Claire Hack

Two new measures proposed by the
Lib-Con coalition in their finalised agreement could have a
dramatic effect on the leasing industry.

As part of a bid to reduce the
headline rate of corporation tax from 28% to 25%, the Conservatives
had suggested before the election that capital allowance might be
lowered to pay for the cut.

Currently, capital allowances allow
companies to deduct a proportion of the costs of certain purchases
and investments from taxable profits, including long-term leasing
(for example, seven years or more) on plant and machinery.

Lessors can also claim back capital
allowance against their own profits on shorter-term agreements and
are then expected to pass on savings to customers in reduced rental

And according to Philip White, CEO
of IT finance provider Syscap, reducing capital allowances could
“jeopardise the ability of businesses to secure much-needed capital

He said: “The lack of real detail
in the coalition document on capital allowances is cause for
concern for UK businesses.

“We are not out of the economic
woods yet, and while we are told that manufacturing industries will
be protected, many worry that when governments start talking about
‘simplifying’ taxes, someone is going to lose out.

“The removal of capital allowances
will disincentivise people from investing in business assets. This
investment is vital for the economic recovery.”

However, Alex Brown, head of asset
finance at Barclays Corporate, was more circumspect.

He said: “We don’t know exactly
what they’re going to bring in yet – we will watch with interest on
budget day.

“I think, for my business, it’s not
going to have the biggest detrimental effect because I’ve set it up
to be an asset finance debt business and not be reliant upon tax
regimes and capital allowances per se.

“Having said that, I do have
capital allowance-based deals and because we don’t know what the
announcements are going to be, we can’t say for sure what the
knock-on effect will be.”

The second measure, a proposed new
major loan guarantee scheme for SMEs, would replace Labour’s
Enterprise Guarantee Scheme (EFG), which did not include leasing in
the forms of finance it was prepared to guarantee.

White added: “Because the vast
majority of SMEs choose to fund capital investment through leasing,
the previous government’s decision to exclude leasing from a loan
guarantee scheme was a mistake.

“It is something the new coalition
should quickly rectify.”

And the position is much the same
at the Finance and Leasing Association (FLA), according to Julian
Rose, the body’s head of asset finance.

He said: “We have argued to the
government that leasing should be included in any new loan
guarantee scheme, as the loan is already largely secured on the
leased equipment itself, so the guarantee would go further in
supporting new lending.”

Barry Hutchings, sales and
marketing director of Southampton-based State Securities, added:
“We haven’t yet had details of the proposed new scheme through, so
are not in a position to give a researched or authoritative

“However, we would, as we have in
the past, be likely to support the FLA position, preferring leasing
to be recognised as a major component of SME funding, and

“We have had limited success utilising the Enterprise Finance
Guarantee and will be interested to see details of any proposed