EY’s ‘2014 UK attractiveness survey’ showed that the UK was once again at the top of the league in attracting foreign direct investment (FDI). This can be seen as a welcome outcome of the government’s tax policies, building on the reforms of previous administrations. So is this a case of ‘job done’?
Not quite! Whilst the story on UK attractiveness is indeed a positive one, there are still big opportunities that need to be grasped. The projects that highlight the UK’s attractiveness are not spread evenly and more is needed if the UK is to be in the best place to respond to emerging global trends, particularly in relation to the siting of manufacturing capacity and activity.
Where earlier waves of relocation were all about lower labour costs in the Far East, we are now seeing manufacturers turning to the developed markets to get closer to their customer base and draw on the high-skill labour forces and quality networks supporting R&D and innovation.
Our survey shows that over half of the total FDI projects in Europe in 2013 were from manufacturing sectors, and that these employment-rich projects bring with them on average 160 jobs. The survey also highlights a risk that the UK could miss out on these opportunities. In fact, while we have pulled ahead of our competitors to become the most attractive investment destination in Europe, we rank behind both Germany and France in terms of manufacturing investments.
How can tax support the UK effort here? Crucially, we need to ensure that tax policy thinking is forward looking – engaging with the emerging trends – and flexible enough to adapt successfully to the opportunities. We really need to look at whether the UK’s approach over the past 20 years has inadvertently weakened our capacity to attract manufacturing investment.
Overall, the trend has been positive. The consistent reduction of the main business tax rate over the past 20 years – from 33% to 20% by next year – has set the right framework and sent the right message. Recent moves to boost innovation through the improvements to the R&D tax credits and the new patent box chime very well with a pro-manufacturing agenda.
But when we look at the detail, we can see that some elements of reform have tipped the balance of incentives towards the services sector and away from manufacturing. For example, reductions in the level of capital allowances, or the abolition of industrial buildings allowance, clearly reduce the UK’s pull factor.
So what do we need now? In short, we need to focus on strengthening the UK’s appeal in the areas that matter to manufacturers. That means supporting innovation, delivering a skilled and adaptable workforce and maintaining a strong entrepreneurial culture. Most importantly, it means looking again at the business tax system to make sure it reflects the realities of modern manufacturing investment.
EY’s ‘2014 UK attractiveness survey’ showed that the UK was once again at the top of the league in attracting foreign direct investment (FDI). This can be seen as a welcome outcome of the government’s tax policies, building on the reforms of previous administrations. So is this a case of ‘job done’?
Not quite! Whilst the story on UK attractiveness is indeed a positive one, there are still big opportunities that need to be grasped. The projects that highlight the UK’s attractiveness are not spread evenly and more is needed if the UK is to be in the best place to respond to emerging global trends, particularly in relation to the siting of manufacturing capacity and activity.
Where earlier waves of relocation were all about lower labour costs in the Far East, we are now seeing manufacturers turning to the developed markets to get closer to their customer base and draw on the high-skill labour forces and quality networks supporting R&D and innovation.
Our survey shows that over half of the total FDI projects in Europe in 2013 were from manufacturing sectors, and that these employment-rich projects bring with them on average 160 jobs. The survey also highlights a risk that the UK could miss out on these opportunities. In fact, while we have pulled ahead of our competitors to become the most attractive investment destination in Europe, we rank behind both Germany and France in terms of manufacturing investments.
How can tax support the UK effort here? Crucially, we need to ensure that tax policy thinking is forward looking – engaging with the emerging trends – and flexible enough to adapt successfully to the opportunities. We really need to look at whether the UK’s approach over the past 20 years has inadvertently weakened our capacity to attract manufacturing investment.
Overall, the trend has been positive. The consistent reduction of the main business tax rate over the past 20 years – from 33% to 20% by next year – has set the right framework and sent the right message. Recent moves to boost innovation through the improvements to the R&D tax credits and the new patent box chime very well with a pro-manufacturing agenda.
But when we look at the detail, we can see that some elements of reform have tipped the balance of incentives towards the services sector and away from manufacturing. For example, reductions in the level of capital allowances, or the abolition of industrial buildings allowance, clearly reduce the UK’s pull factor.
So what do we need now? In short, we need to focus on strengthening the UK’s appeal in the areas that matter to manufacturers. That means supporting innovation, delivering a skilled and adaptable workforce and maintaining a strong entrepreneurial culture. Most importantly, it means looking again at the business tax system to make sure it reflects the realities of modern manufacturing investment.
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