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Business leaders call for increase in capital allowances

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Leaders of 14 trade bodies have written to The Sunday Times urging the government to increase capital allowances for investment in plant and machinery. The chancellor will deliver his autumn statement on 5 December.

The signatories, including leaders of the manufacturers’ organisation EEF, the British Chambers of Commerce, the Institute of Directors, the Federation of Small Businesses and the Forum of Private Business, claimed that the UK had ‘the second-least supportive capital allowances’ among OECD countries.

‘We are 15% below the peak of business investment before the UK went into recession,’ they wrote. ‘Further, many forecasters, including the Office for Budget Responsibility, have repeatedly lowered their forecasts for business investment in 2011, 2012 and, it now seems likely, 2013. Some of the weaknesses in investment are down to the state of the world economy, over which the British government has little influence. But it can and should attempt to offset these external factors by making the business environment as favourable as possible to company decisions on investment.’

The group claimed that despite welcome cuts in the headline rate of corporation tax, the ‘effective average corporate tax rate’ was only ‘the 22nd most competitive of 33 OECD countries’.

KPMG noted in September that the UK’s ‘tax competitiveness’ had improved the most among 14 major economies during the past two years. But Chris Morgan, the firm’s head of tax policy in the UK, said that despite the reducing headline rate of corporation tax, ‘some businesses operating in capital-intensive industries have been left worse off in terms of the effective rate of tax they pay because the overall rate reduction is offset by the loss of industrial buildings allowances and the reduction in the general rates of capital allowance’.

Oxford University’s Centre for Business Taxation reported last year that the UK had become ‘less attractive in recent years’ for firms that rely on capital allowances. If the government wanted to create more favourable conditions for investment in fixed assets, a policy of cutting allowances was ‘misguided’, it said.