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ESG in the boardroom: The bank-parent and lessor-subsidiary relationship

Government could do more to champion green asset investing

The UK trade body for asset finance providers believes the Government of Boris Johnson has, so far, missed an opportunity to support UK businesses through what appears to be the recovery phase of the Covid pandemic by not including leasing (and short-term hire) as ways of acquiring new plant & machinery. Simon Goldie of the Finance & Leasing Association explains why a change of course in policy direction is needed.

Few could doubt the UK’s commitment to net-zero – the Government has even enshrined in law its intent to reduce net emissions of greenhouse gases by 100 per cent relative to 1990 levels by 2050. But a commitment to the cause will only get us so far. It needs to be matched with a practical, tangible and achievable plan.

Simon Goldie, director of business finance, FLA

A good place for the Government to start would be aligning its broader policies with its green agenda. The Super Deduction initiative, launched in April 2021, provides an allowance of 130 per cent on new plant & machinery that would normally qualify for only 18 per cent. It could have been a gamechanger, nurturing both productivity and the green transition by getting the newest, most efficient plant and machinery into the hands of more business owners at arguably an investment sweet spot just as firms are emerging from the pandemic and focusing on building both their operational resilience and green credentials.

Unfortunately, the allowance is only available to businesses that use cash or hire purchase (HP) to acquire new plant & machinery. Leasing and short-term hire – two of the most common ways of acquiring new plant & machinery – are not included.

That’s incredibly short-sighted as the imperative at this point must be to rapidly increase the adoption of greener assets. But how can you do that in real-world situations like the construction industry, where plant & machinery are often highly specialised and 70 per cent of it is hired-in on a project-by-project basis – and therefore not eligible for the super deduction allowance? You can’t create truly green buildings when the equipment used to construct it was belching out diesel fumes.

If super deduction was available for leasing or rental options for fleet upgrades, businesses would be incentivised to replace their current stock with electric or low emission vehicles (ULEVs) – and these would find their way into the used market at a time when consumers will be looking for ULEVs at varying price points to help them make the switch before the ban on the sale of new petrol and diesel cars by 2030, and hybrid-type cars by 2035.

A further way to encourage investment in green assets is “full expensing”, allowing businesses to immediately deduct the cost of investments from their corporation tax, rather than doing it over the life of the asset. When done in other countries, this initiative increased investment, which is exactly what’s needed in the UK, whether to drive improvements in productivity or the green transition.

Lenders will support net-zero targets by doing what they do best – lending. But creating the right environment with the right incentives to get the majority of businesses transitioning to green assets at the right time? That’s in the gift of Government.