UK manufacturers face up to election Budget

Investment is the key issue for UK manufacturing according to the Engineering and Machinery Alliance (EAMA) in its Budget submission to the Chancellor.

Manufacturing investment performance since 1998 has been poor, declining each year for five straight years.

Last year's pick-up as indicated by EAMA's members is now fragile.

Companies are waiting on indicators such as a lead from Government or a new business win before deciding whether to go ahead with their next stage of investment (plant, staffing, IT and training).

With the Budget due March 16, probably shortly before the General Election, EAMA recommends some relatively small changes for the oversized effect they could have on investment confidence, while costing the Treasury very little.

All three measures could be put in place easily, without a Finance Act.

By acting on them quickly, Government would demonstrate its commitment to manufacturing.

The three measures are: * First, no tax increase on manufacturing business.

Manufacturers are already facing very significant increases in their raw material and energy costs, which they will not be able to recoup in internationally competitive export markets.

Their margins and their cash flow will therefore suffer, while Government revenues from North Sea oil and gas and VAT will increase anyway.

* Second, a 2% reduction in Insurance Premium Tax (IPT) for manufacturing companies employing less than 50 people under the relevant SIC codes that the insurance companies use to base their premium rates on.

The tax could be levied directly as now, but at the reduced rate.

Employers Liability Insurance, which is mandatory, tends to be more expensive for manufacturing companies than for others, not least because manufacturing companies' activities require cover that other firms don't need to the same degree (e.g engineering cover for mechanical and electrical breakdown).

It is inappropriate for the Exchequer to exacerbate the inflationary impact of increased premiums through IPT (manufacturers margins are still typically 10% or lower).

* Third, extend the 50% tax allowance for SMEs investment for an extra two years (2005/07) and ensure that it is well publicised, using relevant organisations and trade associations to promote it to their members.

Research shows that only very small numbers of eligible companies are aware of the support to which they are entitled.

Over the longer term, EAMA recommends further action to stimulate investment, exporting and training, while cutting out unnecessary regulations.

(Release sent by GTMA).

Back to top