Today all eyes were on the Chancellor who, against the backdrop of an on-going global pandemic, set it out his Budget statement. Manufacturers have been waiting patiently for today’s announcement, not just to hear what support industry would receive in response to Covid-19 but also what the longer-term vision and strategy was from Government, and what role the Chancellor saw manufacturing playing.
So did he deliver? Here is where we think are the main takeaways from today’s announcement:
1. A supertax deduction to spur on much needed investment:Make UK research published earlier this year shown some positive signs that manufacturers will finally invest in capital equipment as well as digital and green technologies which we know are crucial for long-term recovery. Our concern has always been how we turn those plans into reality.
Today the Chancellor announced a supertax deduction which means from 1 April 2021 until 31 March 2023, companies investing in qualifying new plant and machinery assets will benefit from a 130% first-year capital allowance. This upfront super-deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest.
This supertax deduction is what we call a super policy win over at Make UK. Long have we called for more significant incentives to invest and today we have it. Any company considering investing in capital expenditure in the near future may be considered foolish not to take the opportunity to use this initiative.
2. Increases to Corporation Tax planned for 2023While the words ‘increases to Corporation Tax’ will naturally not be welcomed by businesses, when the Chancellor announced his plan to increase Corporation Tax to 25% by April 2023 it came as little surprise given whispers of a tax increase have been circulating for months.
To some extent Industry will accept it is a price that needs to be paid in terms of fairness and to help the economy return to more bullish times. And the Chancellor has taken a tapered approach to this too – so it won’t mean all businesses are hit with this rate in 2023. In fact there will be a Small Profits Rate of 19% for businesses making smaller profits.
That said, increasing corporation tax is only one way of improving the UK’s fiscal position. An alternative means is to direct investment to growing the size of the economy and this should always be our long-term focus. Let’s be honest – you were never going to hear us really cheer on this!
3. Extension of the Job Retention Scheme to SeptemberWhat did Make UK call for? An extension of the Job Retention Scheme to Q3. What did Make UK get? An extension of the Job Retention Scheme to Q3 (end of September).
The Job Retention Scheme has been a lifeline for many manufacturing businesses and their employees. The extension will be a sigh of relief for manufacturing employers who experienced some of the highest churn rates in years in 2020 due to redundancies and are still considering further lay-offs. The Chancellor has balanced the need to maintain support for jobs while clearly signalling the scheme must end when the economy opens up. For that we applaud him.
4. Apprentices incentive payments for employers increase but no mention of the LevySkills, skills, skills. Apprenticeships, Apprenticeships, Apprenticeships. We are also on the edge of our seats wondering whether the Chancellor will finally shake up the Apprenticeship Levy. I’m afraid to say – he did not.
He did, however, announce that the incentive payments for employers to recruit apprentices would increase to £3,000. Ok. Let’s call that a step in the right direction. But if we, as a manufacturing industry, is honest with ourselves, these are still baby steps and with apprenticeship starts showing no signs of bouncing back, employers want to see bolder measures to support apprenticeships.
Make UK is currently scoping out what this would look like in practice - so watch this space.
5. A consultation on R&D tax creditsA bit like Apprenticeships, business rates and investment allowances, the other big-ticket item we look out for is investment in R&D and our Budget submission made clear we wanted to see some reform in this space. While we didn’t get outright reform, we got the next best thing – a consultation to explore what this would look like.
This sends a strong signal to industry that government is committed to boosting science and innovation and ensuring that UK manufacturing can continue to compete on the global stage. Make UK’s research has found that not only do manufacturers see real value in the R&D tax credit, but it is by a landslide the most commonly used form of innovation support.
So what would good look like for us? Well, an increase in the rate, simplifying of the system and allowing employers to include capital expenditure too.
6. Supporting management skills for all businessesThe Chancellor also announced two Help to Grow schemes, one focused on a new management offer to support SMEs to upskill, and the second, focused on vouchers to purchase productivity-enhancing software. Whilst these two schemes only focuses on SMEs, we know that this targeted support is crucial if we want to encourage more manufacturers to start up and scale up here in the UK.
Given improving management skills has long been underestimated in its importance in boosting UK productivity, the Help to Grow Management scheme is welcome news. If manufacturing is to reap the full benefits of digitalisation and adapt to new working practices, we know how important improving management skills is. It’s another big win for us.
7. Levelling up comes to come to life:Our recent research found that the term ‘Levelling up’ meant little to manufacturers, with no sign of things changing on their doorsteps. But today’s announcement of £22bn for the National Infrastructure to begin spending on local projects is a sign things may be changing.
Focussing on better digital connectivity and improved local transport should be Government’s immediate priorities. Doing so should support regional growth and can be a catalyst for reviving and rebalancing our regions, as well as powering our industrial base.
But as we’ve called for, for some time, we need a long-term strategic vision in the form of a refreshed Industrial Strategy. A reenergised national Industrial Strategy should re-gearing our economy towards one that builds on our comparative advantage in advanced manufacturing and supports the next generation of start-ups to scale-up their companies here in the UK. Look out for more thinking on this later this month.