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Capital allowance changes will drive away developers

03 May 2007 by
Capital allowance changes will drive away developers

The chancellor's Budget raid on capital allowances is already deterring developers from building new hotels in the UK, an industry expert has revealed.

Gerard Nolan, head of hotels at property agent Savills, said the planned reduction in allowances had already led to clients moving their development business abroad.

He told Caterer that one client who has developed hotels in the UK for the past decade has now decided to move his business to the USA as a result of Gordon Brown's changes.

"These measures are a real deterrent for entrepreneurs to build new hotels," Nolan warned. "The allowance really incentivised hoteliers to build in the UK as it was very tax efficient."

The old allowances system had also encouraged many developers to plough profits back into hotel development, he explained, which was good for the industry, economy, tourism and guests. It had also proved a great employment and career generator for low-skilled staff.

"By removing that development momentum, you remove that opportunity for economic growth and for a great many unskilled workers," Nolan added.

While Bob Cotton, chief executive of the British Hospitality Association, slammed the tax changes for discouraging growth, he remained confident the move would not affect investment in hotels in prime city-centre locations.

But he warned it would discourage developments elsewhere in marginal areas, where the rate of return on investment would be lower and therefore the investment riskier.

"There's a risk the changes will slow the development of places such as the east side of London, which was a key aim of the Olympics," Cotton said, "and make investment in hotels in the area less likely, as hoteliers will stick to safer projects in the centre of town."

When the chancellor originally announced his plans to phase out capital allowances in the March Budget, industry figures reacted angrily and warned the move could be "devastating" to the hospitality sector.

Gordon Brown's changes to capital allowances ‘devastating' for hotel industry >>

Brown's Budget in brief >>By Emily Manson

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