Investment Guest Blogs: Paul O'Donnell, MTA

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This blog forms part of a series of guest blogs on investment. You can follow the debate on twitter with the hashtag #bizinv

Paul O'Donnell is Head of External Affairs at the Manufacturing Technologies Association (MTA)

You can follow the MTA on twitter via @mta_uk

For the first time in a generation advanced manufacturing is, politically speaking, cool. After decades of at best benign neglect and at worst outright hostility there is widespread recognition across the whole spectrum of political opinion that making things and all the economic activity that goes with it is not only beneficial to our national economy but essential to it.

Furthermore the advanced manufacturing sector is doing well, comparatively speaking. Manufacturing as a whole has outperformed the economy over the last three years and the parts of manufacturing which involve engineering and machinery have outperformed even the wider sector.

This is good news because we in the UK have a real opportunity to take advantage of a unique set of circumstances to drive a manufacturing renaissance. We have a first rate science and research base, outstanding international performance in some key growth sectors (notably aerospace), a position that straddles European and global markets, and a competitive exchange rate. Much that the Government is doing – the High Value Manufacturing Catapult, strengthening apprenticeships, and bolstering UKTI will play to these strengths in the medium to long term.

But there is a problem; UK has long suffered from internationally low, well actually abysmal, levels of investment (see chart). We have underperformed all of our European competitors for most of the last four decades. If we cannot address this problem then our reboot of the UK economy will result in a system error.

We have to drive an investment spike needed to master the new global manufacturing environment that we see emerging around us. Introducing 100% Capital Allowances for two years would do that. Companies are holding back on investment and keeping their cash close. And who can blame them when the tax treatment of investment is as mean as it is in the UK? The Centre for Business Taxation at Oxford University ranks the UK as only 28th in the 41 country OECD/G20 league table for capital allowances available for investment in plant and machinery; a substantial contributory factor to our placing of 32nd (again out of 41) in their ranking of country's effective marginal tax rates – a vital investment determinant.

Encouraging companies to invest at least some of what they have now, through a time limited allowance window, is the simplest way to bring that money into play and would provide a valuable boost to investment at a time when it is most needed. The Government has to say that bottom quartile performance isn't good enough. Put simply: if not now, when?

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Please note: these blogs contain the views of the author and are not necessarily those of EEF

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