The inclusion of plant and machinery in business rates is holding back manufacturing investment

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EEF’s survey of members shows that 42% of manufacturers would invest more if plant and machinery is removed from the calculation of business rates at Budget 2016.

Those saying they would invest more are manufacturers with a turnover of below £5m (51%) and those with a turnover over £50m+ (52%). Small manufacturers looking to scale up and large manufacturers facing international competition.

 

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The survey results also show that on balance there would be additional investment by manufacturers regardless of their existing investment intentions over the next two years.

 

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The government needs to be doing everything it can to boost business investment in its drive to improve the UK’s productivity

EEF’s Q1 2016 Manufacturing Outlook survey shows the contribution to growth from business investment is easing with our GDP forecast for 2016 being revised down to 1.9% from 2.1%. Current investment intentions across the manufacturing sector are not strong.

 

EEF has been arguing for plant and machinery to be removed from the calculation of business rates

In our Budget submission we’ve called for the immediate derating of Class IV of The Valuation for Rating (Plant and Machinery) (England) Regulations 2000 for both existing and new investments.

Removing just ‘new’ investments would not be enough. This move would create winners and losers, particularly disadvantaging those who have already made investments in the past to boost their productivity.

Likely challenges would include state aid, the definition of ‘new’ and a potentially limited boost to investment if the exemption was only short-term, as this would wipe out any gain when the property was eventually revalued to include the ‘new’ investment.

 

Removing plant and machinery from the system of business rates would:

1. Help to anchor manufacturing in the UK

At present the inclusion of plant and machinery represents a tax on investment. If a business increases its investment in ‘rated’ plant and machinery, such as a blast furnace in the steel sector, that increases their rateable value and with it their business rates bill.

 

2. Support devolution

Removing plant and machinery would also deliver long-term certainty and stability for local authority revenue streams, particularly in light of government plans to devolve all the revenues from business rates to local authorities.

Having an aspect of the tax base that fluctuates depending on the level of investment in plant and machinery by companies does not help local authorities with setting and maintaining stable budgets.

 

3. Make the system more internationally competitive

Capital intensive firms in the UK have large additional business rate costs whilst buying plant and machinery compared to their European counterparts such as France and Germany.

In 2010, the French Government reformed their system of local taxation similar to business rates to remove plant and machinery investments from calculations noting the punitive impact on French manufacturers.

All reasons why the government should immediately derate Class IV plant and machinery for new and existing investment.

Author

Head of Business Environment Policy

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