Chancellor Philip Hammond has delivered his third Budget Statement – here are the key points which are most relevant for the manufacturing sector.
The Budget 2018 included a package of measures to help stimulate business investment and ease manufacturer’s financial constraints.
The good news is that the Annual Investment Allowance (AIA) will rise from £200,000 to £1m for two years, allowing more expenditure on plant and machinery equipment to be set against business income. Though a longer time-span would have been even more welcome.
With the growing realisation that innovation is the secret sauce behind most economic growth, the Chancellor announced more targeted cost relief for IP-rich businesses, though the details were sketchy at best. The concern is that the relief may end up assisting those who already invest heavily in R&D, rather than encouraging a more widespread sea-change.
Additional money is going towards the UK’s world-class network of Catapult centres, with another £115m for the Digital Catapult Centre and another £70m for the Medicines Discovery Catapult in Alderley.
As part of this investment in R&D, the government will also increase its Industrial Strategy Challenge Fund by £1.1bn. This includes up to £121m for the industry-led ‘Made Smarter’ initiative, which aims to support the transformation of manufacturing through digitally-enabled technologies, such as the Internet of Things (IoT), artificial intelligence (AI) and virtual reality.
The Treasury has already backed the Made Smarter initiative with £25.6m. Around £20m of which will go towards a pilot in the North West, and the remaining £5.6m will be invested in Charlie Mayfield’s Be The Business initiative to fund two pilots in the North West and Cornwall.
The North West Made Smarter Pilot will be launched at Smart Factory Expo – Europe’s largest free digital manufacturing showcase, taking place at Exhibition Centre Liverpool on 14-15 November.
How will the Budget affect your business energy costs?
The Chancellor’s speech may have made little mention of anything energy-related, but the government documents that were subsequently released offer some insights into the UK’s energy future.
The Manufacturer sat down with David Oliver – an energy expert from business utility specialists, Inenco – to discuss how the Budget will affect industrial businesses energy costs and commitments.
The government will also invest a further £235m to support the development and commercialisation of quantum technologies, including up to £70m from the Industrial Strategy Challenge Fund, and £35m to support a new national quantum computing centre. The Budget states that “these technologies will transform capabilities in computing, sensing and communications, bringing promising new approaches to solving global problems such as disease and climate change”.
UK Export Finance’s (UKEF) direct lending facility will increase by £2bn. To replace the EU investment bank if needed, an additional £200m will go to the British Business Bank. The new enterprise allowance will be extended, a measure the Federation of Small Businesses welcomes.
Industry’s frustrations with the current form of the Apprenticeship Levy would appear to have been heeded. The Chancellor announced a £695m initiative to help small firms hire apprentices and that businesses taking on apprentices will only have to contribute 5% towards the training, rather than the previous 10%.
Good news for the food and drink sector with beer, cider and spirits duties are frozen. The transport sector can also rejoice; fuel duty has been frozen for the ninth consecutive year. Wine duty, however, will not be frozen and a bottle will go up by 8p from 1 February next year, despite The Manufacturer highlighting calls from The Wine and Spirit Trade Association to freeze the tax.
A plastic packaging tax was also announced. It will apply to plastic packaging that does not include at least 30% recycled plastic. However, there will be no tax on single-use takeaway plastic cups though despite strong calls from environmentalists.
Philip Law, director general of the British Plastics Federation, noted the importance of investing any revenue raised by the new tax into developing the UK’s recycling infrastructure – which has been described as patchy at best.
The National Living Wage will rise from £7.83 to £8.21 an hour.
Infrastructure, transport, & regions
An extra £420m will go to local highway authorities to tackle potholes, bridge repairs and other minor works. An extra £1.6bn was announced to support the government’s Industrial Strategy, with a focus on technologies like nuclear fusion and quantum computing. There will be £150m for research fellowships and the National Productivity Investment Fund is to increase to more than £38bn by 2023-24.
Though iNo more PFIs for future projects, says the government. A major legacy of New Labour will now be gone. The government will still honour existing PFI contracts though. The chancellor believes they do not deliver value for taxpayers or genuinely transfer risk to the private sector.
George Osborne’s pet project, the Northern Powerhouse will see increasing funding for the Transforming Cities Fund £2.4bn and £90m for trialling new forms of transport, as well as £37m extra for Northern Powerhouse Rail.
A new special economic area will be established in South Tees, an area with high poverty. A plan to develop the central section of East West Rail between Cambridge and Oxford will receive £20m in funding.
For London, the government will assist in building 19,000 homes by improving the DLR through housing infrastructure money. The Chancellor also announces a further £500m for the Housing Infrastructure Fund, to build 650,000 new homes.
The devolved governments will get more public spending. By 2020-2021, an extra £950m will be given to the Scottish Government, £550m for the Welsh Government, and £320m for Northern Irish Executive. More funding is to go towards the City and Growth deals. £150m is intended for Tay Cities in Scotland, £350m for Belfast and £120m for North Wales.
Other Budget 2018 news
The personal allowance shall rise to £12,500 in April 2019, while the Higher Rate Threshold will be £50,000. This delivers on a major Conservative party manifesto commitment. An estimated 32 million people are expected to benefit from the changes.
Schools will receive £400m as an “in-year bonus.” This averages about £10,000 per primary school and £50,000 per secondary school. The Chancellor says the money will help schools “buy the little extras they need.”
An extra £20bn per year to the NHS by 2023 will go ahead. Some of the increase will go to create a mental health crisis service to treat the one in four Britons who experience mental health problems.
The Chancellor concluded by saying: “Austerity is coming to an end, but discipline will remain.”
Winter Outlook: Manufacturers’ energy cost forecast for 2018 and beyond
Faced with record-high costs and ongoing uncertainty, it pays for manufacturers to re-assess their energy risk management strategies to consider how the cost of energy will impact their organisation.
A new report provides a forecast of energy costs for manufacturers over the coming months, comparing manufacturers with and without Energy Intensive Industries exemption and Climate Change Agreements.
To read a comparison between three manufacturing businesses showing the impact of differing non-commodity charges and exemptions, along with a demonstration of the steep curve that continues to rise, please click here.
The UK economy as a whole
The UK economy is expected to grow by 1.6% in 2019, according to the OBR. It also predicts that 800,000 more jobs will be created by 2023 with unemployment forecast to fall to its lowest rate in over four decades in 2019 (3.9%).
Wages are growing at their fastest pace in a decade (3.1%), although they are still below their pre-recession peak. The OBR says there will be real-wage growth every year for the next five years though.
The deficit is expected to fall to 1.4% (£31.8bn) of GDP next year, with borrowing forecast at £31.8bn in 2019-20.
The Chancellor has no plan to eliminate the budget deficit, but debt as a share of GDP is falling from a peak of 85.2% in 2016/17 to 83.7% this year, and is projected to decline to 74.1% by 2023/24.
Next year, Hammond pledges to institute a full spending review, setting out public spending priorities. Annual spending growth is expected to be 1.2%.
You may also be interested in reading:
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- Manufacturers call for upcoming Budget to address Govt’s faltering Industrial Strategy
- Manufacturing pay myth smashed as average salary hits £32.5k
- Budget 2018: Everything manufacturers need to know
Reporting by Harry Wise