By William Schomberg
WOMBWELL, England (Reuters) - Edward Naylor plans to double investment at his plastic and concrete pipe factories over the next two years, spurred on by a huge new tax break from finance minister Rishi Sunak who is hoping to deliver an upgrade of British industry.
Sunak announced on March 3 "the biggest business tax cut in modern British history" as the economy emerges from its COVID-19 slump and faces up to life outside the European Union.
At one of his firm's six plants, mostly in northern England's former mining belts, Naylor said he was planning four years' worth of spending - more than 10 million pounds in total - before the scheme ends in March 2023.
"There's no way we would have spent what we will over the next couple of years without the nudge of Rishi saying crack on and we will make it worth your while," he said at the plant near the town of Barnsley.
The scale of the "super deduction" - allowing firms to cut their tax bill by up to 25 pence for every 1 pound they invest - represents a big incentive to bring forward expenditure.
It will cost the government an estimated 12 billion pounds in 2021 and the same again in 2022, 10 times as much as a similar measure announced in 2009 when Britain was seeking to help businesses recover from the global financial crisis.
Naylor Industries will invest in cooling units, extrusion lines for the production of spiral tubing, automated pipe coilers and other equipment to accelerate and expand output.
That will help improve efficiency, Naylor said, just as many British customers are looking to shorten their supply chains to avoid Brexit-related border hassles and the rising costs of imports from countries such as China.
The group primarily makes pipes for the construction industry but is also Britain's biggest maker of terracotta flower pots, a throwback to the founding of the firm in 1890 by Naylor's great-grandfather to make clay pipes to serve the Victorian-era boom in sewage and water systems.
It's not just Naylor who is preparing an investment push. Plans by manufacturers to buy new plant and machinery were the strongest since 1997 in March, according to the Confederation of British Industry.
Similarly, a poll by accountancy firm Deloitte found the chief financial officers of large British firms went from being the least likely in Europe to invest in their businesses to the most likely last month.
GRAPHIC-Investment plans strongest in UK companies: Deloitte https://fingfx.thomsonreuters.com/gfx/polling/rlgpdzyqgpo/Pasted%20image%201619686694904.png
Ian Stewart, Deloitte's chief UK economist, said he was taken aback by the turnaround, which has also been helped by Britain's fast COVID-19 vaccine roll-out and a global economic boost from U.S. President Joe Biden's stimulus plans.
"This could be a golden moment for investment," Stewart said. "There's lots of talk about demand from the consumer side, but big corporates have strengthened their balance sheets and they have much higher cash levels than a year ago."
Some, however, worry about side-effects from the investment incentive.
Paul Johnson, head of the Institute for Fiscal Studies think tank, said the scheme might boost the economy but it also risked subsidising unviable projects and causing investment to dry up when it expires.
Sunak plans to raise corporate taxes in 2023 to help recoup the cost of emergency support during the health crisis, which has saddled Britain with its heaviest peacetime borrowing.
For the past two decades, Britain's competitiveness has suffered from under-investment as many employers relied instead on relatively cheap workers who flocked to the country under European Union freedom of movement rules.
Productivity levels have been more than 20% lower than in the United States, France and Germany, with British business investment lagging that in the three countries every year since at least 2000, according to figures from the Organisation for Economic Cooperation and Development.
GRAPHIC-Britain lags peers for business investment https://fingfx.thomsonreuters.com/gfx/polling/xlbpgeammpq/Pasted%20image%201619686579626.png
The OECD also says the proportion of under-qualified workers in Britain is one of the highest among its member countries.
But with Britain out of the EU, the easy supply of workers is likely to diminish.
"Clients are finding that the labour just isn't there and some of that is making them look at whether they need improved plant and machinery," Ed Dwan, a partner at accountancy firm BDO, said.
The firm's survey of 500 small firms last month found nearly half were planning new investments due to the super deduction.
Gavin Cordwell-Smith, chief executive of Hellens Group, with interests ranging from property development to manufacturing, is bringing forward an investment of between 1.0 million and 1.5 million pounds by Oakdale, one of his firms which makes paving slabs.
Until Sunak's announcement, Cordwell-Smith had planned the purchase of a new press capable of making kerbs for some time in the mid-2020s.
"Sometimes you need something to tip the scales and this has tipped the scales for us," he said.
(Graphics by Andy Bruce; Writing by William Schomberg; Additional reporting by David Milliken; Editing by Kirsten Donovan)