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  • Budget 2018 offers support for business investment, but lessors might want to look beyond the AIA Posted on 30 October 2018

    The obvious big news story relevant to business investment in yesterday’s Budget was the hike in the Annual Investment Allowance (AIA). Who can’t like an increase in the AIA? It’s what the British Chambers of Commerce was asking for (“a shot in the arm for business investment and growth”, BCC said) and it’s a measure used by successive Chancellors to demonstrate their support for businesses.

    The actual cost to the Exchequer over the long-term is limited as it’s bringing forward an existing tax benefit rather than offering a new one. If it wasn’t for two drawbacks, it would be almost perfect.

    First, it has to be time-limited or it can't be re-announced next time (it's the HM Treasury equivalent of a supermarket's pricing policy).

    Second, it arguably doesn’t support the firms that need it most, being those that don't have the sizeable taxable profits needed to take advantage of it (a problem that could be sorted instantly if lessees could transfer their own AIAs to lessors, with a requirement the benefit be passed back to the lessee). 

    Perhaps the BCC is spot on and the increase is what’s needed to maintain investment in uncertain times. I’m not sure it’s enough to sway investment decisions right now, but it’s two-year measure so may end up being valuable. In any case, any policy efforts to promote business investment are always welcome.

    The AIA wasn’t the only point relevant to business investment in the Budget.

    There was the ‘giveaway’ of extra funding to schools, helping them to fund school equipment. Whatever the politics around this, it does at least demonstrate the government’s awareness of the importance of schools keeping up investment in equipment.

    More generally, this is the first time I can remember seeing a Government statement making such a clear connection between better equipment and increased productivity, and I do keep an eye open for this sort of thing!

    “Businesses can become more productive by, for example, adopting better equipment and techniques, and investing in training their staff” the Budget report states.

    That may seem obvious to those in the asset finance industry helping firms to make successful investments every day, but it’s always difficult to prove the point, so recognition like this is valuable.

    The Budget also announces a planned new Business Energy Efficiency Scheme, intended to reduce energy bills and carbon emissions. This will be focused on smaller businesses. It seems likely therefore that there could be an important role for asset finance, helping firms to ‘pay as they save’.

    It wouldn’t be the first time lessors supported a green investment scheme. It might build on the Carbon Trust scheme established with Siemens some years ago, and the recently announced project offering grants and loans for new heat networks that Triple Point is working alongside the Department for Business, Energy and Industrial Strategy on.

    It’s unclear if it was coordinated, but this follows the announcement earlier this month from the Financial Conduct Authority of the launch of its Green FinTech Challenge. A selection of firms will develop innovative finance products and services to assist in the UK’s transition to a greener economy, with regulatory support from the FCA. Green solutions might include supporting capital flows / investment towards green products and services, the FCA states, so it seems the FCA Challenge and the new Efficiency Scheme might somehow complement each other.

    In summary, it’s good to see a Budget that recognises the importance of, and promotes, business investment, and what might become an opportunity for lessors interested in green finance.

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