Tax system needs urgent reform say manufacturers

THE tax system is tilted against manufacturing, stands in the way of building a more balanced economy and needs major reform, according to a major report published today.

In its report, engineering and manufacturing body the EEF sets out reforms which it claims would provide an immediate boost to high-tech investment and innovation and create an internationally competitive tax system that helps to repair the public finances in the medium term.

The manufacturers' organisation warned that failure to reform the tax system would lead to more companies moving their headquarters overseas.

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Regional director Alan Hall said: "We still lack a coherent tax system that encourages manufacturers to invest and sends the signal that they should be doing it here.

"The next government must think and act differently about how the tax system supports manufacturing and a balanced economy. In particular, it can achieve much larger benefits from any new measures if its approach is more predictable and transparent.

"In the short term, it means developing a modern, efficient tax system that helps to grow a diverse and dynamic manufacturing base. In the medium term, it means creating a more competitive tax environment to help reduce the number of hard choices we have to make when repairing the public finances.

"A modern, competitive tax system would not only re-

balance our economy but attract mobile multinational investment to the UK and send the right signal to would-be investors. The next government must make this a priority."

The EEF is calling for immediate reforms to encourage manufacturing investment in state of the art machinery, innovation and entrepreneurialism.

The new government should modernise the "antiquated" capital allowances regime to allow a wider range of assets to be written off at the end of their useful economic lives.

The new government should also create a more sustainable capital gains tax regime so the current incentive to avoid paying tax is replaced by incentives to make long-term investments in business.

In the medium-term, the EEF is calling for a simpler, more efficient tax system that encourages investment in modern machines and in global markets.

Reforms include cutting the headline rate of corporation tax to 25p over five years, raising the VAT rate to 20 per cent to encourage the shift from a borrowing to a saving society and return the top rate of tax to 40p.