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Capital Allowances (Plant and Machinery)

Volume 505: debated on Tuesday 2 February 2010

4. What recent assessment he has made of the likely effects on businesses of aligning capital allowances for plant and machinery with depreciation accounting rates. (314431)

Reforms implemented in April 2008 ensure that capital allowances are more closely aligned with true economic depreciation, and that business investment decisions better reflect commercial rather than tax considerations.

At a time when the manufacturing purchasing manufacturers’ index is at last rising strongly, will the Minister assure me that this Labour Government will not slash capital allowances for plant and machinery, as proposed by the Conservatives? Such a cut would devastate manufacturing in the west midlands and the UK, and cause a double-dip recession.

My hon. Friend is right to point to the very promising manufacturing figures that were announced today and to recognise the importance of the capital allowances regime in ensuring investment in our future. Frankly, it is quite ridiculous to have a policy that says, “We’re going to give with one hand, and take away with the other,”—a policy of giving corporation tax reductions but taking away the capital allowances that are needed by manufacturing businesses in this country. I am not against cutting corporation taxes—indeed, this Government have cut them by 5p in the main rate since we came to power—but we should not do it at the expense of investment in our future, which is what the Conservatives would do.

There is a strong case for a lower rate and a simpler structure. However, increasing the cost of labour through increases in national insurance contributions, while having a generous programme of capital allowances, is unbalancing the cost of capital versus labour, when we have 2.3 million unemployed.

The hon. Gentleman cannot get away from the fact that his policy is to reduce capital allowances to 12.5 per cent. and abolish the annual investment allowance. That would mean that more than 400,000 businesses in this country would see an 87.5 per cent. reduction in the tax relief that they can obtain at the moment. That is not a credible policy to support medium-sized businesses or investment in this country.