Manufacturers react to the Spring Statement 2022

Posted on 23 Mar 2022 by Lanna Deamer

Rishi Sunak’s Spring Statement was announced earlier today, as the Chancellor gave an update on the current state of the country’s finances, as well as touching on future plans.

Investment is a key driver of productivity growth, and by adding to the economy’s capital stock and improving the skills of the workforce, the UK government believes the economy can produce more with the same input from workers. Sunak stated that throughout history and across all sectors of the economy, investments in machinery and improved skills have delivered higher levels of output for the same amount of labour.

The impact of the pandemic has affected recent business investment in the UK. But it is now recovering, growing by 0.9% in the final quarter of last year.

Sunak also said that reform will support nascent sectors where the UK has a comparative advantage such as artificial intelligence, quantum computing and robotics while also supporting strong sectors such as manufacturing and design.

Manufacturers react to the Spring Statement:

Katherine Bennett, CEO of the High Value Manufacturing Catapult, said: “The chancellor has set a clear policy direction for encouraging business investment in R&D, innovation and skills. This investment is vital if we are to achieve the ambition of turning the UK into a top five manufacturing economy by the end of the decade, transforming derelict industrial landscapes of our past into the job-creating research clusters of the future.

“The challenge over the coming months – and certainly for the Autumn Budget – is to provide the detail necessary to meet that ambition. This is particularly important as we come to the end of the super-deduction tax break – which has allowed firms to cut their tax bill for up to 25p of every £1 they invest – and the introduction of an increased rate of corporation tax in 2023.”

David Nicklin, Managing Director at West Midlands-based Nicklin Transit Packaging, said: “The measures outlined in today’s statement don’t address the complex challenges facing the manufacturing sector right now, where costs are increasing on multiple fronts. Inflationary pressure is affecting all businesses, but it presents an even greater problem for those in energy intensive industries like ours.

“While we have invested in the necessary measures to build a resilient business by shoring up our supply chain and sharpening our strategic approach, there must be a realisation among policy makers that specific and targeted support right now is essential if we are to ‘build back better’ from the pandemic.

“Looking to the future, the promised review of tax measures designed to incentivise investment in training and R&D is a welcome move and a process that we will certainly engage in to share our perspective on the provisions that would make a tangible difference.”

Chief Executive of the Manufacturing Technology Centre Dr Clive Hickman OBE said: “We welcome the Spring Statement, which outlines concrete steps to ensure that the manufacturing sector remains competitive, sustainable, and resilient. The Government’s commitment to cut tax rates on business investment is important if the UK is to boost manufacturing productivity and create high-quality jobs. In addition, the reform to R&D tax credits is a very positive step that will enable the scheme to be more effective, better value for money, and more generous. These measures will be crucial to spur innovation and encourage investment across the country.”

Stephen Phipson, Chief Executive of Make UK, said: “It is right that the Chancellor should prioritise help for the lower paid and those most in need at such a difficult time, and business will understand this.

“However, government cannot escape the fact that manufacturers are facing eye watering cost increases that are pushing many towards a tipping point and companies would have been looking for substantial business support measures to help alleviate these. In particular, the lack of action on energy costs for business is especially hard to fathom.

“It has been two years to the day since lockdown began and there is very little in today’s statement to support a sector that kept working throughout the pandemic, ensuring that there was food on the shelves, PPE for our NHS and medicines for the people who needed them. The promise of jam tomorrow, with consultations through the summer and action in the autumn, will also be of little comfort for many who would have liked to have seen action and support immediately.”

“We have also yet to see a long-term economic vision that has enterprise, growth, and innovation at its heart. Without adding a turbocharger for growth, the government risks leaving the economy spluttering along as a two stroke.”

On the incoming National Insurance Contributions (NICs) rise Verity Davidge, Director of Policy at Make UK, said: “Today was a missed opportunity for the Chancellor to act on concerns raised by employer and employee groups alike to delay the NICs hike until the economy is in a more robust position. The NICs increase is a tax on jobs with six in ten manufacturers saying it will impact recruitment and the majority planning to pass onto the customer, leading to further inflationary pressures. The NICs increase is just one of many significant costs facing UK manufacturers and there will be a big question as to whether the UK is a competitive place to do business right now.”

On the lack of support for business on energy, Davidge added: “The lack of support for businesses to tackle spiralling energy costs is beyond disappointing, and deeply frustrating. With manufacturers seeing historically high energy bills, today was the government’s chance to give businesses much needed support. Reducing the policy costs that make up a large part of overall electricity costs, together with a boost to extending energy funds and grants, would have given manufacturers the best chance of cutting their energy bills and keeping their businesses afloat.”

On potential reforms to the R&D tax credit scheme Fhaheen Khan, Senior Economist at Make UK, said: “The R&D tax credit scheme is the most commonly used form of innovation support among manufacturers. Any changes to the scheme must be done in close consultation with the manufacturing sector, which is responsible for 64% of private R&D investment.

“Government must be careful not to throw the baby out of the bath water. While the scheme may not be perfect it should be reshaped and not radically reformed, and any suggestions it should be scrapped entirely must be ignored. We look forward to continuing to work with government to make the scheme work better for businesses of all sizes and ensure the UK can continue to compete on the global innovation stage.”

On commitment to look at investment tax cuts James Brougham, Senior Economist at Make UK, said: “For what was a well-received policy at the time of its inception, the Chancellor has missed the significant opportunity of plucking some low-hanging fruit by way of adjusting some simple, yet fundamental, flaws in the Super Deduction Scheme. Alluding to forthcoming investment tax announcements in the next Budget does little to support the industry now, when investment confidence is in dire need of bolstering.

“If the government wants the economy to invest, innovate and grow now, the Chancellor must also now stand ready to afford confidence to the sector through longer-term policies that show individual businesses are supported in the investments they undertake that ultimately benefit people, places and communities.

“The lack of investment-spurring policy announcements today will send a worrying signal throughout industry that businesses are to bear the risk alone through this fragile recovery, certainly hampering investment in the rest of the year as the tidal wave of rising costs washes away hopes of a prosperous recovery.”

On the review of the Apprenticeship Levy, Bhavina Bharkhada, Head of Policy & Campaigns at Make UK, said: “The decision to review the apprenticeship levy is well overdue and will be widely welcomed by manufacturers – the true champions of gold standard apprenticeships. It will be essential that the government works with business to make the right calls on future reform so that we get this right.

“Over the last decade, the government has committed to an apprenticeship system that is led by employers and it is important that it continues to uphold this principle. Any changes must ensure that funding for apprenticeships is sustainable over the long-term, and that businesses are able use it to recruit and retain the apprentices they need.

“In the short-term, allowing employers to use some of their levy funds to contribute to apprentice wages would immediately unlock greater investment in apprenticeships. Should the scope of the levy be broadened to include non-apprenticeship training, the government must demonstrate how funding for apprenticeships would be protected and how manufacturers would be able to use this additional flexibility to access the right skills training for their businesses.”

Steve Clarke, Managing Director of Teepee Electrical, a cable harness, wiring looms and panel assembly specialist working across automotive, rail and the ‘blue light’ sectors, shared his thoughts: “Prior to listening to the Chancellor’s Spring Statement, I was chatting to a few colleagues about current confidence levels and the general theme was that ‘business and individuals seems to be in self-preservation mode’.

“This seemed a fair assessment. My own business is an ambitious wiring and harness manufacturer that is committed to growth. However, we have some short-term challenges to mitigate against, including a 5% wage increase in April, a 15% rise in material due to global shortages and a double whammy of fuel and energy prices going through the roof.

“This can hinder aspirations to invest in people and equipment; so did Rishi Sunak do enough in the Spring Statement to boost my mood? The short answer is yes, a little.

“We appreciate that the cost of the pandemic must be paid back, so there is little wriggle room for major game-changing policies and additional business support. However, there were some wins for SMEs. The Fuel Duty cut, and speed of introduction will help stabilise costs outside of our control a little, especially with shipping of goods in and out.

“Employment allowance is a small positive and rising the National Insurance Contribution Threshold should give our employees more towards their cost of living and will be a small benefit to employers. In an ideal world I would have liked to have seen this implemented from April for the start of the tax year.

“Teepee very much supports putting people, capital and innovation at the heart of the UK’s growth strategy and welcomes even more beneficial R&D tax relief, encouragement to spend on capital and more funding that can meet our specific skills needs.

“My only bugbear with all of this is that it’s kicking the can down the line and, at the earliest, any changes will be announced in the Autumn statement. Business and the economy could do with these actions being taken now and rolled out immediately… all the promise around what is to come will simply stall decisions and hold back spend.

“Manufacturers don’t want much, just a bit of targeted support and, most importantly, economic security that in turn breeds confidence.”

Jonathan Andrew, CEO of Bibby Financial Services: “Rishi Sunak’s spring statement has gone some way to address the concerns of the UK’s 5.6 million small to medium sized businesses but recovery for many will be extremely hard to navigate. It is still the case, that while praised for being the beating heart of the economy, SMEs face being starved of the lifeblood they need to survive.

“In particular, National Insurance increases will come directly from the bottom line, and for many businesses this will be a step too far. And although a cut in fuel prices, and increase to Employment Allowances will provide some relief, this may not go far enough to offset other significant price hikes.

“Our customers, made up of 7,000 SMEs across the UK, tell us they are worried. Worried about going under at a time when we need small businesses to prosper. And our own analysis highlights how volatile the economic landscape is for SMEs; turnover data suggests sales are rising but not strongly enough to provide SMEs with confidence and optimism, and with borrowing rising in February too, clearly businesses are feeling the squeeze as cost of living, inflation, and supply chain costs mount.

“Amid a global pandemic, an international emergency in Ukraine, Brexit regulations and bureaucracy, SMEs are being forced to make tough decisions to survive. While today’s statement goes some way to protect SMEs as they continue to weather this storm, unless the Government puts these businesses front and centre of its economic policy, survival – let alone recovery – just won’t be tenable for thousands of businesses.”

Jonathan Dudley, Partner and Head of Manufacturing at audit, tax, risk and advisory firm Crowe, said: “A cut in fuel duty is an essential and very welcome gesture but of course, increased base prices in fuel will generate more VAT and Duty anyway and therefore the government are arguably only sharing out some of their total tax windfall.

“The increase in the NIC threshold is predictable and welcome too; however, I suspect that this change may have come too late for many pay settlements that assume the NIC rate increase on businesses.

“The proposed reform during the summer of the apprenticeship levy could be good. But, it could also be ominously bad. Crowe’s manufacturing surveys have pointed towards its unpopularity and 2021 was no exception; however the devil will be in the detail. There has to be a concern that the monetary support and incentives will be reduced; in reality, what is needed is a reduction in employer administration in the apprenticeship scheme and the removal of elements that are not relevant to the apprentice’s actual job.

“Reform of the R&D tax credit scheme sounds good and is very welcome, especially if qualifying expenditure and even the rate expands as Mr Sunak promises. But we need to see the detail as it emerges.

“What is encouraging is the promise to incentivise capital expenditure into the future, and there was almost a promise to maintain AIA at the current £1m rate, and a hint of the continuum of the super deduction too; lets hope so.

“Extension of the employment allowance will be welcomed by smaller businesses, but for group businesses with segregated payrolls this allowance sometimes causes more administrative hassle than it’s worth.

“The cut in VAT on green domestic spend challenges UK manufacturers to actively enter this market; it would be really disappointing if we are incentivising imported green technology.

“The chancellor didn’t signal any relief for corporate energy costs though. There is little support to help manufacturing businesses with spiralling energy bills right now. Commercial business are not protected by energy caps and trying to encourage investment at a time when energy costs are so high, on top of all of the other inflationary challenges businesses face is a big ask right now, without offering some immediate help. Inflationary costs create immediate cash outflows, while tax incentives are, by definition, delayed. There is a cash disconnect here and it will need addressing before investment is stimulated in a sector where cash risk management will prevail.”

Ian Forrester, COO of Clearly Drinks commented: “Following the Spring Statement delivered by the chancellor, Rishi Sunak, a review of The Apprenticeship Levy is likely to be part of a new tax plan set to be finalised in the autumn. Apprenticeships are an integral part of developing future talent and within many industries including manufacturing, getting the right skills can be challenging. In order to plug the skills gap, we very much welcome the proposal of additional support from the Government on apprenticeships to help the sector afford to build talent from the ground up.

“Apprenticeships are a key part of our business strategy which includes our World Class Operator programme, in partnership with Derwentside College, which provides internal training to create highly skilled individuals as well as offering apprentices on-the-job paid experience. Here we are able to offer successful candidates a guaranteed interview, with an opportunity for employment and a competitive salary at Clearly Drinks.

“Not only can apprenticeships help manufacturing businesses continue to grow and develop their current fleet of frontline workers on the production line, but they also help those looking to further their career have a clear progression path and develop transferrable skills. There is some fantastic undiscovered talent out there, and we hope a review of The Apprenticeship Levy will help peers within the sector consider how we can all champion alternative routes into employment.”