Increasing levels of tax and the growing complexity of the taxation system is damaging the UK as a competitive location for manufacturing, employers have warned.
The EEF, which represents over 6,000 manufacturing, engineering and technology-based businesses, says that tax is increasing the cost of doing business in the UK and making it difficult for companies to reap the full benefit of strong and stable economic growth.
A competitive and low-cost tax system is an important part of how government can help manufacturing address the challenges it faces.
"Whilst government is actively promoting innovation and improved skill levels, the rising cost and complexity of business tax is preventing companies from taking full advantage of this to improve their performance," said EEF Director General, Martin Temple.
"Our long-held competitive advantage on tax is starting to erode. The UK's tax burden has been rising while falling in many other countries, who are actively designing their tax systems to attract high value manufacturing."
The warning is contained in report by the EERF which suggests alternative approaches to those aspects of the current tax system most damaging to manufacturing competitiveness.
It also follows the recent announcements of a new Business Research Tax Centre at Oxford University's Said Business School and a Conservative Party Commission to look into simpler, fairer and flatter taxes.
According to the report, in 2005/6 business will pay an additional £2.2billion annually in corporation tax and an additional £5.5billion in other business-related taxes, with some of this increase coming from introducing new 'input' taxes on business, such as the Climate Change Levy
It also points out that between 1997 and 2006, only a handful of OECD countries will have seen a greater increase than the UK in their tax burden while during the same period, the US, most large EU countries and the newly acceded members of the EU have seen their tax burdens fall.
Any further increase in taxation will make it ever harder for Britain's manufacturing sector to break out of the cycle of weak profitability and low investment, the report warns.
It adds that whilst manufacturers understand the need to invest in the UK's infrastructure and improved public services, they also believe that in instances where tax revenues are spent inefficiently this will limit the UK's long run growth potential and add further to the business tax bill.
In addition, while the government has acknowledged the need to cut red tape for business, the sheer magnitude and complexity of the current UK tax system remains difficult and costly to navigate, the EEF says.
To address these concerns, the report calls on the government to avoid any further increases in the tax burden on business, particularly National Insurance Contributions and environmental taxes, and to pursue the simplification of the tax system.
At the same time, the government needs to step up efforts to achieve its 2.5 per cent annual efficiency savings in public spending and re-direct its current policy on environmental taxes away from the 'stick' and towards the 'carrot' approach.