m will be spent on laboratories, classrooms and other facilities in Further Education colleges.

Research

Mr Osborne told the House of Commons that another £600m would be made available to support the UK’s scientific research infrastructure.

The Department for Business Innovation and Skills confirmed that this takes the total investment since the 2010 spending review to an additional £1.5 billion for science and research.

Starting small, £10m will be spent in the first year, £282m in the second and £308m in the third.

This investment will support the development of innovative technologies and strengthen the UK’s competitive advantage in big data and energy efficient computing, advanced materials, synthetic biology, regenerative medicine, robotics and autonomous systems, satellites and commercial applications of space and energy storage.

The National Composites Centre, located on the Bristol and Bath Science Park, will approximately double in size to create a new training centre for higher level and vocational skills development.

It will also reinforce work with aerospace sector and expand into other sectors such as automotive and renewable energy.

The funding also go towards purchasing equipment to strengthen the UK’s comparative advantage in using very large datasets in areas such as healthcare and software development.

The Government will invest in dedicated R&D facilities to develop and test new grid scale storage technologies that could help reduce UK energy spend.

Energy

Osborne declared that the Government will implement a gas strategy that will take advantage of lower cost gas power after complaints from heavy industry, including metals group Rio Tinto, steel producer Tata Steel and chemicals producer INEOS, that they were being forced out of the UK by steep energy prices.

The Chancellor announced “new tax incentives for shale gas,” and stated that he “doesn’t want families and businesses to be left behind as gas prices tumble on other side of Atlantic.”

More localised funding

With “countries like ours at risk of being outsmarted by emerging economies,” the Chancellor gave a special mention to the aerospace sector, which is expecting a £5.5bn ramp up in production next year.

The Chancellor said that the Government will “support industry and technology where Britain has an advantage and extend the global lead in aerospace.”

There will be an extra £120m invested in supply chains to encourage companies to invest in the UK to support this goal.

The Autumn Statement continued the trend towards localised support for businesses, promising an additional £350m for the Regional Growth Fund, bringing the total available in 2012-13 to £2.75bn.

He told the house of Commons that Government is building upon suggestions from the Lord Heseltine’s report for growth. “New money for Local Enterprise Partnerships (LEPs),” was promised and “more funding for local transport and skills will go into a single pot that LEPs can bid for.”

Government will be devolving a greater proportion of growth-related public spending to local areas from April 2015.

Conclusion

Despite never laying claim to being the most popular of politicians, the Chancellor was in fine fettle this afternoon, leaving Shadow Chancellor Ed Balls stumbling on his words, bringing ridicule from the Tory benches.

Leader of the CBI John Cridland said “£5 billion on near-term infrastructure, like the tube to Battersea, half a billion a year tax relief for small firms, and £1.5 billion extra export support should boost investment and create jobs.

“The Government now has everything to prove by delivering. Businesses need to see the Chancellor’s words translated into building sites on the ground.

Paul Everitt, chief executive  of the Society of Motor Manufacturers and Traders, commented: “Looks like the chancellor has heard the message from businesses on the needs to encourage investment & growth.” 

Mr Osborne called The Shadow Chancellor Ed Balls’ reply the worst he has ever heard. He floundered and looked lost for words. I don’t think he or anyone else was expecting such a strong performance from the Chancellor. The Government has listened and set the framework, now it is time for business to deliver.

Click here for more reactions.

@thomasmoore88

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