Intelligence Briefing - meeting with Deputy Prime Minister, MP briefed on climate change issues and more

NEWS

Members outline manufacturing concerns to Deputy PM

Manufacturers this week outlined some of the key barriers they face to investment in a meeting at EEF with the Deputy Prime Minister, Nick Clegg MP. Ahead of next week’s Budget, Mr Clegg was keen to get a better understanding of the issues that are important to our sector; he received a clear message that addressing concerns like the tax system, skills and regulation are key to ensuring that internationally mobile manufacturers continue to invest in the UK. This meeting was the latest in our lobbying efforts leading up to the Budget next week.

You can read more about this below and we will produce an Intelligence Briefing Budget Special on Wednesday outlining the main announcements and their impact on members.

For further information contact Steven Coventry, Head of Government Affairs

Influential MP briefed on Climate Change issues

We have met with Tim Yeo MP, the chair of the influential Energy and Climate Change Select Committee. Mr Yeo’s committee has the important role of scrutinising the expenditure, administration and policy of the Department of Energy and Climate Change. With the government currently pursuing a radical overhaul of policy in this area, we impressed on him the importance to manufacturing of an economically sustainable approach to climate policy and maintaining energy security. We must pursue the most cost-effective approach to achieving environmental objectives and ensure that international competitiveness of UK manufacturers is not compromised in the process.

For further information, contact Roger Salomone, Energy Adviser

Pressure kept up on access to finance

We’ve been maintaining our focus on access to finance this week; on Monday we published the latest results from our quarterly credit conditions survey, which, disappointingly, showed an increase in the proportion of companies seeing the cost of credit rise in recent months. Our survey also noted that problems with both cost and availability remain the most acute for small companies and raised concerns about the potential impact on investment intentions over the next 12 months. We continue to highlight the need for greater action from government in the Budget across a number of key areas, including competition and business-banking relations. The results from our survey were also raised at the Business Finance Roundtable, which includes the major banks and the BBA, which met this week in Sheffield ahead of the BBA’s Business outreach event. We will keep members informed of future dates where companies can raise concerns directly with bank representatives. You can also read more by following the link to our blog, below.

For further information, contact Lee Hopley, Chief Economist

Strengthening links with the Business Department

At the end of last week we met with the new Permanent Secretary of the Department for Business to discuss the Budget and Growth. We stressed the importance of looking beyond the positive headline numbers on manufacturing to understand the potential threats to investment and job creation if the government does not create the right business environment. We highlighted the fact that, though manufacturers are planning to increase investment, this will not necessarily be in the UK as even smaller firms can now choose from a variety of location. In particular we emphasised the importance of taking action in priority areas set out in the Weekly Focus section below.

VIEWS

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Senior Economist, Andrew Johnson, outlines why we need much than the government’s Project Merlin to deliver genuine action on bank lending.

Susanne Baker, a member of EEF’s environment team, reports on a recent government review which outlines potentially massive savings for companies from resource efficiency.

WEEKLY FOCUS

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Background to the Budget

The Chancellor will present his Budget for Growth next week. Speculation will inevitably continue to build over the weekend, but the framework for the Growth Review and a number of recent consultations on tax provide some indications of what we might expect. However, what we want is for the Chancellor to send a powerful signal to business that government has a clear strategy to address the barriers to growth and a Parliament long programme to deliver on it.

The Budget must also make a down payment on better balanced growth by taking measurable steps to improve the competitiveness of the UK business environment for companies investing, innovating and exporting. Our submission to the Treasury ahead of the Budget focused on a number of high priority areas, including:

Environmental taxation

Current state of play

• There are already upstream (EU ETS) and downstream tax (CCL) taxes on energy as well as the CRC.
• HMT has consulted on a further upstream tax – a carbon price floor.
• DECC is consulting on Feed in tariffs.

Why do we need change?

• No one part of government has clear oversight of the total cost burden of these policies on industry.
• We risk losing competitiveness if we run ahead of EU neighbours, with minimal impact on climate change at the expense of the UK manufacturing base.
• There is a lack of overall strategy on energy and climate policy and how government can most cost effectively shift to a low carbon economy.

R&D tax credit

Current state of play

• For SMEs tax relief on allowable R&D costs is 175% and in some circumstances the credit is payable.
• For large companies the tax relief on allowable R&D costs is 130%.

Why do we need change?

• The definition of R&D is narrow and covers only the initial stags of innovation, but for manufacturers innovation is about overcoming technical and commercial uncertainty of bringing an idea to market.
• The tax credit has evolved but for many companies the process of claiming is still complex and costly.
• Innovation must be centre stage in future growth – the tax treatment of innovation must be internationally competitive.

Capital allowances

Current state of play

• From April 2012 the rates of writing-down allowances for new and unrelieved expenditure on plant and machinery are being reduced to 18% (from 20%) for expenditure allocated to the main rate pool.
• Annual investment allowance is being reduced to £25,000.

Why do we need change?

• Investment is a cornerstone of balanced growth.
• Reinvestment cycles in manufacturing are shortening as the pace of technological change quickens. But changes to capital allowances means it is taking longer to write down the cost of investment.
• The UK tax regime for investment is becoming less and less competitive – e.g. 100% first year capital allowances in the US until 2012.

Access to finance

Current state of play

• Enterprise Finance Guarantee will continue until 2014/15.
• Some areas of trade finance will be covered through EFG and ECDG.
• Gross lending targets have been set with the major banks.
• Monitoring of delivery on taskforce actions.

Why do we need change?

• Our latest credit conditions survey showed that the proportion of companies seeing rising cost of credit is on the increase again.
• For small companies rising cost and terms and conditions could act as a brake on investment in the next 12 months.
• Companies need to be ambitious about growth, but credit constraints could lead to a conservative approach to managing cash and taking on debt.

EEF IN THE NEWS

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There has been significant coverage of EEF’s Credit Survey this week, including in the Financial Times, Guardian, ‘i’ and the Independent, Express and City A.M. Over the weekend there was also coverage for our Budget ‘asks’ in the Observer and the Financial Times. While EEF was also featured in Safety & Health Practitioner as well as receiving a good spread of coverage in the Manufacturer.

WEEK IN REVIEW

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THE WEEK AHEAD

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Tue 22nd: CPI; Public Sector Finances

Wed 23rd: EEF Pay Settlements; MPC Minutes

Thu 24th: Retail Sales

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