The importance of asset
finance for economic recovery was rightly recognised in the new
government’s recent green paper, Financing a private sector
recovery. This is reflected in the fact that FLA members
funded £20bn (€23.5bn) of investment in new business assets in
2009.
Asset finance is the most popular
source of external funding for business equipment. But there are
constraints on the asset finance market, and in our response to the
green paper we have urged the government to address them.
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Asset finance is often available to
businesses which are unable to obtain a conventional bank loan. But
a sizeable minority of UK businesses still face difficulties
replacing old or investing in new equipment.
A recent Open University Business
School survey found that one in six UK businesses experienced
problems caused by unsuitable equipment. Of course, business
lending becomes riskier during a recession. So we need to mitigate
these risks in order that businesses can invest now to allow
increased production in future.
A very modest amount of government
help would do exactly this. Currently, the government’s Enterprise
Finance Guarantee scheme excludes asset finance. By extending it
(or a similar mechanism) to include asset finance, the taxpayer
would get good value for money because of the security offered by
the asset, and new loans could be offered to businesses without too
much bureaucracy.
We have also explained to the
government the risk to business investment posed by the new lease
accounting rules proposed by the International Accountancy
Standards Board. One of the benefits to businesses of leasing
equipment is that it minimises administration costs. But the IASB’s
proposals would introduce more than 50 new regulatory steps for
most equipment leases. We are calling on the government to
encourage the IASB to simplify its proposals.
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By GlobalDataOne of the knock-on effects of
these accounting changes is that fundamental changes to the tax
system will also be needed. We have therefore urged the government
to use the opportunity to go back to basics and work with us to
design a simpler and more stable tax system.
The coalition government has taken a very important first step
in recognising the importance of asset finance. The next step must
be to put in place the practical measures necessary to lift the
current constraints on the market. We very much hope the government
will agree.
