@AllisterHeath and @UKParliament are talking growth and taxes | EEF

@AllisterHeath and @UKParliament are talking growth and taxes

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In his column this morning, Allister Heath takes a look at whether the government is getting to grips with public spending and worries that "growth remains to weak for comfort." As he says:

"[The Chancellor] desperately needs more GDP growth.Osborne's mistake has been to rely too much on tax hikes, especially April's job-destroying national insurance increase inherited from Labour, as well as January's VAT increase, to protect spending. He hasn't benefited politically from this choice...and the taxes are damaging growth.

Osborne is right on austerity (though not always on how to achieve it) – but wrong not to be deregulating the economy, cutting the most damaging taxes and truly making the UK open for business again."

Heath picks out the NICs and VAT rises as the primary drags on growth, but a note on corporate tax reform from the House of Commons Library filed last week picks out tax rise that's damaging for SMEs and manufacturing investment: the recent cuts to capital allowances.

The note quotes from the IFS, saying:

"the largest [negative] impact on those firms with capital-intensive operations – with long-lasting equipment and machinery – that currently benefit most from the capital allowances. This is likely to apply more to firms in the manufacturing sector..."

And from the HoL Economic Affairs Finance Bill Sub-Committee, which recommends post-implementation reviews to monitor the outcomes of the reforms, because:

"the package of reforms may be unbalanced across business sectors, disadvantaging small and medium-sized businesses and manufacturing..."

The government believes, that on the whole, it's corporate tax reforms will boost investment, including in manufacturing:

"The additional reductions in corporation tax rate and the extension of the short-life assets regime will help to increase further the levels of investment by business. We estimate that the overall effect of these measures will be to reduce the tax liabilities of the manufacturing sector by around £700 million by 2015."

Maybe, but the lack of private sector investment over the past year suggests Allister Heath might want to add capital allowances to his list of tax changes that are damaging to growth.


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