Budget must address creeping onslaught of business costs, says EEF

Steve Warren, North West Region Director at EEF

Britain’s manufacturers are warning of the potentially damaging consequences of a raft of increasing business costs and are urging the Chancellor to signal to business in the forthcoming Budget that they will not be the ‘thin end of an ever-thickening wedge’.

As part of its budget submission EEF, the manufacturers’ organisation, is pointing to a raft of recent policy announcements, which have come at a time when industry is facing significant global headwinds. Almost four in ten manufacturers (36%) identify rising business costs as a key risk this year. At the same time, the proportion of companies viewing the UK as a competitive place to do business has fallen from 70% in 2015 to 56% this year.

Industry's concerns range from the introduction of the new apprenticeship levy to the future cost and complexity of energy-related taxes. To help offset the current crisis in the steel sector, EEF is calling on the Chancellor to remove plant and machinery from the calculation of business rates.

Amid concern about another change in pension rules, employers are also urging the Chancellor to retain the current tax treatment of employment pension contributions and avoid saddling employers with a plethora of direct and unintended penalties for their continued support of workplace pensions.

Steve Warren, North West Region Director at EEF, the manufacturers’ organisation, says: “While many of the risks we face stem from challenges in the global economy, companies are increasingly concerned about the creeping onslaught of taxes and policy decisions falling at the door of employers. In isolation individual policy decisions may not be significant, but when viewed together they are adding significant cost at a time when business conditions are volatile to say the least.

“With investment intentions looking more fragile, the Chancellor should plot a course that avoids piling more costs on employers and one which gives manufacturers the certainty to invest for the future.

“This means ensuring the apprenticeship levy works for sectors that have a track record of investing in their people; removing the disincentive to invest from the business rates system and avoid tinkering with pensions in a way that adds even more costs to employers.

“We are concerned that the additional costs we face after just six months of this parliament could be the thin end of an ever thickening wedge. The Chancellor should look at future tax reforms and fiscal changes within the broad context of a clear long-term strategy supporting industry.”

In its submission, EEF has made the following recommendations:

• Apprenticeship levy: The implementation of the new levy must meet six key criteria. Any failure to clearly satisfy these will result in the levy being seen, rightly, as another business tax.
• The Business Energy Taxation Review should scrap the Carbon Reduction Commitment with revenues recouped through the Climate Change Levy. Climate Change Agreements should remain in place for the current phase with higher discount rates to compensate for Climate Change Levy increases. 
• Confirmation should be given that there will be no rise in the Carbon Price Floor in 2020 and it should be scrapped as soon as fiscally possible.
• Employer tax relief on pension contributions should not be reduced. The prospect of a future cut is already dampening employers’ plans to invest and grow. An actual cut would add to the potentially damaging collective of business costs government has already announced. 
• Given the current crisis in the steel sector, Class IV plant and machinery should immediately be removed from the calculation of rateable values for business rates purposes and additional safeguards should be put in place before business rates are devolved to local areas.
• The business tax roadmap should aim to reduce the tax wedge on employment and align tax reform with technologies that will boost productivity – these include capital allowances, business rates and the R&D tax credit. The roadmap should also outline how it will engage with the wider business community in the process of tax policy making and consultation.
• Government’s focus on productivity should be further developed by:
  Expanding the new Roads Fund to cover local road improvement
  Implementing the Airports Commission’s recommendation for an additional runway at Heathrow airport
  Reviewing competition of the business internet connectivity market
  Increasing core funding for new Catapult Centres 
  Developing a long term coherent energy strategy.