Targeted tax incentives required to boost Midlands manufacturing – Finance-Base
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Targeted tax incentives required to boost Midlands manufacturing

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

The poll of over 200 UK manufacturers also found a massive 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 made to drive a post-COVID-19 recovery in UK manufacturing and signal to entrepreneurs the UK is a great place in which to take a position.

The manufacturing sector is vital towards the Midlands economy, accounting for 16% of total output in both the East and West Midlands and most 500,000 jobs. The latest data from Make UK, the manufacturers’ organisation, implies that investment intentions have suffered badly because of the pandemic.

This has fallen, in particular, in the West Midlands in the final quarter of 2021, 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 'till the end of the current Parliament in 2024. This would give manufacturers the chance to commit to significant capital investment for that medium to long term.

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

·         Simplifying and extending the current rules on employee ownership they are driving additional entrepreneurial investment in UK manufacturing.

·         Introducing new tax incentives that align education or training with specific skills for example 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 consultancy 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 provide 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 influenced by the coronavirus pandemic, with high amounts of variance both in terms of output and orders, using the East Midlands experiencing the sharpest fall in creation 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, you will find multiple demands on the Government’s resources, but now is the time for policymakers to supply 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 within the Midlands who specialises in working with manufacturers, added: “We feel 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 right through to the supply chain.

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

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