Higher taxes denting manufacturers' productivity drive

Higher taxes are undermining industry efforts to raise productivity and control costs, the latest quarterly State of Trade Survey by the Construction Products Association (CPA) has revealed today (Friday).

Allan Wilén, CPA economics director, said: "Construction product manufacturers have steadily increased their capital expenditure over the last year, a trend that is set to accelerate over the coming months.

"Extra investment has been primarily directed at plant & equipment, e-business and product improvements; all areas that help deliver efficiency gains. These are now starting to filter through with 38% of firms reporting that their unit costs have benefited from productivity improvements over the last year."

Wilen added that many firms, especially on the heavy-side, have seen these productivity gains eroded as the Climate Change Levy and the Aggregates Tax have increased their tax burden and added to the raw material costs faced by product manufacturers downstream. 

"These cost increases are adding to domestic selling prices, with 40% of heavy-side firms reporting price rises of over 2.5% and National Insurance rises planned for next April will add further to these costs," he said.

More encouragingly, industry confidence remains positive. Overall, construction product manufacturers enjoyed buoyant sales volumes during the second quarter of 2002, despite a poor June that was disrupted by the Jubilee celebrations and the World Cup.

Two-thirds of firms saw sales up on a year earlier, with 40% seeing sales jump by more than 5%. Expectations remain positive for the year ahead.

Light-side firms anticipate that the demand for their products will remain steady in the key private housing and commercial sectors, while heavy-side producers are looking particularly to the delivery of promised government investment in the built environment.