Manufacturers call for major MOT of UK’s business tax and regulation system

Make UK/RSM report highlights boost to investment that industrial strategy would bring

Key findings:

• 44% of companies believe UK tax and regulation system to be unfavourable
• More than a quarter believe current system worse than China and other major competitors
• Just 8% of companies say tax and regulation has no impact on investment decisions
• Frequent changes to investment incentives and R&D credits have hampered business planning
• More than two thirds of companies say an industrial strategy would lead to greater investment in skills, R&D and de-carbonisation

Britain’s manufacturers are calling on the Chancellor to announce a major MOT of the UK’s uncompetitive business tax and regulatory environment in the forthcoming Autumn Statement to boost investment planning by business. 

The call was made on the back of a major report ‘Industrial strategy: building a competitive business environment for manufacturers’ published by Make UK and RSM which sets out a daunting challenge to reform the UK regime of taxation and regulation, with almost half of companies believing the current system is unfavourable and more than a quarter feel is worse than China and other major competitors. 

Furthermore, companies are also reporting that the frequent changes to policies on investment and R&D incentives in recent years have hampered business’ investment plans. As a result, Make UK is urging the Chancellor to announce that there will be just a single annual fiscal statement from now on.

Reforms would look at measures, such as Business Rates, the research and development (R&D) tax credits, the Apprentice Levy and the Capital Allowances and Full Expensing system, and whether they are fit for an economy undergoing huge transformational change and the long-term purpose of encouraging, or hampering, investment in capital, innovation skills and moves to net zero. 

The findings in the report also support the view that an industrial strategy which encompasses reform of the current tax and regulation system would lead to greater investment in labour and skills, R&D and decarbonisation.

Fhaheen Khan, Senior Economist at Make UK, said: “Manufacturers are clear that many aspects of the current tax and regulatory system are not fit for purpose and are failing to promote the vital investment in skills, capital and green growth. This is not helped by the fact we have two fiscal statements a year which hampers business planning. 

“We cannot continue with the current flip flopping and policy inconsistency if we are to shake the economy out of its current anaemic state and promote long-term growth. Government must start by conducting an urgent MOT of the current unfavourable regime to make it work for, rather than against, business.” 

Mike Thornton, head of manufacturing at RSM, said: “The correlation between tax and regulation and economic growth is clear. Yet UK manufacturers find the current framework a burden and unfavourable - putting UK industry at a competitive disadvantage globally. Long term commitment to generous and accessible incentives, and simplified regulations, are key to boosting future investment, productivity and skills.”

According to the report, almost half of companies (44%) believe the UK has an unfavourable tax and regulatory environment, with less than a fifth (18%) believing it to be favourable. On balance, manufacturers say the UK is worse than its competitors with more than a quarter (28%) believing it to be less favourable than China. The UK is also considered worse than the US (27%), Germany (26%), France (23%) and Italy (21%).

Conversely manufacturers believe that a more favourable environment with the simplification of incentives, tax and regulations would ease the burden on business, while more than half (54%) believe that frequent changes to R&D and investment incentives over the last three years have made it more challenging to plan investments. By contrast, fewer than a fifth (16%) felt the changes had allowed their business to increase investment. 

The most effective policy tools to promote investment and growth were capital allowances for plant and machinery (73%), R&D tax credits (65%) and a competitive Corporation Tax system (59%) while more than half (55%) believe the current policy of full expensing should be made permanent. 

The survey also shows manufacturers believe an industrial strategy would have clear benefits with more than two thirds of manufacturers (67%) saying it would lead to greater investment in labour and skills, almost two thirds (61%) saying it would aid investment in R&D and almost half (45%) saying it would support investment in de-carbonisation and net zero.