Tories to cut corporation tax but plan allowances cull

09/02/2010

In order to fund cuts in corporation tax, the Conservatives are planning to reduce business allowances by billions.

Among the business allowances expected to be culled are film production tax credits, the Enterprise Investment Allowance and research and development funding. The £50,000 annual investment allowance is also being eyed as a possible cost-cutting disposable as it costs £1.5 billion each year.

Capital gains tax on business assets, currently set at 18 per cent, could also be set for an increase if the Tories take power in the next election.

The news is likely to disappoint those who want the government to increase incentives for the private sector to invest in the UK. Manufacturers in particular are expected to be disheartened as they were hoping for a more generous capital allowance system for industry to reflect the speed at which computer-driven machinery becomes obsolete.

Despite this disappointment, the corporation tax reduction will be welcomed. Tax for smaller firms is to fall to 20 per cent from 22 per cent and from 28 per cent to 25 per cent for large firms, claims shadow chancellor George Osborne.