Budget draws ‘sigh of relief’ for manufacturers

The manufacturers' organisation EEF believed the Chancellor's efforts fell short of achieving a rebalanced economy with chief executive Terry Scuoler (pictured) saying: "[The Budget] may have given manufacturers much-needed clarity on how the government will go about reducing the deficit, but the short-term pressure to start tackling the deficit means the Chancellor has only done part of the job of rebalancing the economy. "While businesses will welcome long-term reform and predictability of Corporation Tax and, have been spared the worst impact of changes to Capital Gains Tax, predictability has come at the cost of competitiveness. "In recent weeks, manufacturers had been encouraged by strong commitments from the Prime Minister and the Chancellor on the role of manufacturing in a better balanced economy. They will now be left wondering where the necessary growth and investment will come from, given the cuts to investment allowances and capital budgets." At the business advisory group KPMG, head of diversified industrials Gautam Dalal, said he expected that many manufacturers might be breathing a sigh of relief as the Chancellor delivered a budget that announced welcome business tax cuts and measures to stimulate job creation, while the reductions to the rates of capital allowances were less than anticipated. He went on: "He also was clear in his intention that the recovery should be private sector led and that the UK should be a competitive place to do business. However, companies do not want to get too complacent as a fuller review of the corporate tax system, which is likely to lead to further restrictions, will start in the autumn. Of particular interest will be the reference to taking on board the Dyson Review of R&D tax credits, so the sector could expect a more streamlined regime in the coming months. "The cuts in corporate tax are positive and the plan to take it to 24 percent rather than the mooted 25 percent is welcome, while the rise in employers NIC threshold softens the increase in the NIC rate. George Osborne managed expectations well, choosing to raise VAT next year and thereby putting the UK in line with the European average. I am confident manufacturers will, in the main, be pleased that he took this route." However, David Woodward, head of Capital Allowances at KPMG, added that for smaller and medium sized manufacturers the picture is a little less clear. "The Annual Investment Allowance, which allows businesses to write off the full costs of expenditure on plant and machinery in the first year, has been reduced from £100,000 to £25,000. For those with annual capital investment of between £25,000 and £100,000, the reduction will see the rate of relief they obtain shift significantly," he said. Meanwhile, Barclays' head of manufacturing Graeme Allinson said: "For the vast majority of UK manufacturers, the decrease in capital allowances will be more than balanced out by the incremental reduction in corporation tax, so the assertion by the Chancellor that the overall tax bill for manufacturers will decrease will certainly be greeted with relief. "UK exporters in particular will welcome the decrease in corporation tax, as it should go some way to balancing a possible strengthening in Sterling in the medium term, increasing both the international competitiveness of the UK manufacturing base and the UK's attractiveness for foreign direct investment."