Intelligence Briefing - 21 May 2010

Published: 21/05/2010

EEF gets down to work with the new government - Campaign for competitive business taxes continues - REACH puts manufacturers at risk - Analysing the coalition's policy programme - In the news - Economic data review - The week ahead

EEF gets down to work with the new government

With ministerial appointments now completed and further details of the coalition programme for government now published (see below), we have begun outlining our priorities to new Ministers.

This week our senior team received separate introductory calls from the new Business Secretary, Vince Cable MP, and his Minister of State for Business and Enterprise, Mark Prisk MP. In both discussions we outlined our hopes for a positive relationship with BIS and urged them to make the promotion of growth the priority for the Department. We have been invited to meet and discuss these issues with the Ministers in the next few days.

Campaign for competitive business taxes continues

With the date for the emergency Budget now set for 22nd June, EEF’s long-standing campaign for reform of the tax system – including our fight against a reduction in capital allowances – is coming to a critical stage.

During a speech this week, the Chancellor George Osborne tempered his now familiar pledge to “finance a cut in corporation tax by removing complex reliefs and allowances” with a promise to “protect manufacturing” from the worst consequences of his proposed reforms. This softening in the Chancellor’s stance on tax reform, and in particular on reducing the level of capital allowances to 12.5%, is due directly to EEF’s lobbying of Osborne’s team over the past 12 months.

EEF will now use the days before the emergency Budget to ensure that the Chancellor follows through on his promise. In particular, we will use upcoming meetings with BIS ministers and the Treasury to push our tax reform priorities for the emergency Budget including modernising the capital allowance regime, ensuring any changes to Capital Gains Tax rewards business investment and improving consultation with business on future changes.

For further information contact Jeegar Kakkad, Senior Economist

REACH puts manufacturers at risk

Members from three EEF policy committees (Health & Safety, Climate & Environment, the UK Steel Environment committee) recently met DEFRA, BIS, and the UK Competent Authority on REACH, to highlight emerging concerns manufacturers have with the current implementation of these chemical regulations that apply to all EEF members. Business continuity, competitiveness, supply chain management and compliance were identified as key issues for the entire manufacturing supply chain. We will now seek further engagement and activity with government on this issue going forward and will be working collaboratively with other sector organisations to minimise any ongoing negative effects created by this legislation.

For further information, contact Kevin Considine, Senior Climate & Environment Policy Adviser


Weekly Focus - Analysing the coalition’s policy programme

The full programme for government has been released this week. The most contentious issues, such as the timing of deficit reduction and the plans to reverse a NICs rise, were outlined in the initial coalition agreement, which we reported in Briefing last week. The fuller agreement, however, has more detail in a number of areas.

It has more to say on regulation, for example, the new government wants to introduce a ‘one-in, one-out’ rule whereby no new piece of red tape can be brought in without something else being cut. However, there is no explicit mention of Regulatory Budgets (the good idea that a monetary limit should be set on the amount of regulation that can be introduced in a year, with government Departments discouraged from going above it), which was in the Conservative Party manifesto. We will raise this issue in our discussion with Ministers. There also appeared to be a pledge to undertake a review of employment legislation, although this is somewhat vague and we will again be asking for clarification of what this means.

Elsewhere, the agreement confirms that in some areas Regional Development Agencies could be replaced with so-called Local Enterprise Partnership, which will bring together local authorities and businesses to promote economic development. There is also a commitment to abolish the only recently set-up Infrastructure Planning Commission, although this is intended to be offset by a fast-track process for major infrastructure projects. Whether these changes will see a return to the long and drawn out process which has traditionally accompanied major, and often crucial, infrastructure planning inquires, remains to be seen.

On manufacturing policy more generally, there is a pledge to consider the implementation of the Dyson Review commissioned by the Conservative Party before the election, which has some welcome proposals on tax credits for research and development.

Finally, energy and climate change policy comprises a significant part of the agreement. There are welcome indications that the government will look at the issue of the security energy supply, but there is also pledge to lobby for the EU to unilaterally increase its emission reduction target from 20% to 30% by 2020. To do so without a wider international agreement could put European industry at a competitive disadvantage compared to its global competitors.


In the news

We have been extremely active this commenting on the post-election fallout. Our campaign on tax outlined above was featured on a number of occasions in the FT, as well as in Wales in the Western Mail and The Manufacturer. Meanwhile Steve Radley, Policy Director, was up early to talk to Radio 4's Today programme on successive days discussing the economy and government proposals. Finally, we commented on the employment aspects of the full coalition agreement, while our health and safety expertise was reported in a special supplement on the topic in The Manufacturer.


Economic Data Review

Inflation

CPI inflation rose to 3.7%, well above the target of 2% and, above the consensus forecast of 3.5%. RPI rose too, up 5.3%. The Bank of England has indicated that monetary policy will remain loose for the time being, though there are clearly reasons to remain vigilant.

MPC minutes

As expected the MPC decided to keep interest rates on hold this month, and announced its intention to do so whilst the government embarks on fiscal consolidation. However, the MPC noted that its forecasts for lower inflation over the mid term have a significant upside risk with price pressures likely to persist throughout 2010.

 Pay settlements

EEF’s pay settlements survey revealed that average pay settlements were up again, with the three-month average settlement now 1.3%. At the same time the number of pay freezes fell. Between February and April pay freezes accounted for 34.6% of pay settlements compared with 46.9% from January to March.

Retail sales

Between March and April, retail sales volumes increased by 0.3%, slightly more than expected, after stronger clothing and department store sales offset static food sales. Year on year the volume of retail sales is up too, by 1.8% compared with April 2009. The most growth was experienced by textile, clothing and footwear stores (9.5%). Given generally modest increases in retail sales volumes any growth may fall back, especially if new tax measures such as a rise in VAT are introduced.

 Business investment

Total business investment was up 6.0% compared with the last quarter of 2009; but it is still down 11.0% compared with the first quarter last year. Private sector manufacturing investment however, has fallen: down 1.0% compared with the last quarter. Investment in new building work fell most notably, down 25.0% compared with the last quarter.

 Public sector finances

Although better than expected, the public sector current budget was in deficit by £9.3bn in April 2010, compared with £7.6bn in April 2009. Total public sector debt now stands at £893.4, or 62.1% of GDP compared with 53.9% of GDP last year.

The week ahead...

Tuesday 25 May: Index of Services; GDP Q1 (2nd Est.)

Wednesday 26 May: OECD Economic Outlook

Thursday 27 May: CBI Quarterly Distributive Trades Survey

Friday 28 May: GfK Consumer Confidence


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