Robert Brown, Tax Director at the Bristol office of accountancy and business advisory firm BDO LLP, is calling on the Chancellor to use the Budget to unleash the potential of South West manufacturers.
“We’re not expecting the Chancellor’s Budget to raise many eyebrows. Political parties are likely to keep their powder dry and hold in reserve any potentially vote winning measures for the General Election’s manifestos and campaigns.
“But with the economy showing real signs of growth, the government must not miss the chance to put the right framework in place for businesses to make the most of the recovery. Any delay risks losing out to other world economies that are also emerging from recession.
“For me, the Chancellor’s go to jail card would be to fail to unleash the potential of our manufacturers. Tax policies over the last decade have largely ignored our manufacturing ‘Mittelstand’, despite the fact that it is widely considered to be the section of our economy that can drive forward a meaningful and sustainable recovery.
“We should not forget that the mid-sized businesses are already an integral part of the South West’s economy and could become the big businesses of tomorrow. Despite only representing 1.5% of firms they employ 14% of the workforce and create 16% of the revenue. As such, the Chancellor must provide real incentives to give business leaders the confidence and support to grow, by encouraging investment in people, capital assets and exports.
“Until recently we had a tax allowance for expenditure on factories. Reintroducing this would encourage manufacturers to invest in new factories or improve existing ones, resulting in increased production capacity to meet demand at home and abroad.
“More should also be done to encourage manufacturers to turn their recruitment intentions into a reality. Employers’ national insurance (NI) currently acts as a barrier to growth and, although the government has toyed with NI reliefs in the last two Budgets, the impact of these measures is proving to be negligible.
“What is needed is a bold move that will affect real change. A temporary reduction in employers’ NI contributions for the manufacturing sector would help bolster employment and support the government’s rhetoric of doubling exports by 2020, by targeting those companies that are most likely to sell to foreign markets.
“As confidence makes a comeback, investment must make its way back onto the business agenda if we are to capitalise on a recovering market. Even those companies with cash on the balance sheet still worry about saving it for a rainy day. Any business that fails to invest will eventually find itself in trouble, but the danger is particularly acute for manufacturers.
“George Osborne has a huge opportunity here. He temporarily increased the annual investment allowance (AIA) for expenditure on plant and machinery ten-fold in the 2012 Autumn Statement. At the time this was generous and seen as a bold move, providing businesses with a 100% first year deduction on new investments up to £250,000. But it does not stimulate the significant capital investment that economy needs right now. Increasing the AIA permanently to £1m would be hugely valuable to manufacturers with ambitions to grow.
“Finally, the UK currently allows manufacturers to zero rate their exports but we’re less generous with reliefs for supplies made to UK exporters by other UK businesses. If the government is serious about doubling the number of exports by 2020, it needs to widen the net. We would like to see Osborne announce a relief similar to that of Ireland – in that suppliers to a qualifying exporter can also benefit from VAT zero-rating. Such a measure would be a boost for the supply chain network surrounding our manufacturing heartland.”
