Spring Budget must help industry invest in tech

Posted on 4 Mar 2017 by The Manufacturer

Next week’s Spring Budget, due to be delivered by Chancellor of the Exchequer Philip Hammond on 8 March, must focus on helping manufacturers invest in new technology and processes. Caroline Milton explains how.

Backed by stronger-than-expected tax receipts, the Spring Budget offers the Chancellor an opportunity to support manufacturing businesses by helping to speed up the adoption of key technologies such as data analytics, robotics and 3D printing (additive manufacturing). Doing so will help to drive efficiency, productivity and create a deeper understanding of customer needs.

Caroline Milton, partner & head of the manufacturing group, Menzies LLP.
Caroline Milton, partner & head of the manufacturing group, Menzies LLP.

While a tax giveaway is unlikely due to uncertainties surrounding Brexit negotiations and the potential for further geopolitical shocks, the government needs to demonstrate that it understands the challenges facing manufacturers. Specifically, there is an opportunity to enhance tax breaks and simplify the tax system in order to encourage take up of advanced technologies; helping to drive efficiency and increase productivity.

Making improvements to the R&D tax credit regime, including a simplification of criteria and better publicity will encourage businesses to improve productivity, processes and products. Furthermore, there should be an increase to the Annual Investment Allowance (AIA), which is currently limited to £200,000 per annum. For manufacturing businesses, which are typically capital intensive, this limit is too restrictive. It could slow growth and make it harder for manufacturers to compete globally.

The revised Patent Box regime, which was introduced in response to EU challenges and the wider Base Erosion Profit Shifting project, is also in urgent need of an overhaul. It is not gaining much traction in the SME sphere due to its complexity. Once Brexit is triggered, there could be an opportunity to develop this regime into a globally-competitive incentive.

Better communication of the support available to manufacturing businesses is required – both financial and knowledge based.  A number of positive steps have been taken in recent years – Catapult Centres, Knowledge Transfer Partnerships and the Knowledge Transfer Network. However, these are frequently poorly communicated to the SME business community with the result that many eligible businesses miss out on opportunities to accelerate progress.

Further changes to Corporation Tax should not be ruled out and could be critical to protecting manufacturing jobs. The headline rate is already planned to reduce to 17% in 2020. Bringing this date forward would send a clear message to the international business community that Britain is a great place to locate and invest.

Finally, SME manufacturers urgently need some acknowledgment from the government that the incoming Apprenticeship Levy is an administrative burden that will deliver little or no benefit. More focused support for SMEs to support skills development and retention is urgently needed.