EEF is calling for a major reform of the tax system because it says the current regime is “tilted against manufacturing”.
The representative body has today published a report called ‘Tax reform for a balanced economy’. The report sets out fully costed reforms through which investment in high technology industries will be boosted and the UK’s tax regime will become internationally competitive while also beneficial to the public purse.
Immediate reforms to boost investment include extending the time restriction on short-life asset election from four to eight years – something that would cost nothing until 2015/16 and a revenue neutral system of focussing R&D tax credits on high tech development.
Also, it says the capital gains system is “an unsustainable ‘welcome’ sign for tax evasion” and says rewards for reinvesting in the business rather than paying out through the attractive 18 per cent capital gains rate should be developed.
Medium term reforms to create a new tax regime include cutting corporation tax cut to 25p over the next five years and returning the top 40p rate of income tax to “stop serial entrepreneurs…being pushed abroad.” While these two measures would cost £2.5bn by 2015-16 and £1.8bn per year after 2013, raising VAT to 20 per cent would raise £12bn per year.
“While there have been some helpful changes to the tax regime in recent years, we still lack a coherent tax system that encourages manufacturers to invest and sends the signal that they should be doing it here,” said EEF Director of Policy, Steve Radley. “The next government must think and act differently about how the tax system supports manufacturing and a balanced economy. In particular, it can achieve much larger benefits from any new measures if its approach is more predictable and transparent.
“In the short term it means developing a modern, efficient tax system that helps to grow a diverse and dynamic manufacturing base. In the medium term, it means creating a more competitive tax environment to help reduce the number of hard choices we have to make when repairing the public finances.
“A modern, competitive tax system would not only re-balance our economy but attract mobile 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.”
Click here for a PDF version of the report.
In the March edition of The Manufacturer, Troy Christensen, president of Europe and Australia of wine producer Constellation Ltd described the UK tax regime in relation to a £100m investment the company made in a new bottling plant in Bristol. “Believe me,” he said, “had we known it was going to be like this we would never have invested in the UK.” Click here to read the interview.