Manufacturers publish tax manifesto to drive rebalanced economy

The UK’s tax system is tilted against manufacturing, stands in the way of growing a more balanced economy and needs major reform, according to a major report published today by EEF, the manufacturers’ organisation. The report ‘Tax reform for a balanced economy’ sets out measures that would provide an immediate boost to high-tech investment and innovation and create an internationally competitive tax system that helps to repair the public finances in the medium term. Commenting, EEF South East Region Director David Seall, said: “A modern, competitive tax system would not only re-balance our economy but attract multinational investment to the UK and send the right signal to would-be investors. The next government, of whatever colour, must make this a priority.” Medium-term reforms to create a competitive tax regime: 1. Cut the headline rate of corporation tax to 25p over the next five years Cost: £2.5bn by 2015-16 A lower headline tax rate is welcome but not if it can only be achieved through a reduction in allowances for legitimate business costs which disproportionately hits manufacturing. 2. Raise VAT to 20% Revenue raised: £12bn per year Raising the VAT rate would accelerate the rebalancing process by encouraging further savings, while weaning the economy off debt-fuelled consumption. This additional tax revenue should then be used to mitigate the potentially savage cuts to government capital spending and mitigate the tax burden on productive sectors of the economy. 3. Signal Britain is open for business again Cost: £1.8bn per year after 2013 Multinationals are thinking twice about investing here and serial entrepreneurs are being pushed abroad. Returning the top rate to 40p would send a signal that the UK was serious about attracting investment and encouraging innovation. Immediate reforms to encourage manufacturing investment, innovation and entrepreneurship: 1. Modernise the antiquated capital allowances regime Cost: £0 until 2015/16 and then £620m A simple and practical proposal to recognise the true cost of modern machines with shorter lives would be to extend the time restriction on short-life asset election from four to eight years. This would allow a wider range of assets to be written off at the end of their useful economic lives. 2. Improve the R&D Tax Credit Cost: Revenue neutral The next government should make the R&D tax credit less costly to claim and reflect a wider range of costs. This could be done through a revenue-neutral package which focuses the credit on high-tech research and development. 3. Create a more sustainable capital gains tax regime Cost: Approximately £400-£500m per year over next five years Compared with a 50p top rate of income tax, the current 18% capital gains tax rate is an unsustainable ‘welcome’ sign for tax evasion. Consequently, the regime should be reformed so that current incentive to avoid paying tax is replaced by incentives to make long-term investments in business. An indicative cost of £400 - £500m is based on returning the business asset taper relief regime. ENDS

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