Boost for green and new technologies in debt-laden Budget

Posted on 22 Apr 2009 by The Manufacturer

Alistair Darling announced a £750m investment fund for emerging technologies and £435m of support for building offshore wind farms in a Budget that was dominated by eye-watering public borrowing figures

Photo: BBC

Amid the headline debt figures – including forecast borrowing for 2009 of £175bn, up from £43bn forecast in the last Budget – the key measures for manufacturers included £405m of state funding to assist green manufacturing projects. It also included £500m of extra finance to help the construction industry build more homes and complete unfinished works. The Chancellor promised £260m of extra money to help young people acquire more skills and training, which will benefit the manufacturing sector.

The £750m fund for the Government’s ‘New Industry, New Jobs’ programme is aimed at preparing Britain for the global economic recovery by investing in business in key new technologies including low carbon business, life sciences and communications technologies.

Commitment to reduce the UK’s carbon emissions was stated at a whopping 34% by 2020, a target that looks optimistic at best based on current emissions.

Among the minor measures was a £2,000 discount from May on cars bought where the owner scraps another car more than 10 years old.

Key measures of the Budget 2009 for business:

• Capital allowance for investment over £50,000 doubled to 40%

• £750 million investment fund for new technologies

• £435m for offshore wind industry

• All people under the age of 25 and out of work for a
year to be offered training or a job

• £405m new funding to encourage low carbon manufacturing and green energy

• Statutory redundancy pay up to £380pw from £350

• Commitment to cut carbon emissions by 34% by 2020

• Loss making companies to get tax on profits from last three years

Capital allowances
On this key issue for manufacturers, government announced an enhanced capital allowance in the year of acquisition of 40% for one year beginning April 2009. This is in addition to the Annual Investment Allowance on the first £50,000 of expenditure.
“The doubling of the main rate of capital allowances is certainly welcome and should encourage businesses to bring forward new capital investment in plant and machinery,” says Stephen Herring, senior tax partner at BDO Stoy Hayward LLP. The benefit however, will only be felt by businesses spending more than £50,000 (the current allowance) on qualifying capital expenditure.
“Although the doubling of the main rate of capital allowances to 40% for a twelve month period is welcome, the constant tinkering with capital allowance rates does result in significant added administration,” Herring adds. “It also adds complexity for many businesses in having to track when capital expenditure is deemed to take place for taxation purposes and ensuring the correct allowances are claimed.”

Lowlights of the Budget announcement includes the forecast that public debt will be 59% of GDP by the end of the year, and 79% of GDP by 2013. Public debt is now twice as high as when the Labour party won the election in 1997, and UK borrowing is higher now than when Dennis Healey appealed to the IMF for emergency funding in 1975.

Since the Chancellor’s speech the pound and British shares were down slightly but analysts said there was no major concern to be drawn by this.


UK Trade and Investment minister Lord Davies of Abersoch welcomed an extra boost of £10m to help UK businesses export, saying it will help business prepare better for the economic recovery. The £10m, which will be spent over the next two financial years, is an additional 5% on top of UK Trade & Investment’s (UKTI) current annual programme budget of £91m. It will target UK firms with a high potential for growth and top inward investors.

Lord Davies said: “This money will be well-spent. Independent research shows that every £1 spent by UK Trade & Investment generates £16 in benefit for the UK economy. We have helped 20,700 firms generate £3.6bn in one year.”

On the £2,000 car scrappage sweetener, Matthew Alabaster, manufacturing specialist at PriceWaterhouse Coopers, said:

“The scheme would inject some much-needed demand into an industry hard hit by falling consumer confidence. However, the cost-benefit of such a scheme is far from clear for the industry as a whole. It proved successful in Germany however, the average age of the German car is 8.0 years, noticeably higher than the 6.8 years seen in the UK. Consumer debt is significantly higher in the UK, restricting the ability of many people to leap from an old to a new car, even with an incentive.

A scrappage scheme would not specifically target cars made in the UK. Only around 15% of cars bought in the UK are made here. The beneficiaries would be producers of small, high volume cars, most of which are imported from the rest of Europe. It would clearly have minimal impact on UK premium manufacturers such as Jaguar and Land Rover.”

The Conservative Party leader David Cameron said that, over a four year period, the UK will borrow £606bn, “a staggering amount”, and mocked the plan to give £2,000 car scrappage incentive of 10 years or more as being a “genius” idea.

The BBC’s Nick Robinson said the idea of raising tax on salaries over £150,000 is only likely to raise a minimal amount and that its inclusion is more likely meant as a challenge to the Conservative party – announce intentions to change it back in keeping with Tory values or back it for the lower class vote.

Click here for reactions from EEF, the Federation of Small Businesses, the Society of British Aerospace Companies and the Food and Drink Federation.