Balancing benefits or appeasing the voters?09 December 2014

With the chancellor putting the final touches to his Autumn Statement (as we go to press), and the pressure on to continue delivering the coalition's austerity programme, recent developments will be making this balancing act increasingly difficult.

On the one hand, the latest Manufacturing Advisory Service (MAS) Barometer suggests that SMEs (small- to medium-sized enterprises) are adapting well to softening markets by Improving productivity. Indeed, more than two-thirds (69%) expect to increase investment in new technology and machinery to enable further improvements.

But on the other, the voices ranged against the UK's punitive business rates just got much louder, with none other than General Motors and Tata Steel adding their considerable might to the campaign for reform. Their concerns: that UK rates are up to 10 times higher than in the rest of Europe, and – just as perversely – that buying new plant and machinery adds to the rateable value.

Both points, they argue, present a significant disincentive to continued investment in Britain. So, not only should George Osborne extend financial capping measures put in place last year, but he also ought to move rapidly towards serious reform of a tax that is no longer fit for purpose.

On a more positive note (at least superficially), Hermann Hauser's review of progress with the UK's Catapult technology and innovation centres could not have been more encouraging. He congratulates the coalition for delivering on its promises, with £200 million from InnovateUK (formerly the Technology Strategy Board) having kickstarted seven successful centres. That said, he now advises that the UK needs to ramp up investment in engineering R&D to enable the country to compete "in the knowledge economy".

For Hauser, this is a critical piece in the jigsaw of rebalancing our economy in favour of industry over service. So he recommends not only sustained investment in the existing Catapults, but also additional funding to add one or two more a year "in key future technologies that will help drive the UK economy into the global markets that will deliver vibrant economic growth".

It's all about enabling, nurturing and de-risking innovation, and promoting investment in cutting-edge equipment. But, clearly, that comes at a price. EEF (the manufacturers' organisation) is one among many now looking for government to set out long-term funding for InnovateUK that enables the Catapults to bring even more innovative British engineering to market.

Plainly, all those pleading their cases for funding, tax relief, derogations, etc, believe they have right on their side. Worryingly, the issue for the chancellor is always more about appeasing the electorate than weighing the pros and cons.

Season's greetings to you all, and a happy and prosperous New Year.

Brian Tinham

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