A painkilling prescription for the chancellor

The general economic outlook remains grim for manufacturing. Optimists may warn against talking ourselves into a recession. But as the chancellor puts the finishing touches to the Budget, industry has a duty to tell it like it is. There is now a real risk that industry will be pushed into recession in 1998 99. The […]

The general economic outlook remains grim for manufacturing. Optimists may warn against talking ourselves into a recession. But as the chancellor puts the finishing touches to the Budget, industry has a duty to tell it like it is.

There is now a real risk that industry will be pushed into recession in 1998 99. The strong pound means that falling output and narrowing margins are becoming facts of industrial life.

There is little the Government can do about the value of the pound now, as a lot will depend on confidence in European currencies in the run-up to the euro.

Meanwhile, interest rate reductions look unlikely, and some economists believe it is too late to tax consumers to cool off demand and inflationary pressure. All the Government can do is try to talk down the pound’s value with clear signals that there will be no rate rises.

But there are two more concrete things the chancellor should consider in the Budget to help ease the pain for Britain’s manufacturing industry. First, he should recognise the severe cashflow problems caused by falling orders, and look again at phasing out advance corporation tax. The planned four-year transition is estimated to take nearly £8bn out of the corporate system from April 1999. That will worsen cashflow problems in industry and could force some firms out of business.

Second, he should use fiscal measures to back up all the rhetoric about research and development and training. Let’s see a renewal of the 12-month capital allowances scheme for small business, fiscal incentives to encourage R&D spending, and tax breaks to promote lifelong learning.

It may be too late to avoid recession, but these steps could save thousands of engineering jobs.