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Hotels: South West Region

Volume 465: debated on Tuesday 23 October 2007

To ask the Chancellor of the Exchequer what assessment he has made of the likely effect on investment in the hotel and hospitality industry in the South West of the abolition of the hotel building allowance. (159629)

The Government’s decision to withdraw industrial buildings allowances, including the extension for qualifying hotels, was based on an assessment of a number of issues, common across industry sectors. The Government have not sought to target the hotel and hospitality industry or any other industry with this change.

Industrial buildings allowances (IBAs) were extended to qualifying hotels in 1978. Capital allowances are not normally available on commercial buildings, so IBAs have long been recognised as a significant distortion in commercial property investment. They have become a poorly focused subsidy, selectively available on a disparate range of assets, including some that typically appreciate in value. These issues are compounded by the compliance burden imposed by their complicated rules. The withdrawal of IBAs was not an isolated measure. The 2007 Budget also announced cuts in both the basic rate of income tax and the main rate of corporation tax and crucially for hospitality, as a key sector making ongoing capital investment, the package of reforms also includes a brand new investment incentive in the form of a new Annual Investment Allowance (AIA) from 2008. The AIA gives 100 per cent. tax relief for capital investment up to £50,000 per year. For many small hoteliers—regardless of their corporate or unincorporated status—this will represent a significant incentive for new capital investment. Our analysis has shown us that the new allowance will be sufficient to allow over 95 per cent. of UK businesses to simply ‘write-off'’ their investment in plant and machinery (excluding cars) for tax purposes each year. Taken as a whole these reforms to the business and personal tax systems are designed to deliver increases in investment and growth.