Britain’s manufacturers are calling for the reform of business rates in this week’s Budget by the removal of plant and machinery from rateable calculations.
In particular, this would provide a boost to highly capital intensive sectors such as steel.
Making the call, EEF published data showing the likely additional boost that would follow, with 42% of companies saying they would invest more if plant and machinery were removed from the calculation of business rates.
Those more likely to up their investment are manufacturers with a turnover of below £5m (51%), and those with a turnover over £50m+ (52%). These figures are additional to investment already planned.
EEF chief economist, Lee Hopley commented: “Our evidence shows that removing plant and machinery from the calculation of business rates could help tip the balance for some companies, notably small manufacturers looking to scale up, and large manufacturers facing international competition.
“Given manufacturers’ investment intentions are currently subdued, government needs to act now to remove this tax on investment and help to anchor manufacturing in the UK.
“Any moves that bring additional investment into manufacturing and the UK economy can only be good for UK growth and productivity.”
According to EEF, at present the inclusion of plant and machinery represents a tax on investment.
This is fundamentally contrary to the Government’s own productivity plan, which looks to remove barriers for firms looking to invest in boosting their productivity.
Making its case, EEF also pointed to the fact that capital intensive firms in the UK have large additional business rate costs while buying plant and machinery compared to their European counterparts such as France and Germany.
In 2010, the French 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.
EEF believes that removing both existing and future plant and machinery from the calculations of rateable values would:
- Reduce costs for capital intensive firms helping to anchor investment in the UK
- Create an investment friendly environment for those looking to invest
- Bring UK property tax in line with international practice, making it internationally competitive
- Modernise the system of business rates, plant and machinery was last reviewed in 1993 – before the advent of the internet
In addition, 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.