Changing its stance on interest rates to call for a cut, EEF believes with inflation about to peak and to set fall to below target over the coming twelve months the Bank needs to start cutting rates. The evidence also shows that the impact of problems in the financial sector on the rest of the economy, including manufacturing, is growing.
Commenting, EEF Chairman, Martin Temple, said:
“With the crisis in financial markets deepening, the priority is for the government and financial authorities to put a strategy in place to address the collapse in confidence in the system. However, they can also take immediate action to boost business and consumer confidence. This should start this week with an immediate cut in interest rates as a wait and see approach is no longer acceptable.
"Government should back this with a pre-budget package setting out a strategy to help companies through the current turmoil and ensure they are in a position to take advantage of an upturn.”
In its pre-budget submission, EEF has recognised the current constraints on the public finances. However, it believes that the there is a window of opportunity to implement short term measures to reduce the cost burden facing businesses, provide temporary additional support for investment and postpone measures that might add to the regulatory burden.
EEF has made five recommendations which would position manufacturers to manage their way through the downturn and position them for ongoing growth in the longer term. These recommendations focus on keeping the cost and regulatory burden on business to a minimum. While these measures will place an additional burden on the public finances, the hit would be temporary and secure the tax base for the longer term.
1. Small company rate of corporation tax
The phased increase in the small company rate of corporation tax represents a £500m tax rise this year, rising to £1bn next year. The increase in April 2008 should be reversed and the small company’s rate frozen at 20% until 2010, at the earliest.
2. Temporary support for investment
In order to provide greater, temporary support for investment during the economic downturn, the Annual Investment Allowance should be raised from £50,000 to £250,000 for a period of 18 months. In addition, 50% first year capital allowances for small businesses would help prevent a retrenchment in business investment. The upfront cost to the Exchequer would be offset by increased tax revenues further out.
3. Indirect taxes
Increases in the landfill tax, aggregates levy and climate change levy should be postponed and rates maintained at their current level to minimise the cost burden on business.
4. Minimising the regulatory burden
In order to keep the regulatory burden to a minimum the introduction of new employment and environmental regulations currently in the pipeline should be delayed. In particular, the implementation of the right to request flexible working, which many companies are currently finding problematic, should be postponed. In the current economic climate, companies need to be able to maximise the flexibility of their operations and an extension to flexibility working request will place barriers to this.
5. Tax policy and climate change
In addition to postponing the automatic annual increase in the climate change levy, the Chancellor should use this Pre-Budget statement to give business clarity about the role of tax policy in meeting the government’s environmental obligations. Defra’s Climate Change Simplification Project, seemingly stalled since December 2007, needs to be re-energised. EEF recommends that the interim proposals identified to lower the regulatory burden of climate change policy instruments should be expedited. In addition, the scope of the project needs to be widened to include fiscal policy. Specifically, the overlap between the CCL, the EU ETS and the forthcoming Carbon Reduction Commitment needs to be addressed.
ENDS