The question of whether manufacturers should pay less tax as compared to other businesses is a complex one. Advocates for reducing taxes on manufacturing argue that it can stimulate economic growth, job creation, and innovation, while opponents raise concerns about fairness, revenue implications, and the potential distortion of market dynamics. But given the problems facing the British economy now, stagnation, low productivity and now a technical recession, surely it is time to make the major alterations we need to the British economy to drive investment in those highly productive areas of the economy, namely manufacturing. And in an increasingly uncertain and unsafe world to ensure we can produce more of the things we need here at home.
Proponents of lower corporate taxes argue that lowering taxes for manufacturers, or indeed any businesses can stimulate economic growth by incentivizing investment in the sector. This investment can lead to increased production, exports, and downstream economic activity, ultimately contributing to overall economic expansion. Manufacturers do experience significant costs. Due to the nature of the industry the higher health and safety costs, capital costs for new factories, costs of importing raw materials, higher environmental charges and higher salaries mean manufacturers do face exceptional pressures. So the question is should these additional pressures on manufacturing be reflected in the tax system by having a reduced Manufacturers Corporation Tax rate as opposed to a standard rate?
Manufacturing has historically been associated with the creation of high-quality, stable jobs that offer competitive wages and benefits. Lowering taxes on manufacturers can encourage them to expand their operations, leading to the creation of additional employment opportunities, particularly for skilled workers. Now the British economy is stagnating, and workers are facing a real cost of living squeeze with falling living standards. The political consequences of this are obvious, namely the risk of more populism and political instability. With huge costs on the need for extra money on defence, social care, the NHS, the burden will fall on already hard-pressed workers. Reducing that manufacturer's corporation tax bill to a reduced rate will allow for greater investment, higher salaries and higher growth which will help to mitigate the coming pressures on the economy.
The British economy is leaking talent, particularly to the far east. The number of patents taking through to final production in the UK continues to decline. Manufacturing is often at the forefront of innovation, driving technological advancements and productivity gains. By reducing taxes on manufacturers, policymakers can incentivize investment in research and development (R&D), leading to innovations that benefit not only the sector but the broader economy as well. Government would need to increase R&D reliefs at the same time as reducing manufacturers corporation tax but the overall result would be a boost for British manufacturing and a growing economy. This combined reduction in tax and increasing incentives will support growth.
In a globalized economy, manufacturers face intense competition from foreign producers. Eastern economies continue to benefit from the devaluations of their currencies to make their exports cheaper. Lowering taxes on manufacturers here in the UK can improve their competitiveness in international markets, boosting exports and helping to reduce trade deficits. It will also attract inward investment, but the fundamental issue is addressing the question of the valuation of sterling and how it makes British goods abroad more expensive. Reducing the Corporation Tax of manufactures will help but an examination of the valuation of Sterling will do much more. While it has not been something that the economic establishment have considered, given the challenges now facing the British economy and the risks from abroad, looking at innovative measures is now essential.
Supporting the manufacturing sector through favourable tax policies can enhance economic resilience by diversifying the economy. A diverse economy with a strong manufacturing base is better equipped to weather economic downturns and external shocks. During the pandemic we saw how unprepared the UK was to produce essential items that we needed, and we have seen rising inflation in the British economy due to our dependence on global supply chains. We lack resilience. In a world with growing uncertainty and conflict we need to ensure our economy is strong and able to survive these external shocks. We need a wider industrial strategy that prioritises our strengths, supports manufacturing through tax and supports growth in our economy. Reducing the Manufacturers corporation tax bill is essential to that programme. Having a special rate of manufacturers corporation tax will start Britain on the road to recovery, building resilience, increasing exports, and driving the growth we so desperately need.
