The headwinds facing the UK economy have been mounting in recent months, and while the economy as a whole has remained on track, the outlook for manufacturing has become increasingly finely balanced.
EEF's Budget Submission, published today, calls for government to take action to address the creeping onslaught of business costs.
Whilst we expect manufacturing output to grow in 2016, it is clear that risks have become a more prominent part of manufacturers’ outlook.
EEF’s 2016 Executive Survey showed that more than two-fifths of manufacturers now believe there are more risks than opportunities for their business in the next 12 months.
Increasing business cost pressure is one of a number of factors that have led to an increased perception that the UK is not the most competitive location for manufacturing.
Between 2015 and 2016, the balance of manufacturers agreeing that the UK was a competitive location for manufacturing dropped from 61% to 38%, its lowest level in the five years we have been asking this question.
This matters for the UK economy. We need to up our game on productivity, and a strong manufacturing base can play a key role in achieving productivity gains.
Manufacturers have the ambition to grow their productivity, but there are areas where government action in pursuit of deficit reduction risks pulling against manufacturers efforts.
As economic uncertainty mounts, policy that is primarily focused on deficit reduction, combined with an increasingly uncompetitive business environment, will not deliver the step-change in productivity growth nor will it deliver a growing manufacturing sector.
Against an increasingly uncertain economic backdrop, policy decisions cannot be only about raising revenue or reducing government’s cost base.
Government policies must also be geared to support and enable businesses to take advantage of the big technological opportunities that could deliver the step-change in the UK’s productivity performance that is needed if we are to catch up with international competitor nations.
Therefore, our submission focuses on areas where the government can help to offset the challenging economic picture by reducing business costs, supporting industry to invest and lead the way with productivity improvements our economy needs.
Our Budget Submission makes the following recommendations:
Apprenticeship levy: We have set our six clear red lines that must be satisfied on the implementation of the new levy. Any failure to clearly satisfy these red lines will result in the levy being seen, rightly, as another business tax.
The Business Energy Taxation Review should scrap the Carbon Reduction Commitment with revenues recouped through the Climate Change Levy. Climate Change Agreements should remain in place for the current phase with higher discount rates to compensate for Climate Change Levy increases.
Confirmation should be given that there will be no rise in the Carbon Price Floor in 2020 and it should be scrapped as soon as possible after this date.
Employer tax relief on pension contributions must not be reduced in this Budget. The prospect of a future cut is already dampening employers’ plans to invest and grow. An actual cut would add to the potentially damaging collective of business costs government has already announced.
Given the current crisis in the steel sector, Class IV plant and machinery should immediately be removed from the calculation of rateable values for business rates purposes and additional safeguards should be put in place before business rates are devolved to local areas.
The business tax roadmap should aim to reduce the tax wedge on employment and align tax reform with technologies that will boost productivity – these include capital allowances, business rates and the R&D tax credit. The roadmap should also outline how it will engage with the wider business community in the process of tax policy making and consultation.
Government’s focus on productivity should be further developed by: