UK Manufacturers Call For Larger Investment Allowance

by Robert Lee, Tax-News.com, London

13 April 2009

Warning that the economic environment for manufacturing in the UK is the worst it has been for the last 30 years, EEF, the manufacturers’ organisation, is calling on the government to temporarily increase the investment allowance in the upcoming budget.

Publishing its submission, together with twelve other manufacturing organisations, EEF warned that output is set to contract by close to 10% this year. Consequently, the need for short term measures to have an immediate impact is becoming "increasingly urgent," the association argued.

"The Chancellor has made a good start by staggering the increase in business rates companies were facing this year. In the meantime, acute pressures remain and threaten to undo the great strides made by manufacturers in recent years to improve performance. Without further action we risk further hollowing out of the supply chain and the loss of viable companies in key sectors," commented EEF Chief Economist, Steve Radley.

EEF said that previous changes to the tax system have created "a less favourable environment for manufacturing investment." But the association also cautioned that decisions on capital expenditure that are delayed or reversed now "will have consequences for competitiveness come the upturn." EEF is therefore calling for a temporary increase in the annual investment allowance from GBP50,000 to GBP250,000.

The annual investment allowance, or AIA, was announced by then Chancellor Gordon Brown in the 2007 budget and introduced into law as part of the 2008 Finance Bill. The AIA is effectively a 100% allowance for business expenditure on plant and machinery (apart from cars) of up to GBP50,000 a year and applies to businesses regardless of size.

"At a time of increasing international mobility when many companies are looking at where to base their operations this would send a signal that the UK is a good place to invest," noted Radley.

EEF also recommended a raft of other tax changes which it hopes Chancellor Alistair Darling will consider including in the April 22 budget, including restoration of relief on business rates on empty property, a temporary extension of a payable R&D tax credit for low-carbon companies, a temporary scrappage incentive scheme for the motor vehicles sector, and postponement of planned increases in indirect taxes such as the climate change levy and landfill tax.

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