§ Investment is vital to our recovery, and business investment is now growing strongly. The tax system recognises investment through capital allowances. These allow the cost of investment to be written off against tax bills, frequently faster than it is written off in commercial accounts. But within that system, for plant and machinery with a long lifespan, the rate at which costs can be written 166 off for tax is far more generous than for other types of investment, and bears no relation to the useful economic life of the asset. This is an unjustifiable distortion in the tax system in favour of particular types of business and investment.
I propose changing the capital allowance for plant and machinery with a life of more than 25 years to 6 per cent. on a reducing balance basis. That will spread the tax relief more evenly over the average life of these assets. Groups spending less than £100,000 a year on such assets will be exempt. This will mean that the vast majority of small companies will not be affected. Ships and railways will also be exempt.