The leasing industry has found reasons to be cheerful in the latest budget, but there is also much room for improvement. Chris Farnell reports on the Spring Budget for 2023.
March saw the government unveil their new budget, which included a lot to talk about from the rise in corporation tax, a “Brexit pubs guarantee”, and reforms to childcare support. But two changes, in particular, have drawn the interest of the leasing sector.
“One is the change to capital allowances on full expensing, the other is the investment zones,” points out Simon Goldie, the director of advocacy at the Finance & Leasing Association (FLA).
The 12 new low-tax investment zones will receive £80 million in support over five years. They will be situated around universities and research centres around the UK, with the goal of “supercharging” hi-tech growth.
“Investment zones on paper look like a way to stimulate economic activity. It helps and encourages smaller businesses and that helps our members because it will lead to more asset finance,” Goldie explains.
“Full expensing” is to achieve a similar purpose, driving investment, creating economic activity, and doing all those things which will give businesses the resources to think about the equipment they need and how they are going to fund it.
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It takes the form of a 100% allowance that will enable companies to write off the full cost of investments against their corporation tax bill in the first year. The allowance aims to encourage investment, create economic activity, and give businesses the resources to think about what equipment they need and how they’re going to fund it.
The allowance will replace a previous capital claim allowance known as the “Super Deduction”. There are different opinions on which model is more effective, although crucially, after only two years we don’t really have the data to judge.
“We need data from HM Treasury. One thing it didn’t include was leasing,” Goldie says. “We argued for leasing to be included because leasing is a large part of our members’ funding toolkit.”
Another reason it is hard to judge the impact of the Super Deduction at this point is that it was in place during a time of massive upheaval and supply chain issues.
“Anecdotally, Super Deduction saw less use than there might have been because of supply chain issues, which had a knock-on effect when it was introduced,” Goldie acknowledges. “People simply could not get the equipment. Near the end of its life, things started to move a bit more and it saw more use – but that’s purely anecdotal. Our view is it didn’t work as well as it could have.”
For the leasing and rental sectors in particular, the Super Deduction also presented an issue because it excluded them from claiming these powerful investment allowances and passing them on to customers through lower lease or rental rates.
Spring Budget 2023: Full expenses & leasing
The BVRLA (the British Vehicle Rental and Leasing Association) has interpreted the new “full expensing” allowances as a public indication that the Government will work with them to develop a policy solution that includes this key vehicle acquisition method.
“Yet again, the Government has acknowledged how critical vehicle rental and leasing is in driving business investment in cleaner commercial vehicles and infrastructure,” says Gerry Keaney, chief executive of the BVRLA.
“We look forward to working with them in the coming months to develop a powerful capital allowances regime that can drive even faster decarbonisation of road transport.” Others are less certain, however.
“Anything that encourages investment is a good thing because the mechanisms are there to help businesses faster than a normal capital allowances regime,” Goldie says.
“But there is some confusion around whether leasing is included and how it works in the full expenses regime. We are working with HM Treasury to iron that out. If we can get leasing fully included that is even better, but as is it will encourage businesses to get equipment and grow their business it is a positive.”
The FLA was among eight bodies that made the case changes in the capital allowances regime ahead of this budget, going back and forth with the government over different alternatives to the Super Deduction.
There can be no denying that the British economy has undergone a tumultuous few years, and anything that could support businesses, their staff and customers through that time is welcomed by the sector. The BVRLA reports it has been invited to engage with HM treasury to explore ways to overcome existing exclusions to the leasing sector ahead of the next fiscal event in Autumn, and the FLA believes industry arguments may already have had an effect.
“We have come through a difficult time since 2020. Lockdowns have had a detrimental effect. We have issues around productivity in Britain, partly to do with a lack of investment,” Goldie explains. “The government will have been looking at capital allowances and thinking about how to encourage investment, and full expensing is one way to do that. We made clear and repeated proposals around those areas, so full expenses was a significant win for us.”
But while there is optimism, both the industry remains realistic about the challenges facing the sector and the economy as a whole.
Spring Budget 2023: Fuel duty & VED
“The one bright point for fleets was the freeze in fuel duty,” says Paul Hollick, chair of the Association of Fleet Professionals (AFP) which has been notably less enthused about the new budget. “An increase in 11 pence per litre would’ve been extremely unwelcome at a point in time when the economy is struggling and removing that possibility is very much welcome.”
The BVRLA is equally concerned about whether this budget will alleviate the effects of the cost-of-living crisis.
“Other aspects of the Budget are more concerning and at odds with the cost-of-living crisis the nation finds itself in,” Keaney says. “Rising VED [Vehicle Excise Duty] for cars and vans in line with RPI, not CPI, puts an even greater financial burden on drivers. The reintroduction of the HGV levy adds further costs and is something the BVRLA will be working with members and policymakers on to ensure a fair implementation.”
The biggest of those challenges remains the transition to net zero. The FLA has been proposing potential solutions in line with full expensing.
“We landed on the proposal for a Green Super Deduction, a targeted investment in net-zero assets. Prior to that were other alternatives, including full expensing,” Goldie says.
But ultimately, in the environmental arena, this budget has been found wanting.
Spring Budget 2023: Going green?
“For fleets, this was a Budget more noteworthy for what it didn’t include rather than what it did. We’d have liked to have seen measures announced ranging from the creation of an EV charging regulator through to national coordination on Clean Air Zones, as outlined in our recent tax and regulation manifesto,” says Hollick. “However, there was little content that showed the Government has been thinking about business road transport.”
Indeed, the FLA will continue to pursue greater measures to support the green economy.
“We have been making the case for a form of green finance guarantee to help members get certain deals over the line. That wasn’t in the budget,” Goldie says. “There are specific issues around green assets’ residual value and secondary market because they are so new. That is the risk for the funders. To mitigate that a green finance guarantee would be very helpful. We hoped to see that in the budget, but we didn’t.”
Also See: Super Deduction is dead, long live Full Expensing; Super Deduction deducted; 2023 budget reveals an ‘absence of measures’ for EVs – SMMT; A Budget of both good news and missed opportunities: LeasePlan