Our Tax Challenge: how to address the tax burden on UK manufacturing

EEF's contribution to the debate on how the tax system can better serve its necessary objectives without compromising the competitive position of UK business.

Tax - an increasing cost and concern for UK manufacturers

Tax is an increasing cost and concern for UK manufacturers. A tightening fiscal position means it is also an increasing preoccupation for government as it seeks to strike a balance
between improving public services and infrastructure while preserving the UK’s competitiveness. It needs to avoid inefficient public spending that would act as a drag on the economy’s long-run growth potential, as would an overly costly tax system that reduces incentives for work, entrepreneurship and innovation.

Tax competition from the new EU member states

The growing internationalisation of business also poses a number of challenges to the UK tax system. UK tax revenues are under threat from the competitive tax rates offered by new EU
members and some developing countries. Legal challenges at the EU level are eroding government’s ability to determine tax measures solely at a national level.

EEF is concerned that the tax balance in the UK is tipping the wrong way. While some headline rates of tax have been lowered, business still faces a rising tax burden. New taxes, for example in the environmental area, as well as higher National Insurance Contributions (NICs), have added to day-to-day business costs.

The growing complexity of the tax system

For manufacturers, who already struggle to pass on higher operating costs to their customers, this makes it ever harder to achieve the profits needed to fund investment in the future of
their business. Business has also had to cope with the growing volume and complexity of the tax system, pushing up the administrative costs of paying taxes.

On a more positive note, government has recently been willing to review aspects of the business tax system such as the traditional schedular system for corporation tax, and has tried to simplify administrative aspects of taxation. New tax incentives such as the R&D tax credit and enhanced capital allowances for new technologies have been introduced to encourage innovative activities with wider benefits to society. The recent merger of key tax authorities into a unified Her Majesty’s Revenue and Customs (HMRC) is an opportunity to do even more.

Relieving the burden of business taxes

Overall, however, manufacturers report growing concern at the business tax burden. Tax is increasing the cost of doing business in the UK. These costs make it difficult for companies to reap the full benefit of strong and stable economic growth. They also detract from the UK’s international competitiveness at a time when external competitive challenges are greater than ever before. A competitive and low-cost tax system is an important part of how government can help manufacturing address the challenges it faces.

This report is our contribution to the debate on how the tax system can better serve its necessary objectives without compromising the competitive position of UK business. It
provides an overview of business taxation in the UK, examines how the tax burden has changed over time, how it compares with our major competitors, and explores key tax dilemmas
facing business and government.

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Our Tax Challenge: how to address the tax burden on UK manufacturing

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