Memorandum submitted by EEF
1. EEF, the manufacturers' organisation,
has a membership of 6,000 manufacturing, engineering and technology-based
businesses and represents the interests of manufacturing at all
levels of government. Comprising 11 regional associations, the
Engineering Construction Industries Association (ECIA) and UK
Steel, EEF is one of the UK's leading providers of business services
in health, safety and environment, employment relations and employment
law, manufacturing performance, education, training and skills.
2. EEF welcomes the opportunity to contribute
to the Treasury Select Committee Inquiry into "globalisation
and its impact on the real economy". Manufacturers have always
been exposed to the intense pressures of the world economy. Globalisation
has resulted in companies having to expand their focus from their
domestic and traditional trading partners to incorporate new and
expanding markets. Companies have also had to assess where manufacturing
functions are best located to service key and growing markets,
and how and where their production process can be carried out
most efficiently and effectively.
3. Therefore, policy makers face a different
challenge in order for the UK to remain a competitive location
for business in the global market place. EEF believes that is
crucially important that Government focus on investment in skills,
R&D, innovation and in ensuring that the UK retains a globally
competitive tax regime in order to bolster our ability to be best
placed to exploit the benefits of globalisation.
4. The latest wave of globalisation has
been characterised by the emergence of low cost economies, particularly
from Asia, and their integration into global supply chains and
trade networks. This has led to quite considerable change in the
competitive landscape in which UK business operates. The last
few years have seen a huge increase in the importance of lower
cost countries as competitors. A survey of EEF members in 2004
revealed that China was identified as presenting the most significant
competitive challenge to UK companies by 57% of respondents, up
from just 18% in a 2001. The competitive threat from developed
economies has declined over the same period.
5. The integration of low cost economies,
such as China and India, into the global supply chains brings
opportunities as well as challenges for UK companies and the economy
as a whole. EEF's survey of competitive challenges revealed that
UK companies are feeling the impact of low cost economies through
customers demanding lower prices in an attempt to drive costs
down in the supply chain. Firms also indicated that globalisation
had led to increased price competition in both domestic and export
markets. This stems not only from direct competition from low
cost economies, but also developed countries taking advantage
of lower wages by investing or outsourcing in lower cost Asia
or Latin America. Competitive pressure from firms outside the
UK producing higher value added goods was less pronounced, with
only around one in 10 companies describing it as significant.
Furthermore, the source of such technology-based challenges currently
remains confined to developed economies in North America and Europe.
6. Our survey also acknowledged the opportunities
that low wage economies can offer. Low cost economies can form
an important part of companies' business strategies to reduce
costs and increase competitiveness. In a more recent survey of
UK-based manufacturing companies carried out by EEF,
45% of respondents said they had outsourced the manufacture of
parts and components or other manufacturing functions abroad and
a further fifth of companies were considering it. In addition,
just over 30% of firms had opted to make a more significant commitment
to an overseas location by investing abroad. By choosing to invest
in a lower cost location, such as China or India, firms can take
advantage of the large wage cost differential for production of
lower value added products while refocusing efforts on higher
value added activities in their UK-based operations.
7. Operating in an increasingly internationalised
world can also bring new trading possibilities. While Europe and
North America account for around three-quarters of the UK's merchandise
exports, the emergence of fast-growing transition economies provides
further opportunities for companies to look to new trade partners.
However, in 2005, only around 1% of the UK's exports were destined
for either China or India. Companies are not expecting their key
trade partners to change substantially over the next five years.
Figure 1 shows that half of manufacturers think that key growth
opportunities lie in the old EU (previously EU-15) countries in
the next five years, up slightly from 2002.
8. Transition economies have made less of
an impact on companies when it comes to future business opportunities.
The biggest change in attitude between 2002 and 2004 was about
growth prospects in Central and Eastern Europe (including the
10 new EU entrants). However, while almost three-fifths of companies
view China as a competitive threat over the next five years, only
20% see it as an opportunity for growth. This is somewhat surprising
given its entry into the World Trade Organisation (WTO) at the
end of 2001, which might have been expected to boost perceptions
of the trade prospects on offer. China, for example, has been
sucking in exports from across the globe. While some sectors of
the UK economy have undoubtedly benefited, other countries may
have been quicker out of the starting blocks. UK firms, therefore,
need to be less reliant on the slower growing European markets
and to take advantage of trade opportunities in faster growing
EU SEEN AS MAIN GROWTH OPPORTUNITY
PERCENTAGE OF RESPONDENTS RATING AS KEY EXPORT
MARKET IN NEXT FIVE YEARS
Source: EEF/NOP World
Competitive Challenges Survey 2004.
9. Clearly, no developed economy is immune
from the effects of globalisation and the net impact on the UK
economy need not be a negative one. However, there is a role for
government policy in ensuring business is able to meet the competitive
challenges and harness the opportunities that globalisation brings.
Government's response should fall mainly in areas where it can
enhance the UK's competitive position and ensure the UK remains
an attractive place for business to locate and operate. It will
therefore be vital to ensure that all the key aspects of the UK
environmenttaxation, regulation, skills, the science base,
transport and the planning systemremain competitive.
10. As noted above a growing number of manufacturing
and service based companies are seeking to take advantage of low
cost economies through outsourcing and investing aboard. As firms
expect competitive pressures to intensify in the medium term,
it is likely that the trend will continue and firms will look
beyond China and India for outsourcing possibilities. In this
context government's role is more about helping to ensure that
companies make offshoring decisions for the right reasons. That
is, firms should choose offshoring if it can deliver genuine long
term efficiency gains for business, not because the UK business
environment is "pushing" production overseas.
11. EEF's survey on competitive challenges
showed that companies were generally responding to the threats
posed by globalisation with a combination of strategiescost
cutting measures, such as outsourcing, along with increasing innovation
and moving into niche markets. Government policy should recognise
the need for a range of strategies and support companies' efforts
to move up the value chain, through innovation and R&D. In
addition, there may also be a need for government supported agencies
to assist firms in looking beyond low cost economies as a destination
for low cost production. Existing government support from UK Trade
and Investment (UKTI) in this area is concentrated on SMEs and
new to export firmsthere would appear to be a case to revisit
the remit of UKTI in this respect.
12. We believe it is counterproductive for
government to attempt to restrict offshoring activities. If done
for the right reason there are benefits to both business and the
wider economy, as outlined above. Firms, however, need to be responsive
to this changing business environment and this requires a flexible
and adaptable labour force. The requirements of business and occupations
will change in response to the decline of some lower valued added
activities and rapid growth in other sectors of the economy. A
flexible and skilled workforce is needed to support these adjustments.
13. Capital investment is a key component
in firms' efforts to raise manufacturing productivity and therefore
competitiveness. The UK has long been seen as under-investing
in capital equipment and technology. Despite the rise in capital
expenditure in the first quarter of this year, the recovery in
manufacturing investment has been disappointing. Since the third
quarter of 2003, manufacturing investment has risen by 21% but
it is still 27% below the peak it hit at the end of 1998. This
raises questions as to whether the government should be doing
more to promote investment. EEF analysis suggests that, although
the government could do more through measures such as capital
allowances to ease the constraints faced by manufacturers in financing
investment, it will be just as important to focus on getting the
overall business environment right.
14. Before identifying what the government
could do to promote business investment, it is important to understand
the reasons for its current low level. Part of the reason could
be that the statistics are telling a misleading story given that
the prices of some capital goods have been falling. Indeed, EEF
members have commented that some machine tools have either fallen
in price or provide much greater functionality for the same cost.
However, falling prices are is likely to provide more of an explanation
when looking at other parts of the economy where investment in
IT is proportionately higher and which have therefore benefited
more from falling prices of computers and other IT equipment.
In addition, international comparisons show UK manufacturing investment
as a proportion of its gross value added falling in this decade,
while it has increased or remained stable in other major OECD
countries. This suggests factors other than falling prices account
for the weakness of UK manufacturing investment.
15. Part of the explanation lies in the
growing investment by UK manufacturers in lower cost locations
abroad. Not all this investment abroad will be replacing capital
expenditure in the UK. For example, some of the investment will
be driven by the desire to establish a presence in growing markets
in addition to developing the UK base. Similarly, the cost savings
realised by moving some lower value added activities out of the
UK can free up funds to invest in other activities in the UK.
Nonetheless, the UK will be increasingly competing with other
locations, particularly low cost ones, when manufacturers decide
where to put their next investment. EEF research in its "Where
Now for Manufacturing?" report revealed that manufacturers
that had invested abroad had generally achieved their objectives
and were planning further moves of this kind. Generally, these
moves involve a partial relocation of some lower production but
some companies are also examining where they should do final assembly,
testing, quality control and even research and development.
16. UK manufacturers also tend to rely on
internal funds to finance investment. An EEF study of productivity
differences with France and Germany
showed that around a third of UK manufacturers saw shortage of
internal finance as the major constraint on investmentdouble
the proportion in Germany and a third more than in France. Manufacturing
investment is therefore likely to be squeezed by increases in
costs that they are unable to pass on to their customers. This
is supported by the strong correlation that official statistics
reveal between manufacturing profitability and manufacturing investment.
This points to the need to:
avoid increases in taxation that
add to the cost of business such as employer National Insurance
Contributions, business rates and environmental taxes;
ensure that other costs faced by
manufacturers are not out of line with their competitors. Particularly
pressing currently are energy costs with the prices paid by UK
companies pushed above that paid by our competitors. The key factor
driving this is our rising dependence on gas imports, coupled
with a lack of storage facilities;
help manufacturers to reduce costs
through the business improvement programmes offered by organisations
such as the Manufacturing Advisory Service;
provide support to small firms in
accessing finance through measures such as the Small Firms Loan
Guarantee Scheme; and
address the cashflow constraints
faced by firms through providing enhanced first year capital allowances
or an investment tax credit targeted at firms with low or no profits.
In addition, enhanced capital allowances should be used to promote
objectives regarded as important to the UK such as investment
in energy efficient products and processes.
17. The emergence of low-cost countries,
notably India and China, as major players in the global economy
has profound consequences for the UK. It has been clear for some
time that the UK cannot compete on price alone. EEF's "Where
Now for Manufacturing?" report revealed that two-thirds
of companies were responding to growing competition by increasing
their focus on innovation and that almost half were developing
niche markets or customising their products. It is therefore vital
that the UK environment enables UK manufacturers to innovate effectively.
This should encompass the activities traditionally associated
with innovation such as expanding the science base and investing
in research and development, as well as other activities such
as design and marketing and the less dramatic but vital incremental
developments companies make in products, processes and services.
18. This part of our submission draws on
a major piece of research completed by EEF, including a survey
of 500 manufacturers. It shows that companies are being driven
to innovate by the dual pressures of meeting customer demand and
rising competitive pressures. The increasing focus on innovation
is illustrated by the fact that three-quarters of companies have
increased their spending on innovation over the past three years
and that over half of them plan to do so in the coming three years.
19. Our surveys and face to face interviews
revealed that much of what companies regarded as innovation included
improvements to existing products, processes and services or the
introduction of new ones that had a degree of novelty but could
not be described as major technological breakthroughs. About three-quarters
of innovating firms had introduced a new or significantly improved
product or process in the past three years. About half of firms
had also undertaken some form of service innovation, illustrating
the growing importance to manufacturers of developing revenue
streams based on their product or process knowledge.
20. Encouragingly, companies appear to be
achieving results with about four fifths of innovators reporting
improvements in productivity, turnover, profitability and market
share. However, they also experienced a number of problems. For
example, most innovators collaborated with outside organisations,
including customers, companies in their supply chain and the research
base, to draw on their expertise and resources and as a way to
reduce costs. However, nearly half of firms struggled to find
the right partner and to get universities and other scientific
institutions to understand their business needs.
21. However, the most significant problems
reported by companies related to their internal capabilities.
These included implementing projects in time, keeping costs under
control and the adaptability of staff. Many of these are skills
issues, particularly in terms of recruiting people with university-level
research skills and in also accessing and developing the required
22. Companies also reported problems with
external finance for innovation projects. For a little under half
of firms, the cost of external funding is an issue, while about
one third of firms do not know where to go for funding and find
that investors tend to offer sums of money that are either too
large or too small for their needs. Regulation is also a growing
issue, though this can cut both ways. On balance, product standards
regulation was seen by members as positive for innovation but
given that a significant number of firms regarded it negatively,
there is an ongoing need to ensure that regulation in these areas
relates to outcomes and is not so prescriptive that it reduces
the scope for innovation. The impact on innovation should therefore
be explicitly considered when designing and implementing new regulations.
23. Mid-sized firms (those with 250-499
employees) performed poorly relative to both larger employers
(500 employees and above) and also medium-sized companies (100-249
employees) on many indicators. These include the amount of innovation
they did, the results it yielded, their contacts with the research
base and their ability to access outside sources of assistance.
Companies in this size band will often have either reached a plateau
after an initial growth phase or will have downsized as a result
of competitive pressures. In many cases they will lack the resources
to take on the more risky forms of innovation. The government
has recently recognised this by extending the benefits of the
R&D tax credit for SMEs to mid-sized firms. However, it will
also be worth investigating whether other forms of support, particularly
brokerage and information and advice, could be extended to mid-sized
24. Our research also showed that government
support makes a difference. Companies accessing support were more
likely to have increased their spending on innovation or to be
planning to do so and also tended to achieve better results. Particularly
influential in driving up recent spending were financial support
(R&D tax credit, grants), general advice and help with networking.
Future spending plans were affected most by support related to
access to new markets (overseas and through government procurement)
and to public research. This highlights the need to make better
use of the large amounts of money to stimulate innovation that
the government spends purchasing goods. Firms that we interviewed
report that procurement practices tended to be slow, bureaucratic
25. Our survey also asked companies about
the influence of various factors on their innovation decisions.
We have used the responses shown in Figure 2 to group our recommendations
on how the government should support innovation under five headings.
INFLUENCES ON THE DECISION TO INNOVATE
PERCENTAGE OF INNOVATORS CITING VARIOUS INFLUENCES
AS QUITE OR VERY USEFUL ON THEIR DECISION TO INNOVATE
Source: EEF/GfK NOP Innovation
26. This category includes tax treatment,
government procurement, and help enforcing Intellectual Property
Rights. Discussions with our members indicate that the R&D
tax credit can play a useful role in encouraging greater innovation
but that it needs to make a greater contribution than currently
to reducing the cost of undertaking R&D if it is to make a
difference. In a global economy where other countries are increasingly
making efforts to attract R&D, it is also important to ensure
that incentives in the UK remain globally competitive. The tax
credit needs also to be publicised better and the procedures for
claiming it should be simplified.
27. It will also be important for the Gower
Review to address the enforcement of Intellectual Property Rights,
given that companies will only undertake expensive innovation
projects if they can be confident about recouping costs in the
28. Our recommendations under this heading
relate to helping companies to draw on high level skills from
universities and other parts of the research base. Human resources
are key to successful knowledge transfer between the research
and industrial base. Graduates and others working in research
need to have a complementary mix of science and commercial skills
but it is also important to encourage the exchange of people between
research and industry. This is recognised in the government's
Science and Innovation Investment Framework, correcting the past
over-emphasis on creating spin-out businesses from universitiesan
issue identified in the Lambert Review.
29. Supplementing the technical skills of
students, researchers and existing workers with enterprise, creativity
and design understanding has a double benefit. Improved understanding
across the research base of commercial issues will make collaboration
with industry more effective. Students with commercial skills
will be better at working with the research base to develop new
market opportunities from new technology when entering industry.
They can help provide the "translator" resource that
many businesses find difficult to develop.
30. Schemes allowing a student to work in
a business for short period, such as the STEP (Shell Technology
Enterprise Programme) and the DTI's Knowledge Transfer Partnerships
(KTPs), have been very positively received by business. We have
heard numerous examples, particularly of PhD students, helping
a company to resolve innovation problems and to identify new opportunities
for innovation. Often longer-term relationships result from the
initial exchange, which ensures ongoing links with universities.
31. We therefore recommend that the number
of graduates involved in Knowledge Transfer Partnerships should
be expanded and that access to this and the STEP programme should
be improved by promoting it through more frequently used channels
such as the Manufacturing Advisory Service and Business Links.
32. The Engineering and Physical Sciences
Research Councils' new "Integrated Knowledge Centres"
aim to be a place for closer university-business collaboration
on emerging technologies with market potential. They offer a good
model for research and business staff to work alongside each other
and should be rolled out more widely.
33. A key part of innovation is finding
the right people to talk to and getting access to them. For manufacturers,
this often means finding funding, gaining access to public research
and finding partners for collaboration. Many of the manufacturers
that we interviewed expressed a desire to move away from the constraints
associated with their reliance on internal funding. This is a
particular issue for mid-sized companies, who have to grapple
with new models of financing as they grow from the SME stage.
34. Improving the ability of companies to
absorb new knowledge and to translate it into commercially viable
outcomes is also critical. The heavy emphasis placed by companies
in our survey on gaining expertise in product development and
in design and physical facilities from their collaborative relationships
suggests a lack of capacity in these areas. For as long as these
capacity issues exist, companies need to be able to work alongside
researchers to tailor emerging knowledge into commercially-relevant
35. Knowledge Transfer Networks (KTNs) seek
to help disseminate new technology and identify collaborations
in specific technology areas, but they are not necessarily the
actual means for collaboration. What are still sometimes missing
from the UK knowledge transfer system are "proof of concept"
facilities or technology development institutes that are widely
available and clearly signposted to business. This role is filled
in Germany, for example, by the Fraunhofer institutes that provide
common facilities and skilled personnel (including representatives
from universities and business) to carry out industrially-relevant
applied research that is close to the market. They are a well-known
entry point for business innovation and provide brokerage services
to other relevant programmes and collaborations.
36. We recommend that:
the government introduces a brokering
function to build awareness of and introduction to different funding
options, including less well-known options such as mezzanine funding
and risk sharing innovation finance facilities available at the
EU level from 2007. Mezzanine finance may be suitable for established
businesses with innovation seen as too risky for traditional bank
finance and where the company is concerned not to give up equity.
It might take the form of convertible or preference shares. This
brokerage could be provided by RDAs who already have some involvement
through regional venture capital funds;
the government should widen the scope
for national level risk-sharing innovation finance facilities.
This would follow the lead of the new EU scheme to be implemented
in 2007 by the European Investment Bank to improve access to debt
finance for companies involved in large scale and risky R&D
current efforts to help companies
find the right innovation partners should be co-ordinated so that
all information about collaboration opportunities is fed into
an easily accessible and searchable facility for business;
RDAs and Research Councils, with
participation from the Knowledge Transfer Networks, should work
together more closely to match the company needs and research
opportunities that the respective organisations have identified.
This will ensure companies looking for partners are not limited
to partners based in their region;
more attention is focused on improving
engagement and outreach by universities and Research Councils
with business. The RDAs and KTNs provide some mechanisms for doing
this but may not have strong links with the more traditional manufacturing
sectors. One way of widening engagement would involve working
with organisations such as MAS which have extensive links with
more traditional industries but which traditionally have not had
an innovation focus. In addition, KTNs require a more extensive
marketing effort to broaden their membership; and
more "proof of concept"
facilities, where business and researchers can work alongside
each other to mature and direct emerging technology towards commercial
viability, are developed.
37. Companies are looking beyond their existing
commercial contacts for information with just over half of innovators
having some form of contact with universities. Encouraging greater
and more effective contact would be beneficial, provided that
information can be packaged in a commercially relevant context
for companies less experienced in innovation. This may involve
some assistance from another source, such as a private technology
transfer organisation, to help translate the information into
a more usable form.
38. Whilst government should not be the
sole provider of such information, companies in our survey rated
the quality of what they had received from DTI programmes such
as Foresight and Global Watch Service, which aim to help companies
benefit from innovative practice and technologies from overseas.
39. We recommend that:
DTI's Global Watch Service should
be maintained and made available to the widest possible audience.
Recently, support for DTI Global Watch Secondments has been removed
and any further cutbacks should be resisted;
as part of the review of UK Trade
and Investment's (UKTI) remit, the government should review whether
its new mandate on promoting the UK science base overseas should
include activities such as identifying new overseas technologies
and market opportunities, perhaps utilising the expertise of the
Global Watch Service;
Research Councils should work more
closely with the RDAs to increase business awareness of the results
of work funded by them; and
the government should investigate
the scope for further assistance with the costs of using external
experts such as a technology transfer consultancy to translate
information from the research base into analysis of commercial
opportunity. Such a scheme would be similar to the UKTI Export
Market Research Scheme, which provides part funding for companies
commissioning a market research study into new export market opportunities.
40. Ultimately, it is up to companies themselves
to improve their ability to develop, apply and market new ideas.
However, the experience with best practice programmes in the UK
is that they deliver substantial gains in company performance
for fairly small scale sums of public money. There may therefore
be some role for organisations such as Business Links or MAS to
develop programmes or diagnostic tools to help companies raise
their effectiveness or signpost them to existing programmes. However,
there is also a danger that these organisations become overloaded
with different responsibilities. It is therefore important that
their remit is confined to areas of genuine market failure.
41. The need for different and higher level
skills will underpin the UK's ability to become a more flexible
and innovative economy. Companies facing growing competition need
to remain ahead by innovating and moving into the production of
higher value-added products and services. Skills shortcomings
can slow the pace of innovation. Equally important is the link
between skill acquisition and productivity. Having an adequately
skilled workforce plays a major role in optimising companies'
productivity growth. In addition to its direct impact on productivity
and efficiency, an inadequately skilled workforce can reduce the
value and effectiveness of investment in capital equipmenta
further driver of productivity growth. In addition to the higher
level skills already identified above, employers recognise that
the skills they will need to operate in a more global economy
will change in the medium term, as illustrated in the chart below.
There are roles for government, business and individuals in making
sure that these skill needs are met.
42. Employers spend an estimated £33
billion per year on training (including wage costs), in addition
publicly funded post-16 training provision (excluding sixth forms
and PCDL) directed through the LSC amounts to a further £7
billion. However, there are a number of factors undermining this
investmentsome of which could be addressed by government
policy. Some of the key problems stem from a lack of information
or appropriate training provision and for some firms available
funding for training is also a barrier. One further reason why
firms training activities are not generating sufficient improvements
in workforce skills is that the link between training plans and
longer term business strategy is often not firmly established.
43. Some recent policy announcements should
go some way to improving the situationthe roll out of an
independent skills brokerage services in the regions to help companies
source training provision more easily where it is available, is
a welcome step. As are the proposals to improve the quality of
Further Education announced in a recent White Paper and the proposals
to introduce learning accounts for individuals. The development
of new learning accounts for individuals should contribute to
a more demand-led system of education and training provision.
FIRMS FORECAST GROWING SKILL NEEDS
PERCENTAGE OF RESPONDENTS EXPECTING SKILL
NEEDS TO INCREASE IN THE NEXT THREE YEARS
Source: EEF/NOP World
Skills Survey 2005.
44. However, some fundamental problems remain.
Employers continue to find the post-16 learning and skills sector
difficult to navigate. A plethora of sectoral and regional skills
agencies have been established to provide a range of services
to employers and to make the supply of training provision more
responsive to employer needs. However, there is little evidence
to suggest that this latter aim in particular is being met by
the current post-16 education and training system. Furthermore,
the learning and skills and business support sector tends to separate
skills and training needs from wider business improvement assistance.
EEF is developing proposals for reform in this respect and will
publish its findings later in the summer.
45. Government should also focus on ensuring
compulsory education meets the needs of individuals and employers.
Before people enter the workforce the school system must equip
them with a minimum level of competence in the fundamental skills
necessary for progression and participation in society. These
include literacy, numeracy and use of ICT, and will provide the
foundations for all other learning. Furthermore, getting these
fundamentals right is particularly important if more people are
to be encouraged to study science, technical, engineering and
maths (STEM) at a post-compulsory level.
46. In addition to academic responsibilities,
schools also have a role in developing "soft skills"
such as communication, team-working and problem solving skills.
It is vital that these are developed before entry into the workforce.
Provision of unbiased careers advice and guidance is also a function
schools should perform. For companies in manufacturing to attract
talent into the industry in future, young people must be provided
with comprehensive information about career options and the routes
that can be followed after compulsory education to achieve career
OF UK BUSINESS
47. The UK has traditionally enjoyed the
benefits of low taxation relative to most of its major competitors.
Compared with most other EU countries this is still the case.
However, OECD statistics show that the UK has moved from having
a taxation burden below the OECD average in 1997 to one that was
above it in 2005. Only a handful of countries such as South Korea
and Iceland have seen the tax burden (as measured by general government
receipts as a share of GDP) rise faster over this period.
48. Much of the increase in UK taxation
has been borne initially by business, particularly through increased
National Insurance Contributions, fuel duties and environmental
taxes. Over time some of these added costs may be passed on by
business. For example, higher National Insurance Contributions
are likely to be absorbed in lower wage rises in the long run
but in the ensuing period the extra costs will have damaged costs
and undermined business investment.
49. It is important to keep rates of corporation
tax competitive, particularly as there is some evidence of a relationship
between relative corporation tax rates and a country's ability
to attract inward investment. However, for many manufacturers,
the priority will lie with minimising taxes that affect the cost
of doing business.
50. The rising complexity of the tax code
has also attracted criticism from business. The complexity of
tax incentives and the frequent changes made undermine their effectiveness
and also are a drain on management time. There is a case for limited
intervention by government to address areas of market failure
but these should be the exception rather than the rule. The administrative
burden of taxation should also be reduced through improvements
to the early stages of the tax policy-making process and better
assessment of the real-world impact of tax changes.
In this submission, EEF has attempted to portray
some of the key policy choices facing the UK Government in a globalised
economy. It remains crucially important that the UK face up to
the new challenges ahead, and take the tough decisions which will
help play a role in underpinning our competitive position in an
ever changing global market place.
44 EEF (2004) Where now for manufacturing? Back
EEF/GfK NOP Innovation Survey 2006 Back
EEF (2004) Catching up with the continent Back