New Annual Investment Allowance is welcome news for manufacturers

The beginning of 2013 has brought some welcome news from the government for any company involved in manufacturing. Improvements to capital allowances, bank lending, and corporation tax rates, set against the background of a growing manufacturing sector should give us all reasons for good cheer.

In his autumn statement, Chancellor of the Exchequer George Osborne announced a temporary increase in the annual investment allowance for plant and machinery from £25,000 to £250,000.

Starting on 1 January 2013 and for the next two years, £250,000 worth of investment will qualify for 100% relief. The chancellor said. ‘This capital allowance will cover the total annual investment undertaken by 99% of all the business in Britain. It is a huge boost to all those who run a business, who aspire to grow and expand and create jobs.’

The allowance, introduced in 2008, was reduced from £100,000 to £25,000 from April 2012.
Today’s announcement will be welcomed by many SMEs. Leaders of 14 trade bodies last year wrote to The Sunday Times urging the government to increase capital allowances.

Critics have pointed out that cuts in the main rate of corporation tax have not benefited smaller companies, some of which have been worse off as a result of recent changes to the capital allowances regime. This new allowance should address this problem.

Chris Sanger, head of tax policy at Ernst & Young, said the announcement represented the fourth change in five years:

‘The last government introduced the allowance at £50,000, increasing it to £100,000 and it was cut by this government to £25,000 from April 2012. Whilst such rapid changes could look incoherent, these incentives are clearly linked to the state of the economy and can accelerate investment,’ he said.

The introduction of the 100% Annual Investment Allowance, together with April’s long awaited reduction in corporation tax will make the UK the most favourable regime in the EU for manufacturers and sub-contractors. It provides the incentives that are needed to invest for expansion and to seek new market opportunities.

Another measure that should be a great help to SMEs in 2013 is the Funding for Lending Scheme (FLS). Banks and building societies can borrow in the FLS at cheaper rates, for periods of up to four years.

The Scheme delivers credit easing to the whole economy, and has strong incentives for banks and building societies to increase lending to UK businesses. Those that lend more, can borrow more in the FLS, and can do so at lower cost than those that scale back lending.

For companies in the Surface Finishing industry, all of this will come as welcome news. Many SMEs have been reluctant to invest in plant and machinery during the recession. This is either because of shortage of demand or uncertainty about the long term prospects for growth.

The widespread availability of good value redundant finishing plant and machinery, together with the increased capital allowance, means that companies’ budgets can be made to go much further.

Many of us, like my family, have been in the surface finishing business for several generations. For us it is not just a way of making a living. We share a passion for a business at which the UK has excelled historically. This more favourable environment should give all of us the incentive to do even better in 2013.