Terry Scuoler: We still need a clear plan from the Government to build a different economy
Our tax treatment of capital investment remains out of line with competitors
Thursday 28 June 2012
Since the UK started to come out of recession, there has been much discussion about how to create a different economy.
The Chancellor has spoken about a new economic model with a goal of expanding exports to £1trn per year by 2020.
A key element is raising the contribution to growth from investment, innovation and trade. Manufacturing can't solely drive this growth, but recent evidence suggests it has a major role to play. Since 2009, manufacturing has contributed around a quarter of growth, while exports to emerging economies have expanded almost 200 per cent over the past five years.
There are four challenges. The first is cost. Labour costs remain important and much lower-value activity has moved to lower-wage economies such as China. At the same time, however, the trickle of manufacturing companies bringing activity back from low-cost countries is increasing, as they look at whether nations such as China have developed the anticipated advantages. Other costs, such as energy, are becoming increasingly important, and government must convince manufacturers of its commitment to delivering competitive energy prices.
Capacity is also key with manufacturers reporting that suppliers are struggling to keep up with demand. This reflects the damage to supply chains during the recession and risks manufacturers being unable to accept or fulfil vital orders.
In the longer term, we risk manufacturers committing their next major investment overseas where supply chains are stronger. We therefore need to support smaller manufacturers in building their capacity by ensuring they have access to finance on the right terms, making it straightforward to invest in the skills they need, and that they are not held back by burdensome regulation.
The Government must also do more to convince manufacturers that Britain is a good place to invest and grow. A good start has been made by increasing the rate of the research and development tax credit for smaller firms and looking to provide more cost relief for larger companies.
Our tax treatment of capital investment remains out of line with competitors, however, who are able to write off their investment against tax more quickly. There is also a need to deliver on commitments to speed up the planning system, making it easier for companies to win government contracts and bring forward the investment in infrastructure our economy urgently requires.
Ultimately, it is of course up to manufacturers to make the investments, develop new products and win the export orders that they and our economy need. For a growing number of businesses the question as to whether they do it here in the UK or in an expanding range of locations across the globe remains unanswered.
To convince them that Britain is still the right place to invest the Government needs to put the same focus on its ambitions for creating the right environment for growth as it does on efforts to reduce the fiscal deficit. A clear growth plan is still awaited.
Terry Scuoler is chief executive of the EEF manufacturers' organisation
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