Is government adopting the right policies to support manufacturing?

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Today in the news there's been a lot of talk about BDO's new report Manufacturing the Future, which, amongst other things notes that only 25% of the manufacturing companies surveyed think the government is adopting the right strategies to support and develop UK manufacturing.

That might be puzzling to some in the government who with some justification might point to the current rate of corporation tax, now just 24% and scheduled to fall further to 22% by 2014/15.

But if ever there was devil in the detail then this is surely an example. What we hear a lot from our members is how (at least for the initial changes) the government paid for this cut to corporation tax by reducing the Annual Investment Allowance and the main write-down allowance for capital allowances.

Respectively these have been reduced to £25,000 (from £100,000) and 18% (from 20%) with effect from April 2012.

The big concern with this is the impact it has on SMEs cashflow. These firms are not beneficiaries of the cuts to the headline rate of corporation tax and they often have fewer sources of external finance than larger companies - cashflow is an essential driver of their investment.

If this doesn't make much sense, consider the following example for how capital allowances work and why for some companies current government policy might not be seen as particularly supportive:

Now compare this example with what was in place prior to April this year:

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