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Budget 2014: SME capital allowances is the chancellor’s yo-yo

THE ANNUAL INVESTMENT ALLOWANCE has now been up and down more times than the deputy speaker during his attempts to help Ed Milliband get a word in edgeways during this year’s Budget address in the House of Commons.

In arguably the biggest announcement aimed at business, chancellor George Osborne revealed that the 100% tax allowance for investment and capital expenditure has been doubled to £500,000 and extended to the end of 2015.

The allowance has become a highly malleable tool for Osborne and his predecessors to use.

The latest change is the fifth in seven years. In the 2012 Autumn Statement, the allowance was hiked tenfold to £250,000 from £25,000. Since April 2008, the rate has changed from £50,000 to £100,000, then in 2011 dropped to £25,000.

Still it would be churlish to criticise. Clearly that is good news for SMEs, and bolsters a structurally weak area of the UK economy. Indeed, the Budget was predominantly aimed at structural weaknesses – investment, savings and exports.

A series of measures around export finance and manufacturing supports the government’s stated ambition of rebalancing the economy towards and export led recovery and reviving the UK’s manufacturing industry. Much of the measures – particularly the £7bn package of reforms aimed at cutting manufacturers’ energy bills – seem to land squarely favour of smoke stack industry with green issues getting short shrift.

However, supporting manufacturing and export makes economic sense. And with a gerneral election on the horizon it may turn out to make political sense as well.

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