Sunday, April 18, 2021

Targeted tax incentives called for to boost Midlands manufacturing

Two thirds of manufacturers (65%) would commit to greater investment in the regions if incentives for capital expenditure were increased, a new survey from accountancy and business advisory firm BDO has found.

The poll of over 200 UK manufacturers also found an overwhelming majority (61%) who said that a simplification and extension of Research and Development tax reliefs would help drive further investment in innovation.

The new figures are released to coincide with the pre-Budget publication of BDO’s manufacturing manifesto, which details a number of targeted tax measures designed to drive a post-COVID-19 recovery in UK manufacturing and signal to entrepreneurs that the UK is a great place in which to invest.

The manufacturing sector is vital to the Midlands economy, accounting for 16% of total output in both the East and West Midlands and more than 500,000 jobs. Yet the latest data from Make UK, the manufacturers’ organisation, shows that investment intentions have suffered badly as a result of the pandemic.

This has fallen, in particular, in the West Midlands in the final quarter of 2020, where manufacturers have prioritised low-risk short-term hirings over high-risk investing. A drop in investment risks regional manufacturing firms falling behind international competitors without the right incentives to stimulate investment in R&D, green technology, digital transformation, training and jobs.

BDO’s key proposals include:

·         Introducing new tax credits for manufacturers that invest in reducing carbon emissions – one of a number of measures designed to help drive the green economy agenda.

·         Extending the current Annual Investment Allowance limit at £1m until the end of the current Parliament in 2024. This would give manufacturers the opportunity to commit to significant capital investment for the medium to long term.

·         Increasing the number of Enterprise Zones to help encourage manufacturing clusters and support the Government’s levelling up agenda.

·         Simplifying and extending the current rules on employee ownership to drive additional entrepreneurial investment in UK manufacturing.

·         Introducing new tax incentives that align education or training with specific skills such as robotics and automation that are required by advanced manufacturers.

·         Establishing a new Government-backed manufacturing trade network and exporting academy to help UK manufacturers break into new international markets and access expert advice on overseas regulation, intellectual property and tax compliance issues.

Taken together BDO’s proposals would help the Midlands manufacturing sector access skilled workforces, attract new finance and reduce the cost of manufacturing premises and assets. They would also support firms to realise the benefits of clustering, provide incentives to entrepreneurs and owner managers, and give assistance to those trading and moving goods globally in the new post-Brexit environment.

Jon Gilpin, BDO’s Head of Manufacturing in the Midlands, said: “Manufacturing in the Midlands has, like many regions, been severely impacted by the coronavirus pandemic, with high levels of variance both in terms of output and orders, with the East Midlands experiencing the sharpest fall in output of any UK region.

“While we recognise that the Government is under considerable pressure to recoup the costs of fighting COVID-19, it is vital that the UK’s business tax environment remains competitive relative to other major industrialised nations.

“Ill-judged tax rises now could have a hugely detrimental impact on manufacturing investment and the Midlands’ reputation as a place to do business, which in recent years has accounted significantly towards the UK’s total goods exports – sitting at 7% in the East Midlands and 9% in the West Midlands.

“Understandably, there are multiple demands on the Government’s resources, but now is the time for policymakers to provide a clear strategy to support the region’s manufacturers in the years to come, adopting a bespoke approach to the manufacturing sector given its important role in the UK economy and its unique capital and incentive requirements.”

Paul Townson, BDO Tax Partner in the Midlands who specialises in working with manufacturers, added: “We believe the region’s manufacturing sector needs new ideas to remain competitive. Investment will play a crucial role, helping to drive innovation, leverage talent and flow through to the supply chain.

“With the right investment conditions, there is a huge potential for manufacturing to support a green economic recovery through the introduction of new technology and digital transformation. A clear, targeted and balanced tax policy would deliver significant benefits for the Midlands as a whole, helping to drive up productivity and put it firmly on the road to recovery post-COVID.”

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