Budget Submission Final

8/8/2019 Budget Submission Final

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BUDGET 2010

Submission from the Chemical Industries Association

The Chemical Industries Association is the organisation that represents chemical and

pharmaceutical businesses throughout the United Kingdom. In this submission, we arecalling for:

Finance and credit availability for essential investment for the future.Government must continue to use all means available to it to ensure that

business has access to finance at competitive rates – particularly critical as we

emerge from recession. In this respect, the Budget should increase the Annual

Investment Allowance to £150,000.

A more competitive and simplified business taxation regime that helps

incentivise companies to invest in the UK. The introduction of the Patent Box

is a welcome step in this direction but we believe it should be implemented

earlier than the proposed 2013. The proposed increase in National Insurancewill damage job prospects and government should target a phased reduction in

corporation tax to 25% by 2015 and then 20% by 2019.

Energy supplies that are reliable, secure, sustainable and competitivelypriced. Against this backdrop, we believe that the proposed reduction in the

rebate on the Climate Change Levy for Climate Change Agreement

participants - from 80% to 65% - should be limited to what is strictly required

by the EU Energy Tax Directive (ETD). Our calculations suggest that the

relief for electricity could remain as high as 90% in still meeting the ETD. A

higher rate of relief for electricity could in turn neutralise the impact of the

proposed reduction in relief for gas.

Our submission is based on the principle that our industry is a wealth creator for the

UK. Support for industry improves the economic capability of the country to meet the

social and environmental needs of the people of the UK. The adoption of our

proposals would improve the prospects of our businesses in providing quality jobs,

environmental and low carbon solutions; and enhancing further our positive

contribution to the economy of our country.



Chemical and pharmaceutical businesses in the UK

Chemical and pharmaceutical businesses in the UK are part of a £60 billion industry.

We are a significant part of the UK’s manufacturing base and a provider of essential

inputs to most of the rest of manufacturing activity. Every working day in 2009 oursector has added £30 million to the UK balance of trade, while the rest of

manufacturing has shown a £300 million deficit.

The jobs of 600,000 people in the UK depend on the chemical and pharmaceutical

industry. Workers in our industry perform high quality, skilled jobs reflected in pay

levels that are 20% higher than other manufacturing sectors. Chemicals and

pharmaceuticals has an average value added per employee of £92,000, almost double

that of the rest of manufacturing.

The products of our companies are leading the fight to deliver a greener existence for

all – from building insulation and components through to light-weight materials forvehicles.

Seventy per cent of chemical and pharmaceutical businesses in the UK are foreign

owned, so the UK must not only be, but be seen to be, a better place to invest and

manufacture than our competitors. The UK as a place to do chemicals business lies at

the very heart of our attached manufacturing strategy, launched in November 2009 in

the presence of Lord Mandelson.

Finance and credit availability for essential investment for the future

Industry needs to invest regularly in anticipation of demand from customers and to

improve its efficiency, including energy and raw material usage, and thereby maintain

its competitiveness. Right now investment is critical as we try to emerge from

recession. If investment levels cannot be sustained, our competitive position is at

greater risk. In order to invest, money has to be available at an affordable price.

Businesses are struggling to obtain adequate working capital, let alone investment

funds. Financial markets remain far tighter than normal. We ask that Government

continue to use all means available to it to restore commercial lending to normal

prudent levels. Specifically to encourage investment it would help if - from the

limited resources available - the Budget could increase the Annual InvestmentAllowance to £150,000. This would be more meaningful for an industry such as ours,

which has high levels of capital investment. Even a temporary increase would be

helpful.

A related problem with origins in the tightness of liquidity concerns trade credit

insurance, which is still often unavailable or prohibitively expensive. We remind

Government that this issue remains a significant concern to many businesses in the

UK, including those of strategic importance to the country. During 2009, OFGEM

played a helpful role in bringing the respective parties together – insurers, energy

suppliers and customers – and we ask that both Government and OFGEM keep this

issue on their radar.



A competitive and simplified UK business tax regime to promote the UK as a

preferred business location

Businesses can and should contribute to the society in which they operate, not only by

providing good employment opportunities but also through taxation. At the sametime, government must allow business to operate profitably and grow. By doing that

Government will ultimately gain more in sustainable taxation revenue and jobs will be

created.

We of course lobby for favourable taxation rates for our member companies but we

fully acknowledge the need for fair taxation.

In the UK there are three challenges. First, the comparable taxation rates and

incentives in competitor countries are providing greater incentives to invest outside

the UK. Second, the UK has one of the most complex business taxation structures in

the world. Third, there is a political temptation to tax business rather than individualcitizens.

Simplification of taxation could be achieved at no net loss of revenue through a

reduction in headline rates and corresponding withdrawal of exemptions.

We welcome the proposed Patent Box scheme as an example of how to match the

kind of incentives for local investment in R&D and intellectual property. We should

like to see its introduction brought forward. On the other hand, the proposal to

increase levels of National Insurance charges will weaken the UK’s position, and we

ask that it be dropped.

In the longer term we would like Government to state its intention to reduce levels of

corporation tax as soon as the public finances permit, with targets of 25% by 2015,

and 20% by 2020.

Energy supplies that are reliable, secure and competitively priced

Like all UK manufacturers we depend on secure energy supplies at competitive

prices. New technologies are certainly needed, but the costs of the many subsidies

being given – not least to inherently unreliable wind power – and then financed by

levies on users are undermining and even threatening our competitiveness. Our

products, moreover, are enablers of novel energy saving applications throughout theeconomy. The Pre-Budget Report’s announcement of penalizing energy saving

businesses through a too high reduction in the Climate Change Levy rebate from 80%

to 65% is an unnecessary action by Government. Specifically, any reduction in the

rebate on Climate Change Levy given for sector Climate Change Agreements should

be strictly limited to that required to comply with the minimum EU energy tax. CIA

has submitted detailed arguments in a separate letter to the Economic Secretary. A

copy is attached.

The Chemical Industries Association was one of the first signatories to a Climate

Change Agreement, and over a 16-year period we have delivered a 35% energy

efficiency improvement. In view of the environmental benefits from Climate ChangeAgreement energy savings we believe that the associated relief from the Climate



Change Levy is essential for sustaining energy intensive businesses exposed to

international competition.

In order to invest in the UK, business needs to be given the confidence that the many

projects to build energy infrastructure proposed by Government will be successfully

delivered. For the UK to be a viable place to invest we need:

Gas storage facilities urgently provided Funding for research into carbon capture and storage technology for new coal

power stations

Measures that provide energy security prioritised over subsidies to meet

renewable (in practice mainly wind) energy targets

Tight limits on how much of the cost of subsidies for low carbon energy fallson industrial users. Present proposals threaten to add over 70% to wholesale

electricity prices by 2020

The imminent Renewable Heat Incentive to be financed to avoid industry

being driven offshore.

Despite our energy intensity, the chemical and pharmaceutical industry is an essential

enabler of a low carbon future for the UK economy. A recent report by McKinsey

and Company found that for every 1 unit of Carbon Dioxide or equivalent greenhouse

gas (CO2e) emitted in chemical industry production processes the resulting products

enable savings of 2-3 units of CO2e emissions during their lifetime use. In other

words McKinsey calculates that in 2005 without the innovative products of the

chemical industry there would have been 8 to 11% more emissions of CO2e.

Throughout 2010, the Chemical Industries Association will be working to highlight

the specific UK contributions to this outstanding performance.

For more information contact Simon Marsh

020 7963 6725 or [email protected]

Budget Submission Final

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