Manufacturers call for tax system to encourage investment

According to the manufacturers’ organisation EEF, the corporate tax system is “not fit for purpose” when it comes to rebalancing the economy. It says the UK’s corporate tax system needs a strategic overhaul if investment in manufacturing is to drive the upturn and help build a better balanced, high value UK economy. In its new report ‘A Manufacturing Future – Competitiveness and taxation in the UK’, EEF claims that much of the UK’s business tax system remains rooted in the past and is actively constraining manufacturers’ investments, compounding the credit crunch and limiting the extent and benefits of a balanced economy. EEF chief economist Steve Radley, said that government must match its commitment to promoting a more balanced economy in which manufacturing plays a greater role by addressing current tax failings. “We need a system which continually evolves to reflect the realities of rapidly changing technologies and global competition,” he said. In particular, the government must ensure that the taxation of investment reflects the true costs of high-value manufacturing investment” According to the report, the current treatment of capital expenditure reflects neither advances in technology, nor the investments manufacturers need to remain competitive. Also, rising administrative and compliance burdens placed on business, the attitude of the tax authorities and uncertainty over the direction of tax policy all added a premium to doing business in the UK. This was not only hitting investment by smaller companies based in the UK and pushing larger more mobile manufacturers overseas, said EEF, it was damaging prospects for inward investment. Commenting on the report, Andrew Churchill, managing director of JJ Churchill (see picture) and a member of EEF’s business tax panel, said: “Running a sub-contract precision engineering business, surviving the recession will be painful. The much more substantial challenge will be surviving the upturn. In a high-labour cost economy, the only reason we remain in business is through process innovation that is inseparably hitched to the rapid evolution in machine tool technology. Quite simply, if we fail to aggressively re-invest in capital equipment we are accepting a rapid erosion of our competitive advantage – in essence we increasingly compete on our cost of labour, a battle we know we can’t win. “Currently, our tax system fails to recognize the importance of capital investment to manufacturing or the advanced technologies and short lives of modern machinery. In buoyant times, this puts a hidden brake on the abilities of companies to re-invest; in recession it positively discourages the one thing the government must catalyse if, in the upturn, we’re to have a balanced economy.”