A budget for investment?

Gautam Dalal, KPMG's head of Diversified Industrials, reacted thus: "I expect many manufacturers may be breathing a sigh of relief today," adding that the Budget "announced welcome business tax cuts and measures to stimulate job creation", with capital allowance cuts "less than anticipated". The latter went from 20 to 18 per cent (main rate) and 10 to 8 per cent for long life assets and integral features, although both only take effect in April 2012. But manufacturers' association the EEF (see page 8) said that "industry will now be left wondering where the necessary growth and investment will come from, given the cuts to investment allowances and capital budgets". Indeed, of the reduction in Annual Investment Allowance (AIA) from £100,000 to £25,000, as of April 2012, KPMG said: "For smaller and medium sized manufacturers, the picture is a little less clear. For those with annual capital investment of between £25,000 and £100,000, the reduction [in AIA] will see the rate of relief they obtain shift significantly." AIA allows businesses to write off the full costs of expenditure on plant and machinery in the first year. But many SMEs, in relation to machine tools, use lease finance, and the Finance & Leasing Association said: "On balance, today's Budget slightly exceeded our expectations by making only a modest cut in capital allowances and reducing AIAs that weren't available for leasing." So, with the cut in AIA, leasing would appear to have become more attractive. But perhaps this it to focus on the wrong area. The Government intends to give the UK: "The most competitive corporate tax system in the G20. As a first step [my itals], this Budget announces a major package of reforms to reduce corporation tax rates". Indeed, as the EEF says: "The Chancellor has only done part of the job of rebalancing the economy". There will surely be more to come. First published in Machinery, July 2010