The government should extend the increase in capital allowances announced in April for another year in the next budget to help struggling engineering firms invest in new equipment, manufacturers’ organisation the EEF has said.
Data from the EEF suggest investment in new machinery has fallen off a cliff in the past two quarters, with the rate of decline comparing unfavourably to the recessions of the 1980s and 1990s. The EEF said the fall in investment in the last quarter had been the sharpest on record. Investment was said to be £1 billion lower in the second quarter of the year compared with the same period in 2008.
Lee Hopley, EEF head of economic policy, said that the government needed to extend the increased capital allowance for another year to allow manufacturers to take advantage of the incentive to invest in kit.
“In order for companies to capitalise on the allowances and make sure that they are geared up with the right kit for the long run, the government must provide not just a stable business environment but extend the increased capital allowance for another 12 months,” she said.
She said companies were currently struggling to take advantage of the incentive with demand uncertain and cashflow constraints. “That’s really offset any incentive that the increased capital allowance has provided over the last couple of quarters. Investment has been a hefty casualty of this recession.”
Hopley added that long-term investment was needed to stave off the threat of competitors in emerging economies. “Companies need to constantly reinvest to make sure they are ahead of competitors in China and India. The longer term strength of the industry relies on ongoing investment in machinery and equipment.”
She said that it was too early to say that there were “concrete” signs of a recovery in industry. “Things are really bumping along the bottom at the moment.”
© PE Publishing 24 November 2009
