Making allowances for manufacturers

1 min read

As tangible efforts are made at both Government and Industry levels to once more position the UK manufacturing base at the heart of rebalancing our economy, recent signs of recovery are most welcome.

There is more to be done to assist other sectors in replicating the success seen in the automotive industry. A principle consideration has to be efforts to encourage both innovative thinking and an entrepreneurial spirit so that current barriers to investment in the range of technology solutions that can drive productivity improvements, operational efficiencies and energy reduction objectives are removed. A major hurdle in this respect is our business tax policy. The tax implications for UK manufacturers looking to make large-scale capital investments are a case in point. While US manufacturers can recoup capital investment through the tax system over a three to 20-year period, in the UK this figure stretches to 30 years at a bare minimum. There is a clear need to create a more competitive tax system for manufacturing businesses if we are to overcome what is now a global race for orders. At present, tax debates tend to concentrate on reductions in corporation tax or perhaps a lowering of levels of income tax. While these are important, it has also created a policy black hole when considering other vital tax-related areas such as the depreciation of assets like the essential plant, machinery and equipment our manufacturers rely upon. Such large and intensive capital investments are critical for the long-term competitiveness of UK manufacturing, yet, aside from the recent increase in capital allowances for investing in energy efficiency technology, little has been done to address tax competitiveness in this area. The evidence suggests manufacturers are looking to replace their machinery and equipment, on average, every seven to eight years, but the current capital allowance of 20% means that our manufacturers are only able to recoup their costs some three decades later. This is hardly an incentive to make the kinds of technology investments everyone agrees sit at the heart of a re-booted UK manufacturing strategy. This is a major disabling factor in encouraging new capital investment and, in many ways, still engenders a 'make do and mend' philosophy, one that will ultimately place us at a disadvantage. It is in everyone's interest to tackle this issue to encourage an upsurge in capital investment commitments for the type of innovative technology solutions that can make a difference. We need a tax strategy that puts capital investment, innovation and competitiveness at the heart of UK manufacturing and enables our industrial sectors to fight for precious orders on a level playing field. Over to you, Mr Osborne.