Spending review cuts could put UK in the innovation slow lane

Posted on 16 Nov 2015 by Callum Bentley

EEF warns Britain risks entering the industrial slow-lane if support for innovation and hi-tech research is slashed in the forthcoming Spending Review.

Publishing its submission, EEF has warned that an increasingly fragile outlook for the sector means the important job of balancing the books must not be allowed to derail industry’s long-term prospects by creating uncertainty or, adding to the cost burden for globally-exposed manufacturers.

In particular, EEF is cautioning against any reduction in the support government provides to back some of our most advanced industries.

To do so would send out the wrong message to companies who are responsible for more than two thirds of the UK’s research and development activity and almost half of exports.

EEF chief executive, Terry Scuoler commented: “The Chancellor has a lot of boxes to tick in his Autumn round-up of announcements, from reducing the deficit and supporting stronger productivity growth to delivering more efficient government and quality public services.

“Manufacturers stand behind these goals, but a much more challenging growth outlook since the summer means the Chancellor’s statement must also deliver a stable and supportive business environment for our vital industries.”

Industry is calling on government to increase backing for Innovate UK, the body which supports business research and hi-tech development, and is urging the Chancellor to ensure UKTI, the export support agency, receives adequate funding support to ensure it is able to give tailored advice and guidance to companies wishing to sell goods abroad.

Chief executive of the EEF, Terry Scuoler:
Chief executive of the EEF, Terry Scuoler.

Scuoler added: “Government has a successful track record of working closely with businesses to support innovation. This backing is vital to research programmes which help keep British businesses at the forefront of new ideas, and critically, able to transfer those ideas into commercial successes.

“While we recognise the difficult fiscal environment the government faces, reducing spending on innovation would harm efforts to improve productivity, which is the key to longer term economic stability.

“Most manufacturers either export or are involved in supply chains that lead to exports. If we want to get more of our companies exporting to more countries the expert advice network established by UKTI must be maintained and where possible enhanced. This is a good example of the way government works side-by-side with industry to deliver tangible results that boost our economic strength.

EEF’s submission to the Treasury includes warnings about the impact of the proposed apprenticeship levy on businesses. EEF is calling for clarity and reliability in terms of channelling all levy funds back to businesses, ensuring anything they pay into the system they can draw down to pay for training.

“Frankly this is not the most well thought through of the government’s proposals. Employers need to be assured that if the levy is introduced as proposed they will have complete control of the funds they draw down. The system needs to be simple and avoid unnecessary red tape. We don’t yet know which employers will be targeted and what the threshold of the levy might be,” Scuoler said.

“Either way the government must ensure that employers get back what they pay in. It’s equally important for training providers to have the same level of clarity and certainty about funding otherwise the entire apprenticeship training system risks becoming very confused and ineffective.”

Other recommendations in EEF’s Spending Review submission to the Treasury include:

On infrastructure – funding for both national and local roads should be protected, with no further diversion of money from roads into railways

On devolution – Local Growth Deals and the Single Local Growth Fund should continue as a competitive funding stream

On pensions – alterations to the current taxation basis for pension saving, whereby contributions to pensions and the growth in pension funds are both tax exempt, but income is taxed at the individual’s marginal rate. The loss of the relief would be an unbudgeted, substantial and additional business cost.

On business rates – change how rateable values are calculated for business rates purposes. The inclusion of installed plant and machinery, as part of the calculation, represents a tax on productive investment – we recommend that plant and machinery should no longer be included.