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EDITIONS
 Friday, 5 April, 2002, 16:36 GMT 17:36 UK
Manufacturers question Budget measures
Kamela, an employee at a whistle-making factory, works on packaging
Smaller manufacturers remain critical of the government

The pre-announced measures in the upcoming Budget promise valuable savings for larger companies, but they have sparked controversy among manufacturers.

Chancellor Gordon Brown seems determined that his project to overhaul the UK's public services will not distract him from the concerns of big business.

Pre-announced Budget measures
New tax credit on research and development for larger companies
Exemption from capital gains tax
Tax relief on cost of intangible assets, such as brands and patents
Companies in the pharmaceutical and aerospace industries will undoubtedly benefit from a new tax credit on research and development (R&D) for larger firms.

But there are still many UK companies that are crying out for help from the government.

No confidence vote

Struggling manufacturers have been distinctly unimpressed by the new measures and are finding life less than tolerable.

Russell Luckock, AE Harris
Mr Luckock: disillusioned
"No government of any colour wants to do anything for manufacturers," says Russell Luckock, managing director of an engineering company in Birmingham, called A.E. Harris.

"We have lost confidence in politicians per se."

He is dismissive of the pre-announced measures, including the R&D tax credit, exemption from capital gains tax, and tax relief on the cost of intangible assets, such as brands and patents.

"Regrettably, this doesn't affect companies like ourselves," he says. "It's only our clients who will benefit."

Budget bore

The manufacturer JCB has also given a muted response.

"It wasn't a surprise, it was just an extension of what was announced previously," explains spokesman John Palmer, referring to the government's past consultation with business.

JCB
No surprise for JCB in Budget measures
He also adds: "It is no huge benefit as research and development is not an essential part of what we do."

Nick Matthews, a principle fellow at Warwick University and member of the Warwick Manufacturing Group, believes government needs to play a more sophisticated role in supporting manufacturers.

He applauds the new R&D credit for big business and an existing one for smaller companies.

However, he argues that government needs to put in place mechanisms to ensure that manufacturers take advantage of the credit.

"It's not enough to shout at everyone to do R&D, you've got to hold their hand and help," he says.

Hand-holding

Mr Matthews believes that high-volume manufacturers are not conscious enough of how R&D could help them improve their products and cut costs.

For too long, these companies have been living off the innovations of not just their parents, but their grandparents

Nick Matthews
Warwick Manufacturing Group
"Even if we have the fiscal side, we need mechanisms to make companies do it."

To this end, he believes the Chancellor should work with other government departments, as well as regional development agencies, to assist struggling companies.

"For too long, these companies have been living off the innovations of not just their parents, but their grandparents," he says.

"In Britain, we have not really had a tradition of doing R&D anymore."

More help

But at A.E. Harris, Mr Luckock would prefer more radical action from the government to ease pressure on the manufacturing sector.

"I would like to see any measure to reduce [the strength of] the pound by 30%. I would like to see them intervene to devalue the pound."

Although not all manufacturers would welcome a devaluation, many agree that they are penalised by the exchange rate and the impact it has on their competitiveness with other companies in Europe.

"It is a real disadvantage to us which we have to overcome in some way," says Neale Jauncey, a senior manager at Land Rover in Solihull.

Other measures, Mr Luckock would like to see in the Budget include better regulation and a reduction in red tape.

He complains that too much of his time is taken up administering the government's tax credit system, such as the Working Families Tax Credit.

Ministerial absences

And Mr Luckock is not alone in believing that that government is unsupportive.

Earlier this month, engineering company Hydrapower Dynamics was disappointed by the absence of Alan Johnson MP during a meeting in the West Midlands on manufacturing.

Mr Johnson, also Minister of State for Employment Relations & the Regions at the Department of Trade and Industry, failed to attend an event called "Manufacturing Matters".

In a letter explaining his absence to the company, Mr Johnson admitted he had agreed to attend, but only "subject to my diary".

Another meeting in Brussels was then "confirmed" and kept him away.

He continued in his letter:

"You may rest assured that there was no intention... of any member of government snubbing the event, although it's fair to say that there should have been better coordination to ensure that a Minister was able to attend this important event."

Such incidents only exacerbate the divide between manufacturers and the government.

The Chancellor's upcoming Budget could hardly repair all of the damage, but the manufacturers are adamant that there is more he could do to help.


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26 Mar 02 | Business
26 Mar 02 | Business
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