Written evidence submitted by the Finance
and Leasing Association|
1. The Finance and Leasing Association represents
the UK's providers of equipment finance through leasing and hire-purchase.
Our members are banks, independent asset finance companies, or
captive finance companies owned by equipment manufacturers. In
2010 FLA members provided £19.6 billion of new finance to
UK businesses and the public sector, representing around a quarter
of all fixed capital investment (excluding real property and own-account
software) in the UK last year.
2. We believe Budget 2011 missed an opportunity
to further the Government's green objectives. The Budget did not
address an unhelpful exclusion in the tax allowances for investment
in energy-saving plant and machinery, Enhanced Capital Allowances
(ECAs). The current ECA rules exclude leased equipment.
3. In his evidence to the Committee's Inquiry
into The Green Investment Bank last October, James Wilde from
the Carbon Trust described a "massive" opportunity to
unlock energy efficiency in Small and Medium-sized Enterprises
(SMEs). We believe that the exclusion of leased equipment from
ECA is a significant and unnecessary obstacle to that opportunity.
4. SMEs are already investing in energy efficiency.
The Open University Business School
reported in January that 29% of SMEs had in the last year invested
in equipment or machinery for environmental reasons.
5. Particularly at the moment, however, few businesses
are in a position to pay significant amounts up-front for energy-saving
plant and machinery. There is a growing awareness that asset finance
can help businesses to afford to invest in energy-saving plant
6. For example, in their February 2011 report,
Financing the Low Carbon Economy,
Accenture noted that financing energy-efficient or micro-generation
equipment can be expensive. To reduce the impact on cash-flow,
a leasing scheme"energy-efficient and micro-generation
leases"could be developed so that principal and interest
repayments on the equipment are calculated based on the estimated
amount of energy saved.
7. The importance of asset finance can also be
seen by the launch in April 2011 of the new Carbon Trust green
equipment finance loan scheme. This is being run by Siemens Asset
Finance and is intended to provide UK businesses with green equipment
finance worth up to £550 million over the next three years.
8. Asset finance offers benefits beyond helping
businesses to afford to invest. Because the finance company owns
the equipment being funded there is less need for additional collateral.
The application process is generally simple and is often administered
by the equipment supplier rather than a bank. We estimate that
over a thousand small businesses obtain new asset finance every
9. The exclusion of leased equipment from ECAs
makes investment using leasing less accessible and more expensive.
Making ECAs available for leased equipment would reduce the capital
needed by finance companies, allowing them to lend more at lower
interest rates. This could reduce the reliance on alternative,
untested mechanisms including the Green Deal and any relevant
Green Investment Bank activity.
10. The existing restrictions on using ECAs for
leasing were implemented to address concerns that ECAs for leasing
might promote tax avoidance or might result in UK taxpayers supporting
investment elsewhere in Europe. Recently-introduced rules for
disclosing avoidance arrangements and the new Code of Practice
on taxation for banks should mitigate much of the risk of avoidance.
Further safeguards might be appropriate, such as restricting the
value of qualifying investments, or restricting investments to
certain regions. Our call is for the Government to work with business
to overcome the obstacles to including leased equipment in the
Government's incentives to invest in low-carbon equipment. This
would include the ECA tax incentive as well as the Renewable Heat
11. In summary, we believe the Committee should
recommend that the Government actively seek to overcome any obstacles
to extending ECAs to leased equipment. We would be pleased to
provide oral evidence to the Committee.
14 April 2011
8 Open University Business School Quarterly Survey
of Small Business in Britain Q4 2010 Back
Carbon Capital: Financing the Low-Carbon Economy, Accenture, February