One of these is the way the government is stacking the odds against an economy that makes things, while preaching that they want to see more manufacturing.
Yesterday, the FT reported Terry Scuoler, chief executive of the respected Engineering Employers’ Federation – the main body representing manufacturing in the UK – as saying the government was pursuing tax changes which harmed manufacturing. To quote Mr Scuoler in full, ‘If the government wants the production sector to expand, it seems illogical to be moving to a tax system which contains a bias against a lot of manufacturing’.
What is it that has angered Mr Scuoler? Almost every developed country has some kind of help in the tax system for companies which invest in new machinery. In this country it is called ‘capital allowances’. It allows companies to discount a proportion of the cost of the new machinery (or all of it if it’s a small investment) against their profits before calculating corporation tax. This helps with what are inevitably ‘lumpy’ costs, especially for small and medium sized firms. As product life cycles shorten, and the need for investment in new machinery becomes more frequent, such investments become more regular and the tax help more important.
Yet one of the government’s first acts was to cut such help by £2.8 billion per year. They did this by cutting the annual investment allowance (all of which could be discounted) from £50,000 to £25,000 and cutting the proportion which could be discounted for bigger investments. This will have no impact on those sectors of the economy that don’t invest in new equipment, but it will on the SMEs who find themselves wanting to buy new machinery to become more efficient, improve their products or invest in greener production. Hence Mr Scuoler’s reaction.
The government is using the £2.8bn ‘saved’ from manufacturing to cut corporation tax across the economy. In other words, the part of the economy that makes things – the part they say they want to nurture and support – is paying for a £3bn per year tax cut for banks and other institutions who don’t rely on capital investment to stay in business.
It is the very opposite of rebalancing the economy. It exposes the huge gulf between government rhetoric and the reality of what they are doing.
Whenever these issues are debated in the Commons, the business secretary is fond of reading a lesson about the decline in manufacturing during the Labour years in a ‘we’ll take no lessons from you lot’ tone. Let us deal with this point.
Labour should have done more to support manufacturing while in power. The series of defeats on tax and spend issues in the 1980s and the wayward experience of some ill-judged interventions in the 1970s made us reluctant to intervene too much or to act too readily to shape the conditions for industrial success until late in our period in government. But we did support investment in making things. Labour increased the investment allowances, while the Tories and Lib Dems are cutting them. In our latter years, we more actively supported manufacturing through the car scrappage scheme and support for new technologies such as plastic electronics, and composite materials while both Tories and Liberals attacked this as buying votes. And we should not forget that Labour’s years in government saw the greatest wave of globalisation the world had ever seen. ‘Made in China’ wasn’t too common before 1997. Today it is everywhere. Plus of course productivity increases have an impact on the numbers employed in making things. It takes fewer people to make a car today compared to a decade ago, but they will be operating more sophisticated and expensive machinery. So why make this machinery more expensive for companies to buy?
The fact that manufacturing became a smaller proportion of the economy during the Labour years is not an excuse for pursuing policies which in the EEF’s words show a ‘bias against a lot of manufacturing’. It is hard to know why the business secretary agreed to this £3bn tax hit on the activity of making things. Maybe he was distracted by Eric Pickles walking out of his department with his regional policy at the time? Maybe he was putting a blue pencil through the Sheffield Forgemasters loan? Whatever the reason, his agreement certainly doesn’t support the rebalancing of the economy that the government professes to support.
It may not produce a demo, but what if manufacturers did march in favour of making things? That would be a demo with a difference.
The fact that manufacturing became a smaller proportion of the economy during the Labour years is not an excuse for pursuing policies which in the EEF’s words show a ‘bias against a lot of manufacturing’ I see so the labour party did sod all, but it’s the Tories fault because they are doing the same, god almight what next…..