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Five year tax holiday required to stop manufacturing decline being absolute and terminal

Professor SK Bhattacharyya
Originally published 30 September 2003

Speaking at an AMICUS Fringe Meeting at Labour Party Conference yesterday (29th Sept 2003) on the subject
"Rebuilding Manufacturing" Professor Sir Kumar Bhattacharyya Head of the Warwick Manufacturing Group at the University of Warwick called for a five year tax holiday for new manufacturers to stop UK manufacturing decline from being absolute and terminal. He said:

"British manufacturing industry has been in relative decline for many years, but we are now in danger of passing a point of no return which renders that decline both absolute and terminal. This is happening at a moment when the need for a critical mass in manufacturing is being highlighted by the globalisation of the service sector. This trend has exposed the myth that service sector growth could compensate for any amount of manufacturing decline."

"With UK service sector jobs under increasing challenge from offshore rivals, the need to reverse our manufacturing decline has become imperative. Yet the manufacturing turnround challenge is forbidding. British manufacturing's fundamental problem is our failure to innovate successfully - to develop and commercialise the new products that every country and sector needs to drive top line and margin growth in a globalised, deflationary world. Britain is not yet product-bankrupt; but we are running a huge product deficit."

"We are not addressing the right problems to improve the situation. Business leaders constantly call for increased flexibility, leaner business practices, deregulation and more jobs. What we need is proper grass-roots investment in the manufacturing sector at home to help us to develop new products, which we can produce competitively and market at home and abroad."

"The UK has a strong research base and is second only to the US in the commercialisation of its research. But, despite these strengths, the number of new manufacturing start-ups is going down, and their rate of insolvency is on the up. The cost of setting up a manufacturing business is prohibitive compared with that of starting up in the service sector. We need a 5-year tax holiday to enable new manufacturing businesses to get off the ground. 100% capital allowances for productive investment would make them more sustainable and thus improve their longevity in the market place."

"Manufacturing also requires more specialised skills than other sectors. To this end, learning and training needs to be decentralised and given back to the businesses to close the gap between the demand for and the supply of skills. A training levy on the payroll, or tax allowances for companies would help achieve this."

"None of this will produce an instant manufacturing regeneration. But it will help to put in place the rebuilding blocks that are essential if we are to resist what is unquestionably a very serious threat to our future economic growth and prosperity."

For further information contact:

Nick Matthews,
Warwick Manufacturing Group
University of Warwick
Tel: 024 76 572506