Pre-budget report is a mixed blessing for manufacturers

Posted on 25 Nov 2008 by The Manufacturer

Alastair Darling’s pre-Budget report has been met with mixed responses from the manufacturing sector.

Yesterday the Chancellor of the Exchequer announced several economic measures to prevent a long recession in Britain, some of which will affect manufacturers substantially. The package of tax cuts and increased spending is expected to bring £15 billion into the economy, according to government sources. The measures include: a reduction in VAT to 15 per cent, scrapping of a one per cent rise in corporation tax and an increase in the size threshold on empty properties before they are taxed.

Some doubt that the 2.5 per cent cut to VAT will be enough to encourage consumer spending.

Miles Templeman, from the Institute of Directors, said “We have considerable doubt that the 2.5 percentage point reduction in the VAT rate will stimulate consumer spending as much as the Chancellor expects.”

But SMMT’s chief executive Paul Everitt is pleased with the measures Darling has outlined:

“The chancellor has made a positive step to help restore consumer confidence and kick-start responsible spending. We now need to see action to remove the constraints on credit and finance so consumers and businesses can take advantage of the changes announced today.

“The motor industry faces a set of unprecedented market conditions. Urgent action is required to boost demand for new vehicles and ease pressure on UK automotive suppliers.”

Senior executives are arguing for further support for automotive manufacturing. They are calling for increased capital allowances for fleet buyers and the removal of expensive car restrictions.

Everitt explains “We are disappointed the chancellor hasn’t taken the opportunity to reverse his plans for a first rate of VED and would urge the government to reconsider its approach to vehicle taxation policy.”

Manufacturer Simon Ecclestone feels that the positive effects of the VAT cut will be undermined by the increased National Insurance Contributions targeting people who earn £100,000 or more, as high-level consumers will be more likely to relocate abroad to areas with lower taxes.

The changes to NI contributions will also hit employment hard. David Frost is the director-general of the British Chambers of Commerce. He said “The proposal to increase National Insurance contributions is wrong. At the very time when the economy should be coming out of the recession, businesses will face an extra tax on employing people. This is not the way to reduce unemployment.” As thousands of manufacturing jobs have been axed in the last month, this is of huge concern.

The industry welcomes the deferment of Small Business Rate of corporation tax. Firms with commercial properties worth less than £15,000 will receive rate relief so that they are less tempted to demolish their vacant warehouses. They will also be given options to pay their tax bills over longer periods of time.

Richard Lambert, CBI’s General Director, said: “The reversal of empty property rate relief changes will be welcome to holders of small properties but regrettably excludes larger factories and warehouses which need similar help.”

The pre-Budget report aims to help small businesses to an extent, however Darling has created fewer benefits for larger firms. Lambert is concerned about an overall lack of structure to the proposals: “We are disappointed with the absence of a clearer framework of new fiscal rules.”