Budget 2014: industry reacts

Posted on 19 Mar 2014 by The Manufacturer

James Pozzi canvasses the opinions of UK manufacturing as it reacts to chancellor George Osborne's 2014 Budget.

“A budget for the makers, doers and the savers,” was how the chancellor rounded off his 2014 Budget, which had a notably more industry-focused theme this time around than in previous years.

In a government championing the rebalancing of the economy away from one overly reliant on the finance and service sectors, Osborne wasn’t shy in beating the drum for its achievements for manufacturing to date.

He proudly cited the UK as the world’s fastest growing advanced economy and the coalition’s commitment to bringing back manufacturing as a cornerstone of  UK GDP, to which it currently contributes around 10%.

Despite the pending announcement of a new £1 coin seemingly taking a lot of the pre-Budget headlines, the world of industry had high hopes of a manufacturing-friendly Budget focused on tackling obstacles such as energy and exports.

So what did the chancellor implement, and how will it impact on manufacturing’s role in an economy forecast to grow by 1.7% in 2014?

Key points include:

  • Direct lending from government to UK businesses to promote exports doubled to £3bn and interest rates on that lending cut by a third
  • Business rate discounts and enhanced capital allowances in enterprise zones extended for three years
  • R&D tax credit rising from 11% to 14.5%
  • Up to £7bn cut from manufacturing energy bills
  • A freeze on carbon tax charged to large CO2 emitters at £18 a tonne for ten years from 2016
  • Doubling the investment allowance to £500k per annum
  • The setting up of a new regulator to ensure companies work together to maximise the amount of oil and gas they extract

A wide-ranging selection of industry names spoke to TM to give their views on the the Budget proposals.

“A budget for manufacturers”

Terry Scuoler, Chief Executive of EEF
Terry Scuoler, Chief Executive of EEF

Terry Scuoler, chief executive of EEF, believes George Osborne delivered on his pre-Budget promise of this being one for manufacturers. “We argued strongly for the need to reduce the rising cost of energy faced by many companies, and he’s acted on that,” he said.

“Taken together with measures to boost investment, exports and skills, the Chancellor deserves a pat on the back.We have always said that to achieve a resilient recovery Government must back manufacturing and we’ve seen that from this Budget.”

But Mr Scuoler also believes further work is required in order to enhance the cause of UK manufacturing. “We now need to take steps which will lead to longer term solutions beyond current spending and electoral cycles,” he said. “This will finally give business the predictability and certainty to encourage the successive rounds of investment our economy needs.”

Praise for the Budget was also shared by the Confederation of British Industry (CBI), who highlighted its industry-friendly theme. Its director-general John Cridland said it will “put wind in the sails of business investment, especially for manufacturers.”

Mr Cridland said: “This was a make or break budget coming at a critical time in the recovery and the Chancellor has focussed his firepower on areas that have the potential to lock in growth.”

The tackling of energy costs

One of manufacturing’s most emotive topics is spiralling energy costs, which particularly hamper high users in the steel, chemical and food industries. Melanie Leech, director general at the Food and Drink Federation, believes the decision to freeze the Carbon Price Support (CPS) will be helpful to all manufacturers in the food sector.

“The adoption of our recommendation for Carbon Price Support (CPS) to be frozen will help all manufacturers in our sector while the exemption of industrial Combined Heat and Power (CHP) plants from CPS for the on-site generation of electricity will benefit existing and new users of the technology which is in widespread use throughout our sector,” she said.

“These changes will provide welcome relief to businesses large and small throughout the UK’s largest manufacturing sector and reward those who invest in energy efficient technologies.”

David Brimelow, managing director of polythene packaging manufacturing SME Duo UK, feels the new energy cost reductions will be an advantage to his Manchester-based firm. “Reductions in energy and operating costs will help make it easier for us to continue to finance our business and to grow,” he said. “We are not just investing in plant and equipment but also in our people; we intend to up-skill our existing workforce, ensuring the skills needed for manufacturing remain in the UK.

Nick Michaelson, CEO of labelling solutions manufacturer Silver Fox said: “Like all other manufacturers we at Silver Fox would welcome the announcement of a £7Bn package to help control the costs of energy so enabling us to become even more competitive in our world markets. That’s not too say that at Silver Fox has been standing still on controlling our energy usage. A program of energy saving measures was initiated 7 years ago which has helped to systematically reduce our energy demands and so keep our final energy costs in check despite regular increases in unit costs.”

Britain as an exporter

Jeremy Cooper, head of retail at accountancy firm Crowe Clark Whitehill, said the budget provided a good boost for the UK’s export market, which the chancellor acknowledges needs to accelerate its growth. He intends to do this by increasing direct lending from government to UK businesses to promote exports doubled to £3bn and interest rates on that lending cut by a third.

“It is good to see the Chancellor encouraging retailers to make sales outside of the UK,” said Mr Cooper. “Overhauling UK Export Finance’s (UKEF) direct lending programme, doubling it to £3 billion and cutting interest rates to the lowest permitted levels will help retailers take advantage of fast-growing emerging economies.”

Nick Michaelson, CEO of Silver Fox added: “We also are pleased to see this Budget announce help for businesses to invest and export with the 100% annual tax allowance for investment doubled to £500,000 alongside the doubling of government credit available to support overseas sales to £3bn while the interest rate charged on that credit has been reduced by a third.”

The chancellor spoke of the government being traditionally the last port of call for businesses looking for advice, something he is set on changing through channels such as UKTI. Jayne Hussey, a Partner at international law firm Pinsent Masons who specialises in advising manufacturers on overseas expansion, believes while the government is committed to exports, finding the right support is difficult particularly for SMEs.

“British manufacturers will be pleased to see the governments continued support for growth in exports.  That said, industry feedback, particularly at SME level, is that there are too many government and semi-government agencies offering advice, guidance and possible access to finance – and that it is often difficult to understand how to access the right support and advice,” she said.

“There is not enough clarity around eligibility for funding and how to access it. On a very practical level, there is a need to communicate the help that is available better and to appoint one central body to take the lead.”

But not every manufacturer was sold on Osborne’s budget. Ben Halford, CEO of UK SME Surface Generation, described it to TM as “too little too late.”

“The announcement that the Government is going to double the available finance for companies exporting to £3 billion and that interest rates on this will be cut by a third is welcome news but the amount is not enough and we will have to wait and see how easy it is to access,” he said.

Investment and skills

Tony Attard, chairman of the Institute of Directors North West, feels the increasing in capital investment allowance from £250,000 to £500,000 presents a great opportunity for businesses.  “The increase in capital investment allowance from £250,000 to £500,000 will be a great incentive for business to invest in new equipment and technology, the reduction in carbon tax to reduce energy costs further helps manufacturing,” he said.

Mark Ridgway
Mark Ridgway OBE, president of MTA

This was also shared by Mark Ridgway OBE, president of MTA, who called for the policy to be go beyond one year and be made permanent. “The Chancellor’s move to increase the Annual Investment Allowance, which the MTA urged, to £500,000 is very welcome. But it has only been extended in duration for one year,” he said. “The next step must be to make the rate permanent in order to give businesses the certainty they need to invest.”

Championing innovation

Juergen Maier, managing director of Siemens Industry UK believes there needs to be more focus on maximising existing initiatives as opposed to starting new ones. “I was looking for more support for the now well established UK High Value Manufacturing Catapults- as low hanging fruit –  to speed up the cycle from British based science and innovation to exportable products,” he said. “Generally speaking we need to get better at sustaining existing initiatives rather than starting new ones.”

Dr Sarah Main at the Campaign for Science and Engineering, believes the UK needs to further up its investment in research and development, which increased from 11% to 14.5%. Osborne announced a £222m investment in research programmes such as the Alan Turing Centre for ‘big data’ research, the catapult centres for cell therapy and graphene research, and doctoral training centres in science, maths and engineering.

“In order to be in the ‘global race’, the UK needs to be able to compete to attract scientists, engineers, students and international R&D businesses,” said Dr Main. “Our restricted investment in research over the last four years is in danger of affecting the UK’s international appeal as companies look to government investment plans before committing to locate new R&D facilities,” she added, citing the UK’s drop of 35% in the location of international R&D laboratories.

Iain Gray, CEO of the Technology Strategy Board, congratulated Osborne for supporting UK innovation and the commercialisation of know-how however. In reference to Osborne’s commitment to pour more resource into the flourishing Catapult centres: “This investment will enhance the capabilities of the Catapult network and plug a gap in UK manufacturing capability in these two important areas. [The Budget] announcement is a positive endorsement from Government of the rapid progress Catapults are making in helping UK businesses accelerate the commercialisation of new and innovative technologies.”