Head of UK Manufacturing
Budget response: is Britain open for business?
This year’s Budget has been promoted as one for economic growth and one that can help this country’s economic and manufacturing industry get back on track, but is it really likely to achieve this?
The stark reality today is that we have just slipped down the world manufacturing league table
These are testing times for a nation that once had engineering and manufacturing expertise running through its economic veins and was recognised across the world as a platform for others to aspire to. The stark reality today is that we have just slipped down the world manufacturing league table, dropping below Brazil and South Korea and just inside the top 10. In line with previous positions, US, China, Japan and Germany are the top four players.
Ironic then, if we are to believe the latest manufacturing data, that industry appears to be enjoying a revival, in domestic demand and output, with order books reportedly topping a three year high with some firms’ order books reaching well into next year.
Growth for the economy in 2011 was forecast at 2.1% by the OBR in November, but this has now been revised down to 1.7% in the Budget forecast and our own view is it could be even lower at around 1.4% with so much being taken out of the economy as a result of spending cuts and the VAT rise as well as global commodity price hikes. We also expect growth in later years to be somewhat lower than the OBR forecasts, although we do not expect an outright double dip recession.
We all needed a Budget to get Britain back on track and in many ways it has ticked the right boxes.
As Manufacturing Leader for professional services firm PwC, we are at the heart of the industry dealing with manufacturers on a daily basis. So did the Budget deliver? We all needed a Budget to get Britain back on track and in many ways it has ticked the right boxes.
Manufacturers in the UK have been concerned for some time by the low rate of tax depreciation on plant and machinery expenditure. The change to the short life asset rules is very welcome. For assets with a life of less than eight years, companies will now get 100% tax relief on the net cost of the asset over its life, a major improvement on the current position. This should encourage investment.
The R&D changes are also good news for SMEs, with companies getting up to 5% relief on their R&D spend. The position for larger companies will depend on the ongoing consultations between Government and business and it is important that the resulting changes make the UK competitive internationally.
The lower corporate tax rate, improvements in the Enterprise Investment Scheme and Entrepreneurs Relief are helpful as are the proposed cuts in regulations. I hope that some manufacturers will also be able to benefit from the 21 new Enterprise Investment Zones and from investments by the Green Investment Bank.
Industry should also welcome the announcement of extra funding for some 40,000 apprenticeships and 100,000 work placements. This could go some way to mitigate the existing shortfall in the UK engineering skills base.
The introduction of a carbon floor price in the Budget has been designed to underpin investment in low carbon energy sources although the short term impact is likely to be an increase in costs for manufacturers. Given the myriad of policies on carbon, such as the Climate Change Levy, there is a real need to understand the cumulative impact on these in terms of competitiveness, behaviour and the investment in low carbon, which is desired.
At the Global Manufacturing Festival in Sheffield earlier this month just ahead of the Budget, manufacturers were looking for leadership from the Government, public confidence in their abilities and tangible economic support from this Budget. They should not be too disappointed by the Chancellor’s announcement.
It is also vital that this unique moment in history is not missed and manufacturing industry takes advantage of this opportunity to continue to improve its public profile, increase understanding of what modern manufacturing is about, and to make clear to Government what else it needs to ensure its future growth and success.
The plethora of institutions, academies and trade bodies sometimes leads to a very confused message. This is often exacerbated by the lack of understanding of the industry in Government itself. In 1914, 94 MPs came from manufacturing. Today very few have such a background. There is therefore a pressing need to fill this knowledge gap.
Things are moving in the right direction but there is much more to be done.