`Unsexy’ industry needs a break, too

There is plenty of sex appeal in the high-tech start-up company. Backing these ventures, as the Chancellor has in his pre-Budget statement, creates the overriding impression of a government that is fostering a dynamic industrial sector full of whizzy entrepreneurs that are about to spawn the next Microsoft or Intel. That may be true, but […]

There is plenty of sex appeal in the high-tech start-up company. Backing these ventures, as the Chancellor has in his pre-Budget statement, creates the overriding impression of a government that is fostering a dynamic industrial sector full of whizzy entrepreneurs that are about to spawn the next Microsoft or Intel.

That may be true, but it’s a huge gamble – especially if it risks neglecting the exporting powerhouse of Britain’s existing manufacturing base. Let’s put to one side for a moment the glitz of the new internet venture or biotech lab, and check what Gordon Brown really gave British industry on Tuesday.

First, praise where it’s due: thanks to persistent lobbying over the past year, the energy tax has been watered down. But some manufacturers will still suffer, or will find efficiency agreements irrelevant. The burden still looks set to hit manufacturing companies harder than those working in the services sector.

Scrapping the fuel duty escalator, meanwhile, will help firms further from continental Europe which rely on road transport – but the inequality between UK and continental fuel duty remains.

The grant of 100% first-year capital allowances for investment in environmental technology is also welcome and provides a boost for capital goods providers in this sector. However, capital allowances for investment that will increase productivity in existing companies – investment in machine tools, for example – have been left at their current level of 40%.

And there’s the rub. Trying to create a raft of small, new firms is no bad thing, and the tax breaks for corporate venturing and capital gains tax move in this direction. But the potential growth of such firms, off a low base, will not make up for the persistent lack of investment in our existing manufacturing base – which casts an ominous shadow over our future international competitiveness.

Fiscal instruments, such as greater capital allowances, could redress this and `big industry’ will respond to such measures.

It’s unfashionable, unsexy, but true.