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Tuesday, 9 June 2009

And now for something completely different?

George Osborne gave a speech to tha ABI at their annual conference, and for once it sounded as though it was written by someone who knew what they were talking about. It may be woolly fluff or he may be serious, but I liked this bit:

The charge of short-termism and underinvestment in long term productive assets has frequently been aimed at Britain's economic model, and with some good reasons.
We have lower levels of physical capital per worker than our main competitors, and research by the OECD and the National Institute of Economic and Social Research has shown that in key sectors this is an important part of the explanation for our long-standing productivity gap with countries such as France and Germany.
Our physical infrastructure is older and far more congested than the average for OECD countries, particularly our transport and energy networks.
And our levels of investment in R&D and innovation are significantly lower than the US, Japan, Germany and France.

The Labour government actually took a step forward by reversing some of the disincentive to investment coming from the 6% writing down allowances on long life assets. Which international company was going to site its long life assets in the UK when it could choose other European countries where they get to write off more than 80% of the asset cost over 25 years? That was a Conservative policy, and I can't recall any major investments where the UK was chosen over other countries since 1996. In the current budget the rate has been increased to 10%. which is probably about right.

But the Labour went the other way reducing the general rate of writing down allowances from 25% to 20% and by setting a rate of 10% for integral fixtures in a building. This includes, by way of example, "air cooling or air purification", so the government can kiss goodbye the idea that any high-tech firm will set up any chip fabrication plants in the UK.

Last of all, but most importantly a Conservative government should scrap all of the Labour government's legislation and there are dozens of pages of it eneacted since 1997, which aimed to stop the bank's leasing large items of plant and machinery to UK companies under tax based finance leases. The government effectively cancelled the primary means of leveraging inbound investments until 1997, that financed not only the Toyota and Nissan car plants, the NEC factory in Scotland, most of the offshore drillships in the North Sea, the gas interconnector to the cntinent and the electricty interconnector to Ireland. More importantly it would put the UK back on a competitive footing with Germany and France where such finance is widely available from their banks. A big ask, perhaps, but these are desperate times.

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