Engineers offer cautious welcome to Osborne’s Budget

Greater tax allowances for research, £2bn extra for the Green Investment Bank and 50,000 extra apprenticeships were among the announcements in today’s Budget.

In a speech to the House of Commons this afternoon, chancellor George Osborne said he wanted to make Britain a world leader in advanced manufacturing and make the green energy revolution a reality.

He claimed his Budget would prioritise economic growth and innovation and promised to simplify taxes, reduce business regulation and create 21 ’enterprise zones’ with tax incentives and relaxed planning laws to encourage industry.

“Labs across the country are going to be struggling to make ends meet”
CaSE director Imran Khan

He also announced that Britain would introduce the world’s first carbon price floor to promote the development of low-carbon energy generation.

‘Today the chancellor gave a clear recognition that we are in an international race for investment and that manufacturing is at the heart of this,’ said Terry Scuoler, chief executive of manufacturers’ organisation EEF.

‘He made a crucial down-payment on creating a stronger and more balanced economy with measures to boost investment in technology, research and development and skills.’

However Stephen Tetlow, chief executive of the Institution of Mechanical Engineers (IMechE) said more needed to be done to support manufacturing and business in the UK.

’The £3bn for the Green Investment Bank is welcome but well short of the £20bn needed to update the UK’s creaking infrastructure,’ he said.

Institution of Civil Engineers (ICE) director general Tom Foulkes said the budget showed progress was being made with some key policies that could pave the way for infrastructure to be an economic driver but urged the government to increase accountability and build confidence that it would deliver on its commitments.

Cautious welcome

The Budget allocated £100m for capital spending on a number of science facilities and doubled the research and development tax credit for small companies to 200 per cent.

The Campaign for Science and Engineering (CaSE) welcomed these announcements but warned that the UK still risked falling behind in global high-tech research because of £1.4bn cuts in capital spending on science confirmed at the end of last year.

‘The extra funding announced today could be a first step on the path to making science and engineering pivotal to growth,’ said CaSE director Imran Khan.

‘But labs across the country are going to be struggling to make ends meet following the budget cuts announced last year.

‘If the chancellor wants to make the most of his new £100m investment, he should invest in science and engineering to the extent that our competitors, including China and Germany, are doing — or risk our economy lagging two steps behind.’

Khan said the increase to research and development tax credits was great news, but added: ‘We need to make sure that these tax credits can help all SMEs [small and medium-sized enterprises], even when they are in the early stages of their growth and might not yet have taxable profits.’

Green Investment Bank

The Green Investment Bank, which will lend to low-carbon projects unable to secure private finance, will now launch with £3bn — £2bn more than expected.

It will start operation a year earlier than planned in 2012, allowing it to leverage an extra £15bn over the course of the parliament, but it will not be able to borrow money until 2015 and only when the government’s debt target is met.

’A GIB without the powers to borrow until 2015 at the earliest, will struggle to generate the scale of investment required and could reinforce a negative impression about the UK’s approach to infrastructure development,’ said Foulkes.

’To succeed in attracting large volumes of private investment into infrastructure in the long term, we must instill confidence and certainty. It is vital therefore that over the coming years, government demonstrates continued commitment to the principle of a bank, not a fund.’

Steve Radley, director of policy at EEF, said: ‘The increase in funding and the prospect of the Bank raising further funds on capital markets is welcome news, but will only make a real difference to the UK’s low-carbon future if it is targeted at our best green economy prospects.

‘The Bank’s investment remit must now be maximised to ensure it includes low-carbon manufacturing of all types, as well as decarbonisation investments for existing manufacturing.’

Gaynor Hartnell, chief executive of the Renewable Energy Association, said the Bank was of limited early value and there was little in the Budget to alleviate growing anxiety about the pace of delivery across the UK renewables industry.

’Renewables presents such a growth opportunity, it’s a shame not to see Britain not seizing on this agenda as a means of pulling the country out of recession.’

Carbon price floor

The chancellor also introduced a carbon price floor — a limit below which the cost of carbon emission permits cannot fall — of £16 per tonne of CO2 in 2013 and move towards a target of £30 by 2020.

Vincent de Rivaz, chief executive officer at EDF, said this trajectory struck the right balance between the needs of policymakers, consumers and investors, and would encourage investment in new and existing nuclear power plants.

‘The carbon price floor is important for all low-carbon technologies as it restores the carbon price to what was originally intended,’ he added.

‘It will support the economics of renewables and carbon capture and storage and can reduce the need for specific measures to support those technologies.’

Martin Grant, managing director of Atkins’ energy business, said: ’[The price floor] will, for the first time, start to impose true cost-accounting on the impact that carbon has on the environment and therefore drive innovation across the entire engineering and design sector.

’However any change to the current mechanism for supporting the low carbon energy sector needs to be approached carefully to ensure there is no reduction in investor confidence.’

But, EEF’s Scuoler warned that the price floor could hurt some businesses. ‘For manufacturers, despite the encouraging measures on investment, the significant rise in energy bills threatened by the carbon price floor is unwelcome,’ he said.

‘The next stage of the Growth Review must seek to develop a more co-ordinated and cost-effective approach to creating a low-carbon economy.’

Skills and training

The government also announced £180m for up to 50,000 additional apprenticeship places over the next four years and pledged to expand the University Technical Colleges programme to establish at least 24 new colleges.

CaSE’s Imran Kahn said: ‘The government needs to open a full dialogue with our engineering and manufacturing industries to properly assess the skills they need and how apprenticeships fit into that skills profile.

‘There are still some barriers for people trying to turn their apprenticeships into recognised qualifications, and this needs to be addressed.’

The IMechE’s Stephen Tetlow said more needed to be done to incentivise businesses to take on apprentices and there was still a need to reform the careers advice system to encourage more young people to take up engineering.