The Chancellor must use the Budget to illustrate how it intends to take forward its principle of ‘industrial activism’, or else risk allowing competing economies to get ahead of the UK, according to manufacturers’ organisation EEF.

The EEF also urged the Chancellor to introduce specific targeted, short-term measures to help companies invest for the future to avoid leaving them too weak to take advantage of the recovery.

It backed its call by releasing data from a poll of manufacturers in the West Midlands showing that investment intentions have fallen to a balance of -56 per cent in the first quarter of this year, the lowest level on record.

Peter O’Grady, West Midlands spokesperson for EEF, said: “The current economic crisis and future long-term trends mean that the UK will need a more diverse economy, including a greater focus on manufacturing. However, other economies are coming to similar conclusions and if we are to steal a march we need to act now.

“A framework from government is needed that sends a strong signal about which industrial solutions will be needed to address the long-term challenges facing the UK. This will provide certainty for business about the UK market and allow the UK to develop companies and sectors that can supply to and compete in global markets.

“In the first instance this will mean doing more to improve the UK’s business environment while outlining how government would intervene to support emerging sectors, markets or technologies.

“A more activist strategy should also focus on how government intends to deploy the policy tools at its disposal, whether it be procurement, the tax system or public research budgets

“This would not entail picking winners but stepping in early rather than only when the market has failed, as is the case now” added Mr O’Grady

On investment, EEF reiterated its call for a temporary increase in the annual investment allowance from £50,000 to £250,000. This would help to reverse previous changes to the tax system which have created a less favourable environment for manufacturing investment.

Mr O’ Grady added: “The long-term competitiveness of UK manufacturing will depend on companies maintaining investment in leading-edge technology and equipment. At a time of increasing international mobility when many companies are looking at where to base their operations, it would also send a signal that the UK is a good place to invest.”

In addition, EEF has made the following recommendations:

* subject to state aid rules, a temporary extension of a payable research and development tax credit to large companies engaged in low-carbon innovation projects;

* introduction of a temporary scrappage incentive scheme for the motor vehicles sector;

* restoration of relief on business rates on empty property;

* measures to underwrite trade credit insurance;

* increases in indirect taxes such as the climate change levy and landfill tax should be postponed;

* full use of the three-year period available to implement the temporary agency workers directive.