UK manufacturers have said the country needs to undertake a major reform of its “uncompetitive business tax and regulatory environment”, amid concerns that is puts businesses at a risk of falling behind  their international rivals.

Manufactures’ organisation Make UK and tax and auditing company RSM issued the call as they released the results of a new survey of  manufacturers.

The study, Manufacturing Growth: Building a Competitive Business Environment, outline what the organisations say is “the daunting challenge to reform the UK regime of taxation and regulation”, with almost half (44%) of companies believing the current system is unfavourable and more than a quarter saying it is worse than China and other major competitors.

Both physical and digital infrastructure investment are crucial to meeting the manufacturing industry and its employee’s needs, with 36% of companies stating the business environment is central to a modern industrial strategy.  However, the quality of road infrastructure was cited as bad or very bad by 44% of respondents, and nearly half (46%) said the same about rail infrastructure – which rises to 55% in the north despite investments in HS2.

Place-based economic incentives, such as special economic zones, freeports or investment zones vary in their benefits, however, most UK manufacturers (62%) are not based in any special economic zones, and 73% are not willing to relocate to these zones, and less than a third of industry believe they are an effective means of generating economic growth.

Furthermore, companies have stated that frequent changes to policies on investment and R&D incentives in recent years have hampered business investment plans – just 8% of companies say tax and regulation have no impact on investment decisions.

“Manufacturers are clear that many aspects of the current tax and regulatory system are not fit for purpose and are failing to promote the vital investment in skills, capital and green growth,” explained.” Fhaheen Khan, senior economist, Make UK. “This is not helped by the fact we have two fiscal statements a year which hampers business planning.
“We cannot continue with the current flip flopping and policy inconsistency if we are to shake the economy out of its current anaemic state and promote long-term growth. Government must start by conducting an urgent MOT of the current unfavourable regime to make it work for, rather than against, business.”

Make UK said reforms would look at measures, such as business rates, the research and development (R&D) tax credits, the apprentice levy and the capital allowances and full expensing system, and whether they are fit for an economy undergoing huge transformational change and in the need of long-term investment.

Crucially, the report provides further evidence that companies believe that an industrial strategy which encompasses reform of the current tax and regulation system would lead to greater investment in labour and skills, R&D and decarbonisation, it added.

Mike Thornton, head of manufacturing, RSM added: “The correlation between tax and regulation and economic growth is clear. Yet UK manufacturers find the current framework a burden and unfavourable – putting the UK industry at a competitive disadvantage globally. Long-term commitment to generous and accessible incentives, and simplified regulations, are key to boosting future investment, productivity and skills.”