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Abolish the Enhanced Capital Allowances (ECA) Scheme

Comment 12th February 2015

The Enhanced Capital Allowances (ECA) scheme (see www.eca.gov.uk) is intended to encourage businesses to invest in plant which saves energy, reduces carbon emissions or conserves water. While the intention is laudable it doesn't work in practice because of the way it has been implemented. In order to qualify for the allowance the plant you buy or the contractor you employ has to be on the approved government list.

Our company has made a significant investment in a water recycling system whereby water is collected from the roof of our warehouse, stored in tanks and used in priority to water from the mains. The work was carried out by a local plumbing contractor and the tanks are adapted agricultural storage tanks; neither, of course, are on the list and the expenditure therefore doesn't qualify for the allowance. And yet we are conserving water in precisely the way this scheme is intended to encourage.

Even when we have been able to claim ECAs they have been for only one component of a larger piece of plant and at a fixed rate which is not necessarity related to the cost of the item. Identifying the component which qualifies requires specialist engineering knowledge and a long trawl through the published lists.

I strongly believe that the scheme should be abolished or at least, in these days of self-assessment, the taxpayer should be allowed to decide whether the capital expenditure qualifies based on criteria and not on a list. Since I'm not generally in favour of the government trying to alter people's behaviour using taxation (except for smoking!) my preference would be for abolition. After all, aren't the savings generated by reducing electricity or water consumption enough of an incentive? And is there any real evidence that ECAs have tipped the balance by encouraging businesses to invest in this type of plant when they might not have otherwise done so?

Why does this matter?

The Enhanced Capital Allowances scheme is an unnecessarily complicated government initiative which fails to work because it doesn’t apply to many situations where it is clearly the intention that it should. I don’t believe its abolition would adversely affect investment by businesses in energy saving or water conserving plant and, in addition, the bureaucracy and cost involved in maintaining and publishing the approved list could be done away with at a stroke.

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