The labour party has just released a policy review 'Delivering long-term prosperity - reform of business taxation'. Buried in the middle are some comments on capital allowances: 'Capital allowances are also vitally important in the design of a tax system that rewards long-term investment... a clear roadmap is needed not only for headline rates of corporation tax, but also for capital allowances.' This is an interesting move. For many years, successive governments have reduced capital allowances. The rot started with Nigel Lawson, who cut the rate of corporation tax from 52% and abolished 100% first-year allowances. Gordon Brown's final 2007 Budget cut the main rate of corporation tax to 28%, financed by a cut in the rate of writing down allowances to 20% and the surprise abolition of industrial buildings allowances. The one piece of good news was the April 2008 introduction of the annual investment allowance - which gave businesses a £50,000 immediate tax deduction for plant and machinery. The cost of this annual allowance was high - nearly £1bn annually.
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