Leasing gets a hearing in the Lords

06/03/2010

They say that it helps to have friends in high places, so let’s hope it did in the House of Lords on 4th February 2010, in the debate on The Economy: Enterprise and Innovation. Lord Mitchell, a peer who understands the leasing industry well, spoke up for our industry on the subject of the special SME capital allowances not being available to lessors who lease to SMEs. He started started his speech with remarks about entrepreneurs and tax, and the success story of getting more IT into schools. Here is the official transcript of his speech (in quotation marks):

 

“Lord Mitchell: My Lords, I, too, thank the noble Lord, Lord Sanderson, for introducing this debate. I am a serial entrepreneur and I find it reassuring that there are so many in your Lordships' House who share my passion for this area. The noble Lord talked about rates of tax being at 98 percent at one time. Every time I have started a business, the rates of income tax have been very high indeed-as high as he said-but that never seemed to bother me. I never thought about tax. I was always interested in being independent and setting up a business; I was interested in all the joys that come from allowing something to bloom and grow. We talk about 50 percent tax. I do not like 50 percent tax. If I had my way, I would put it back down to 40 percent and tax bankers' bonuses by 80 percent. We would probably be better off. As the election approaches, people will bang on a lot about the rate of tax. It is worth saying yet again that, when this Government came into power, capital gains tax was 40 percent. It is now 18 percent. As an entrepreneur, I have my mind fixed on that rate, not on the rate of income tax. It is to this Government's credit that we have kept and encouraged entrepreneurship in this way.

I shall divide my speech into two sections. In the first I will talk about a great British success story-the IT education industry. In the other I will make the case yet again for the UK's equipment-leasing industry, which I believe holds the key to increasing capital investment in these difficult days.”

 

IT in education

“Ten years ago, in an act of amazing generosity, Microsoft approached me and one other person with a simple request. British children needed to have access to computer technology at home and at school. Microsoft wanted a charity to be formed to make that happen. Noble Lords may not believe this, but it gave us a cheque for £1 million and told us not to involve it any longer but to get on with it. We set up the e-Learning Foundation. I declare my interest as its current chair. In those days, laptops were expensive, broadband did not exist and the teaching profession was highly sceptical. It was so sceptical that when the Government introduced the Laptops for Teachers initiative, it became known as the "laptops in boxes" initiative. Many computers were never opened by teachers. Those days have gone.

While he was Prime Minister, Tony Blair was instrumental in setting IT targets for schools. I may have my facts wrong, but I think that one of the targets was that in every school there had to be one computer for every seven children. That was thought to be impossible then, but today that sort of target would be laughable. There are laptops in every school and in homes they are ubiquitous.

Last year, the Government announced the Home Access project, in which £300 million would be made available to ensure that children in socially disadvantaged areas had access to computers at home and at school. In this 24/7 world, education is not just confined to the classroom. Lessons can continue at home and projects can be completed in the student's own time. As well as bringing our school children into the 21st century, the Government have spawned a new, world-beating industry-education technology.

Every January, an exhibition called BETT-British educational training and technology-is held. I first went to BETT 10 years ago when it was very small with few attendees. Today, it is huge. The exhibitors take up all Olympia and the demand for space outstrips supply. Britain is now the world leader in education technology, by which I include education software, hardware, content and all associated services. This new industry employs 25,000 people in the UK and exports £250 million.

I should like to give your Lordships just one example of a British company, Promethean, which has become a world leader in this area. The company makes intelligent whiteboards. It is now possible for teachers to run their classes using these boards on an interactive basis. Teachers can write on the boards, access the internet and show videos. Tests can be set and pupils can use their own laptops and handhelds to reply. Feedback is instantaneous. The Government injected some early funding into Promethean. Private equity came later. I read that it is now considering an IPO.

I relate this background to show that this Labour Government are able to support and have supported new industries of this sort, thus supporting the quest to make our children IT literate and to raise education standards. At the same time, they have created an environment that has caused a new British industry to flourish. It is an industry that, without question, is the best in the world. What I recount today is just one example, but there are many more.”

 

Leasing and capital allowances

“On my other topic, my whole career was in the leasing of high technology. I declare my interest. I formed a company called Syscap Ltd. I sold it to private equity, but I still have a small shareholding. I have regaled the Minister, my noble friend Lord Davies, with what I am going to say today and I received a sympathetic reception. I also heard what my noble friend Lord Sugar, who is not in his place, said about the SME marketplace.

The leasing industry in this country is responsible for one-third of gross capital formation. In other words, of all the capital assets in this country, one-third is financed by leasing. That is very important. It gives the benefits of better cash flow, secure funding, quick decisions and no need for an overdraft. It is everything that an SME wants. It gets funds to companies quickly. It is a conduit from the banks to small companies. Yet there are tax disadvantages on which Her Majesty's Revenue and Customs is being very difficult. If Barack Obama was, "Yes we can", I am afraid that HMRC is "No we can't and never will".

There are special capital allowances on high-technology equipment. The problem is that the only people who can use them are the users and not the owners. At a time when many companies are just coming out of recession and are not generating profit but want new equipment to boost their productivity, they cannot use these benefits because they are not making a profit. The situation is crazy. With a flick of a switch, which would enable the owner or the user to use these capital allowances, it could all be changed and there would be a dramatic inflow of funds to the SME marketplace. I hope that the Minister has listened to what I have said and I will be interested to hear his answer.”

 

Our thanks to Lord Mitchell, for furthering the leasing industry’s case on the SME capital allowances anomaly, which is surely having a negative effect on SMEs in the UK getting ready access to finance via leasing. The next step should be to lobby this issue at the EU level. SMEs are a sacred species to the EU regulators, and the fact that the UK’s tax regime is discriminating against SMEs in this way, is a crude anomaly that the EU would surely like to put right.

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