'Targeted taxes can encourage British manufacturing'

EY’s new report “Building a tax manifesto for manufacturing” identifies a toolkit of tax measures that would help the UK to raise its game. We believe that, with a clear and targeted policy, including a structured tax strategy for manufacturing, the UK could potentially bridge the gap between the UK’s thriving services industry and the manufacturing sector.

Of course, from a pure tax perspective, no one measure will be enough to change the thinking of manufacturing companies. An effective, pro-manufacturing policy must reflect the context within which modern manufacturing operates and ensure tax interventions interact positively with other policy measures supporting manufacturing and innovation. With this in mind, our toolkit seeks to address four key areas: people and skills, premises and assets, financing and investment, and location. The challenge for government will be identifying the balance of changes to attract organisations while maintaining economic stability.

In some cases the basics are already in place, and need to be either maintained or improved. For example, the tax credits available to support R&D investment, and the Patent Box regime, which rewards innovation, already offer a sound foundation. But other aspects of the UK tax regime need to be adjusted.

Property costs could be better supported through adjustments to the business rates regime. The tax reliefs that are currently available for small businesses assume, perhaps unsurprisingly, smaller premises. But whilst new start-ups in the service sector can work with smaller premises and then grow, the bulk of some manufacturing means that larger premises are needed — even for the small businesses that the Government would want to encourage. Considering how these reliefs work and how to, once again, recognise the cost to manufacturing of premises, plant and machinery more widely, would go a long way to making the tax system more manufacturer-friendly.

Additionally, the need to buy expensive machinery can also impose greater financing requirements, but can provide a good base against which to borrow funds. Again, we recommend looking at how this combination can be used to deliver the support needed.

Being closer to markets seems to be coming back into vogue so this is the ideal time to grasp the opportunity presented by manufacturing projects coming into Europe. For the UK, this could mean focused activity in regions often neglected by FDI. With such a competitive tax regime already, the UK is in a great position to respond but it won’t be long before other countries take a similar initiative.

The competition to attract these high-quality projects will be fierce. The UK cannot afford to hang back and let others seize the initiative. Now is the time to be embracing a pro-manufacturing tax manifesto.

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