Budget action needed to reverse investment slump

Britain’s manufacturers have urged Gordon Brown to introduce measures in next month’s budget to arrest the decline in manufacturing investment and to address the rising costs faced by industry.

Britain’s manufacturers have urged the Gordon Brown, Chancellor of the Exchequer to introduce measures in next month’s budget to arrest the decline in manufacturing investment and to address the rising costs faced by industry.

The call was made by the EEF (Engineering Employers Federation) ahead of figures to be published tomorrow, Tuesday 25 February, which are set to show one of the sharpest falls in manufacturing investment last year since records began, exceeding those in the deep recessions of the early 1970s and 1990s.

Survey indications suggest that business investment is unlikely to grow this year by anything close to the government’s projection of 3%. In addition, the EEF estimates that in the first three-quarters of last year, manufacturing investment alone fell by close to 15% compared to the same period a year before.

The EEF has supported its call with new evidence showing that under investment in manufacturing is a longstanding problem, with capital per hour in UK manufacturing currently lagging behind France by 80% and the US by 30%. It also shows that UK manufacturing is in a unique predicament – facing a greater squeeze on profitability but also more dependent on internal funds to finance investment.

‘While Britain’s manufacturers are pulling out all the stops to be ready for economic upturn, increasing costs of tax and regulation and growing uncertainty are constraining vital investment decisions,’ said EEF Director-General, Martin Temple. ‘In these circumstances, the Chancellor must not add to manufacturers’ costs. He must also take the opportunity to introduce measures to build confidence and support investment decisions vital to our future growth.’

The EEF’s submission, made in conjunction with 23 manufacturing trade bodies representing 10,000 companies and two million employees, has recommended that the Chancellor introduce immediate 100% capital allowances for SMEs and higher allowances for larger firms (minimum of 35%) over the medium term and extend capital allowances to leased assets. Such incentives have been shown to have a significant impact on investment behaviour across 14 OECD countries.

The EEF has also recommended access to negotiated agreements, whereby companies obtain discounts on the Climate Change Levy (CCL) in return for meeting improvements in energy efficiency, must be widened. There must also be no increase in rate of the CCL.

Finally, the EEF has proposed that any increase in the landfill tax must be accompanied by a strategy to increase participation in recycling schemes and that Employers Liability Insurance should be reformed.

As part of its commitment to develop a highly educated and highly skilled workforce for the future, the EEF has also urged a longer-term commitment to increase the funding for modern apprenticeships to meet the current shortfall.

The funding for those studying at NVQ level 4 and HNC/HND level, in particular, must be addressed, as this provides a critical route for those following the vocational route to transfer into higher education.

A summary of the EEF’s recommendations, made in a submission entitled ‘Turning the Tide: Reducing Costs, Raising Investment’, can be found <A HREF=’http://www.eef.org.uk/Downloads/989738_Budget%20Summary.pdf’>Here</A>

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