Manufacturing has made great strides in recent years but faces a more difficult environment in 2008. Weaker domestic and export markets will make it harder to pass on cost increases and intensify the squeeze on profitability and the funds available for investment.
It is therefore vital that in this year’s Budget, the government resists the temptation to plug the hole in its finances by increasing business taxation.
In particular, the Budget needs to restore the damage done by the botched capital gains tax reforms by sending out a signal that the government understands the needs of business for a simple, predictive and competitive tax system. It must commit to more effective consultation with business before making any major change to the tax code.
It should also take steps to improve the relationship between small- and medium-sized businesses by extending Sir David Varney’s recommendations: a risk-based approach to dealing with tax matters, speedy resolution of issues, and clarity through consultation on HMRC’s dealings with SMEs. Manufacturers will also be looking for the Budget to build on the simplification measures announced in last year’s Pre-Budget Statement.
Manufacturers will also be looking for a signal that the Chancellor is working towards restoring our tax competitiveness by making further reductions in the headline rate of corporation tax. We believe he should be working towards a medium-term target of a headline rate of 25% which would put the UK in the top 10 in the OECD.
The government has signalled it wants to do more on encouraging enterprise. One of the key issues to address is improving the access of small and growing businesses to finance. This should include enhancing the role played by business angels,
The Budget should also start to develop more effective measures to help business realise the opportunities to develop and make the low-carbon goods and services needed to make major reductions in carbon emissions. In particular, it needs to give greater priority to research and development and to simplify existing support mechanisms.