SMEs need lease of life

Chancellor Gordon Brown has been urged to use April’s Budget to provide more support for SMEs by levelling the tax playing field for bought and financed business assets.

The Finance and Leasing Association has written to the chancellor calling for 100% capital allowances to be extended to leased assets, a move supported by industry bodies like the CBI and an umbrella-group of manufacturer groups led by the Engineering Employers’ Federation.

The 100% capital allowances schemes announced in recent Budgets, give companies first-year allowances on purchases of designated equipment including energy-saving plant and machinery as well as information and communications technology.

But in its pre-Budget submission to the chancellor, the association last week accused the government of failing to recognise the significance of asset finance. And it warned that the current tax regime – which favours bought assets alone – is holding back SME investment.

FLA director-general Martin Hall said: ‘The government increased first-year capital allowances for SMEs specifically to improve SME capital investment. Leased assets are crucially important for this sector.

‘In the latest FLA annual business survey, 53% of the business finance provided went to firms with turnover below #5m. So excluding leasing robs the policy of a great deal of its force and it makes sense to ensure that assets leased by SMEs are given equal tax treatment as purchased assets.’

According to those FCA figures, finance provided to the business sector in 2001 remained at a similar level to 2000. But there was a worrying decline in finance for investment in commercial equipment, with final- quarter figures showing that finance for this sector decreased by 12% on the same period in 2000.

Hall said that unless changes are made, the investment performance of UK SMEs’ will continue to slow – with detrimental effects on the economy at large.

‘Improving the investment performance of UK SMEs would make a major contribution to improving the productivity and growth rate of the UK economy,’ he added.

‘To achieve that, the right financing environment is crucial, not least at a time of economic uncertainty.’

Brown will make this year’s Budget statement on 17 April. He is widely expected to use this year’s package to raise taxes to fund increases in spending on public services.

The Budget will also spell out the broad strategy for government spending over the next three years.

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