Industry issues subdued response to pre-Brexit budget

While there was welcome news for some industry sectors in Philip Hammond’s Budget speech yesterday – the last before the UK leaves the European Union – others felt that his actions fell short of what was needed

Philip Hammond visiting Rosyth

The 2018 Budget drew a mixed response from organisations across the engineering, science and manufacturing sectors. The final formal Budget speech before the Brexit deadline of 31 March 2019 – although Chancellor of the Exchequer Philip Hammond did pave the way for a further announcement next spring – the announcements were unlikely to please everybody, but while there was cautious optimism from some, others declared themselves “bitterly disappointed” that Hammond had not heeded their requests.

While the mainstream media concentrated on Hammond’s claim that this Budget marked the point  where “austerity was coming to an end”, industry, as usual, had to dig a little deeper into the fine print and the “red book” that summarises the Treasury’s policies for this announcement.

Measures included £420m fund to fix potholes and other minor roadworks: the Automobile Association had asked for a £1bn commitment. For infrastructure Hammond pledged £30bn to improve roads, including £25.3bn for the major roads network. Following the collapse of construction group Carillion earlier this year, the government announced that new infrastructure and public building projects will no longer be funded by the private finance initiative, and PFI’s successor, PF2, will also be scrapped. The plastics industry is mulling the announcement of a new tax on non-recycled plastic packaging, penalising materials containing less than 30 per cent recycled plastic.

One measure that did catch the media’s eye was a new levy called the digital services tax. To be imposed on search engines, social media platforms and online marketplaces, this is aimed to raise some £400m per year by taxing UK-generated revenues of profitable firms in the digital technology space whose global revenues are above £500m.

While he took from this industry with one hand, with the other Hammond was sprinkling largesse on the defence sector, with a £1bn pledge for Ministry of Defence to fund cyber-defence, anti-submarine capabilities and to keep up the pace on the programme to develop the Dreadnought class of “deterrent submarines” – that is, those which will carry the UK’s nuclear missile capability in future. The Chancellor also announced a £500m addition to spending on preparations for Brexit, on top of the £2.2bn already announced an additional £1.5bn added to this last year.

waste plastic
Ther Budget contained measures intended to reduce volumes of waste plastic

Karl Barnfather, chairman of patent attorney Withers & Rogers, declared himself particularly pleased with a detail from the red book revealing an increase of £1.1bn to the Industrial Strategy Challenge Fund to support the take-up of advanced manufacturing-related technologies including the Internet of things and virtual reality.

“The detail from the Budget red book has revealed much more about the government’s intentions for computing and advanced technologies and the outlook is more positive than we might have hoped,” Barnfather said. “The additional funding is coming at a time when the UK is at the forefront of global research and development activity in technologies that have the potential to transform our future and boost UK productivity. This is reflected in the higher levels of patent applications currently being granted by the UK Intellectual Property Office in relation to artificial intelligence, as well as computing and software innovations. In allocating this funding now, the government understands that the R&D activity emerging from our universities is at a critical stage and must be harnessed, developed and commercialised in the UK in order to bring lasting economic benefits.”

At the Institution of Mechanical Engineers, head of education quality Peter Finegold was also concerned with measures that might benefit implementation of technologies connected with the so-called fourth Industrial Revolution, and particularly those that raise the status of technical training and qualification.

“On this basis, the Institution of Mechanical Engineers welcomes the Chancellor’s commitment to make up to £450m available so that apprenticeship levy paying employers can transfer up to 25 per cent of their levy fund to companies in their supply chain. We also endorse the provision of government funding to halve contributions smaller companies pay towards apprenticeship training from 10 per cent to five per cent.”

Commenting on the same measure, Stephen Dyson, special operations manager at Protolabs said that reducing apprenticeship fees for small businesses “should help to appeal to the next generation of engineers, software developers and business leaders, and encourage apprenticeships in the manufacturing industry.” Dyson also looked forward to figures around production output being released in the near future, to assess how far the UK has gone towards addressing its ever-lagging productivity performance.

Gareth Stace, director-general for UK steel at the manufacturers organisation EEF, was not as happy, and perhaps alluding to Philip Hammond’s often-quoted resemblance to Winnie the Pooh’s gloomy friend Eeyore, turned to woodland metaphors. “With the fiscal and political constraints currently in play, no-one was expecting any particularly big rabbits to be pulled from the hat today, and the budget largely met these low expectations for industry,” he said. Although some progress had been made towards improving the investment and business environment for the steel industry, “real and significant improvements” are still required, he added.

The announcement of an Industrial Energy Transformation Fund to help cut consumption for energy intensive industries was welcome, Stace said, although detail is currently lacking on how this will work, but the industry had hoped for action to reduce the burden of levies relating to renewable energy and the increasing cost of carbon emissions. Moreover, he added the steel sector’s bid for a portion of the industrial strategy challenge fund, which would have it improved R&D funding, was unsuccessful. “Yet again, the Budget has failed to get to grips properly with harm the current Business Rates regime is doing to investment in industry. The increase in the annual investment allowance is welcome, but for large companies in the steel sector, it remains too small to make a significant difference”.

At the Association for Consultancy and Engineering (ACE), the budget represented business as usual, but chief executive Hannah Vickers said this was good news. "Given so much of our short to medium term economic outlook is riding on negotiations with the EU this was, as expected, a budget short on new measures and announcements.  However, we welcome today’s statement as it does recognise the importance of infrastructure investment to building the economy that the UK needs if it is to meet public expectations around housing, jobs and wages. “

ACE was among the bodies calling for a national infrastructure assessment and increased investment in the UK road network, and Vickers welcomed Hammond’s actions in this area, although she noted that a further request to complete a deal to help the construction sector had not been recognised. "The government may wish to call an end to the era of austerity but we will only be able to build a truly secure and prosperous economic future if we invest in the infrastructure and housing that the UK needs,” Vickers said.

Increased spending on research and development is always welcomed by the science sector, and the Chancellor’s announcement that additional £1.6bn would be invested in R&D as part of the commitment to spend 2.4 per cent of GDP on research was applauded by Helen Payne, deputy chief executive of the Royal Society of chemistry. “As the UK leaves the EU, the right arrangements must be in place for scientific collaboration and cooperation, including mobility for scientists, association to the EU science and innovation Framework Programmes and continued close collaboration with the European Chemicals Agency,” she said.

Investment in the road sector was unsurprisingly happy news for the Institution of Civil Engineers. Head of policy and public affairs Chris Richards added that attention still needs to be paid to attracting new forms of revenue for road development and maintenance as the country moves towards more implementation of electric vehicles. “A pay-as-you-go road charging scheme should be considered, as ICE recommended in its recent State of the Nation, for the nation’s busiest roads to ensure the long-term security of revenue for continued maintenance and upgrades,” he said.

Another measure likely to benefit manufacturers was flagged up by Richard Godman, tax partner at accountancy firm Menzies LLP. An increase in the tax-free amount that businesses can spend on building and machinery from £200,000-£1m for two years is welcome, he said, although businesses may have hoped for the increased spread over a longer timescale.

Addressing the issue of recycled plastics, British plastics Federation director-general Philip Law cautions that revenue raised by the new tax should be invested in developing the UK’s recycling infrastructure to ensure that recycled material could be incorporated into new packaging.

On a gloomier note, the Solar Trade Association expressed “bitter disappointment” in the continuing tax disadvantages facing the renewable sector. “Investment in renewable energy has plummeted in the UK and largely for want of fair tax and market treatment. The Chancellor has again missed a vital opportunity to do the right thing, not only by the planet and the thousands of people who want to support clean energy, but by simple fair market principles,” said chief executive of the STA, Chris Hewitt. “This government claims to support clean, green technologies, but this rhetoric is far from being matched by even the most modest of actions. Solar is the biggest clean energy market in the world today and by putting obstacles in the path of this technology the government is frustrating the urgent energy transition and putting British industries at a disadvantage in global clean energy markets.”