THE UK SECRETARY STATE FOR BUSINESS SIR VINCE CABLE

To       The Right Honorable Secretary of State for Business Vince Cable MP.      

From:  Athinarayanan Sanjeevraja

Date:  December 19, 2011

RE:      UK Manufacturing  

Suggestion: UK Corporate Tax Reform

Good Morning Minister. I read Financial Times, London, it reported that you announced £ 125 million set up to improve the global competitiveness of UK advanced manufacturing supply chains. Today companies compete on the competitiveness of their overall supply chains. The loss of major UK plants could jeopardize critical mass in the UK supply chain. It would be a good place to start but as for UK manufacturing and supply chains that are built on complex and often incoherent.

From my perspective UK manufacturing policy is still ineffective. In an effort to revive the manufacturing sector, first, focus on raising the productivity because a successful and dynamic economy must be productive. I suggest UK government should work closely with leading multinationals to improve productivity and remove barriers to growth for new entrants such as land use restrictions and regulatory burdens to make the UK the most attractive place for multinationals.

Second is tax reform because manufacturing competitiveness remains at the heart of corporate tax reform. UK has high value added manufacturers with high wage, more tax on corporate, skilled labour force working with an advanced level of technological infrastructure to produce goods along the higher end of the value goods made multinationals have relocated their activities abroad. For instance, Shire, WPP, Wolseley. Indeed, this has reduced the UK’s tax base. Moreover these companies action also threaten the domestic employment. UK government needs to address these larger issues. I therefore recommend UK government should work closely with multinational businesses to understand what is required to bring the companies back to the UK to make UK the most attractive location for multinationals. In my view, corporate tax should be in the range between 20-22%. This would make UK attractive to companies with low leverage and also improve financial stability. Besides we need to revise R & D tax credit to encourage multinational investments. R & D Tax credit should be based on incremental investment over a baseline rather than investment as in the UK. Moreover, the government should stimulate SME which are among the most innovative or research orientated businesses by lowering their tax thresholds and giving some special capital allowances. The idea is to create an environment where it makes sense for SME to reinvest their profits in UK in new plants and new equipments to turn promising SME into large successful ones.

Third, Government should not engage in selective industrial policy. For instance, UK Government has relatively high level of Defense spending. This would only make Britain’s industrial policy incoherent and the necessary rival of its manufacturing sector unlikely. 

Let me conclude it Mr. Minister, there are many drivers owed to government policy help to shape the competitiveness of UK manufacturing such as talent – Science & Technology, Innovation, cost of labor and materials, supplier network, energy cost, legal and regulatory system, trade policy and financial but corporate tax reform remain the heart of UK manufacturing competitiveness but lowering corporation tax to reverse the recent decline in UK manufacturing competitiveness will attract new multinationals and reduce the outflow of existing companies located in the UK. The loss of further large firms would be extremely costly for the UK. This would lower income directly and reduce the government tax income. In fact effective tax aligned supply chain can help companies to restructure or all stages of their supply chain processes from sourcing and manufacturing to distribution and sales processes. I therefore recommend corporate tax reform to make UK the most attractive location for multinationals.

I hope that my suggestion will play a key role to make UK the most attractive location for multinationals in the future.

I am Athinarayanan Sanjeevraja with great respect of you.