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The government is being urged by business leaders to rationalise Britain's business rates and regulatory system. AFP News

In anticipation of next month's Autumn Statement, manufacturing businesses are asking the Chancellor to take the long view, to ensure that Britain sees an uptick in business investment.

A report by manufacturing industry body, Make UK which represents 20,000 manufacturers across Britain, has called for a "major MOT" of Britain's "uncompetitive tax and regulatory system".

The system is not "fit for purpose", Make UK has said in the report, timed to be released amid party conference season.

Manufacturers are urging the government to provide stability by putting in long-term measures. The continuous change to business incentives and research and development credits that have marked the last few years hampers investment plans.

In a survey by Make UK and tax advisory firm RSM, more than two-thirds of companies called for an industrial strategy to be put in place. They said this would lead to enhanced investment in skills, research and development and decarbonisation.

Reforms to improve competitiveness should look at measures such as business rates, research and development tax credits, the apprentice levy, corporate tax rates and capital allowances and whether they help the economy achieve more investment, innovation and its net zero ambitions.

In a bid to boost investment in Britain, Chancellor Jeremy Hunt introduced a "full expensing" tax break in March this year. Under the incentive, businesses that invest in IT equipment and machinery will be able to claim back the cost by writing it off against tax on their profits.

The temporary relief measure is only in effect for three years – from 1 April 2023 until 31 March 2026. At the time of its inception, Hunt said that the "fill expensing" policy would make Britain's capital allowance regime the joint most generous among rich economies.

He hinted at making it permanent "as soon as we can responsibly do so".

However, with the Chancellor warning that tax cuts would be "virtually impossible" in the upcoming Autumn Statement, business groups including the Confederation of British Industry (CBI) are calling on the government to make full expensing permanent.

In its current form, the measure is being critiqued for being short-term. Businesses are telling the Chancellor that it is not possible to plan capital investment and business expansion, which must be done with a view towards the longer term future, based on a policy that is only confirmed for 3 fiscal years.

Further support for making the scheme permanent came from a report by the Institute of Fiscal Studies (IFS) this month. The IFS said that the full expensing policy carried big upfront costs but in its current form would have "little or no effect" on British firms' capital stock, and therefore little benefit, given that businesses need more long-term certainty to plan new investments.

Summing up the need for a more stable policy environment, Helen Miller, IFS deputy director said: "The corporate tax base has changed almost every year since 2010."

Miller continued: "On the back of all that, a temporary policy is particularly problematic . . .  If there is a change of government, it adds to the uncertainty."

The Chancellor announced the full expensing policy amid a flurry of tax breaks introduced in March. This was part of the government's response to a sustained decline in business investment in Britain.

The policy was designed in part to soften the blow of the increase in corporation tax from 19 per cent to 25 per cent in April this year.

The move came on the heels of several blows to Britain's perceived competitiveness this year. Most notably, British microchip designer Arm opted to list in New York rather than London, and British pharmaceutical company AstraZeneca decided to build its new factory in Dublin. The latter blamed the decision on high business rates in the UK.

Fhaheen Khan, a senior economist at Make UK, emphasised that current policies "are failing to promote vital investment in skills, capital and green growth". Khan further stated that the situation is not helped by two fiscal statements a year, which strain investment planning by businesses.

"We cannot continue with the current flip-flopping and policy inconsistency if we are to shake the economy out of its current torpor and promote long-term growth. Government must start by conducting an urgent MOT of the current unfavourable regime to make it work for, rather than against, business," Khan said.

Mike Thornton, the head of manufacturing at RSM, said: "The correlation between tax and regulation and economic growth is clear. Yet UK manufacturers find the current framework a burden and unfavourable – putting UK industry at a competitive disadvantage globally."

A reported 44 per cent of firms surveyed as part of the Make UK report believed the tax and regulation system is unfavourable. More than a quarter echoed Thornton's point about competitiveness, saying the UK system was worse than that of China and other major competitors.