What Sunak's budget means for manufacturers

Stephen Phipson, Chief Executive of Make UK, has welcome the certainty and clarity offered by Chancellor Rishi Sunak's budget today.

Responding to the government's budget announcements he said:

“Given the difficult circumstances facing the Chancellor Industry will welcome the certainty and clarity he has provided about the route forward. This statement pursues a positive and fair middle road which balances the short-term need to avoid squeezing the recovery before it has started, whilst avoiding any artificial boost given the inevitable strong bounceback once the economy begins to open up.

“In particular Industry will welcome the extension of the furlough scheme and a clear recognition that we urgently need an investment-led recovery. The promise to consult on further changes to R&D is also welcome and Government must now move urgently to implement this so further policies to boost levels can be brought forward.

“We must now seize the opportunity provided by new technologies and the drive towards net zero to set out a longer term vision for the economy. This must include a long-term Industrial Strategy which looks ahead twenty years and involves a laser like focus on innovation based on a partnership between the public and private sectors, together with our world class science base.”

Johnathan Dudley, who heads up the manufacturing advice team at leading audit, tax, advisory and risk firm, said: "The  introduction of the 130% super deduction on Investment, from first look, seems to absolutely answer the call that we were crying out for. To attract investment, enhanced relief above 19% was required and the effective 24.7% tax incentive for capital expenditure is a welcome introduction. Introduced for the next two years, it will incentivise business to invest in new machinery and processes to improve productivity and competitiveness.

"Given that the headline rate of corporation tax rises in two years anyway to 25% for larger profit makers, it does actually advance the tax relief to largely that level; early.

"A surprise came in the form of no immediate corporation tax increase. However, the rate rise in two years’ time, with the reintroduction of both the small company and marginal tax rates, will provide a level of complexity that will not be welcome for many and one which, when it does arrive, will drive decisions on investment, revenue expenditure timing and indeed maybe even timing of business to manage profit streams given that a marginal rate of corporation tax is always effectively greater than the full rate.

"There doesn’t seem to have been the much talked about reform of Entrepreneurs Relief; yet, and so the drive to carry out corporate transactions before this is even further curtailed, removed, or the 20% rate is changed, will continue.

"The measures announced to launch the European infrastructure bank, increase funding for apprenticeships and the Help to Grow schemes look eye-catching; as do the measures to stimulate R&D, ‘Green’ products and offshore wind too as there is a clear drive to ‘modernise’ both manufacturing and the products that the sector produces.

"Our Manufacturing Survey called for more help post-Covid to assist recovery and the new Recovery Loan scheme to replace CBILS and BBILS is welcome, though we are thin on detail as to repayment holidays, personal guarantees or servicing support and there is no sign at all of reintroducing the £1000 per employee job retention grant which so many manufacturers were banking on before it was ‘postponed’. So maybe this is now defunct?. What is possibly a new source of funding is the extension of loss relief carry back, but this is only relevant where losses were sustained in the past and tax paid."

On the supertax deduction, Stephen Phipson, Chief Executive said:

“Manufacturers have strong intentions to invest in capital equipment as well as digital and green technologies which are crucial for our long-term recovery. Today’s announcement should help turbocharge investment to ensure that those plans turn into reality in the short-term. In the mid to longer-term it should also provide a base that will support Government and industry’s efforts in achieving net zero and positioning the UK as a leader in digital manufacturing. To maximise the benefits of this bold policy move industry will now hope to see a strong industrial strategy and a clear recovery plan to help guide their investment decisions”

On Corporation Tax, Stephen Phipson, Chief Executive said:

“This will come as no surprise given whispers of a tax increase have been circulating for months, and Industry will accept it is a price that needs to be paid in terms of fairness and to help the economy return to more bullish times.

“However, the change comes at a challenging time for manufacturing, particularly for SME’s dealing with the aftermath of Brexit. Many of these firms have already delayed VAT payments to the Treasury and so we must tread carefully on an already fragile market lacking in incentives to do more business. Nevertheless, increasing corporation tax is only one way of improving the UK’s fiscal position. An alternative means is to direct investment to growing the size of the economy and this should always be our long-term focus.

On Free Ports, Stephen Phipson, Chief Executive, said:

“We welcome the clarity on the locations of the free ports and look forward to working with the Government on the tax and planning regimes as they develop. Free Ports could play an important role as part of the Government’s levelling up agenda from a regional development perspective, and could act as a booster mechanism.”

On increases to the Apprentices incentive for employers, Ben Fletcher, Executive Director, said:

Today’s announcement is a step in the right direction to offering the level of support manufacturers need to recruit and retain apprentices.  However, these are still baby steps and with apprenticeship starts showing no signs of bouncing back, employers want to see bolder measures to support apprenticeships,. This includes immediately easing the transferring of funds to SMEs and companies in their supply chains, and allowing the use of Levy funds for wider costs including capital expenditure sooner than later.

On the consultation on R&D, Verity Davidge, Director of Policy, said:

“The commitment to boosting science and innovation is vital as we re-build our economy and vital in ensuring that UK manufacturing can continue to compete on the global stage. Manufacturers see real value in the R&D tax credit which is the most commonly used form of innovation support. Government should now go further by doubling the rate and simplifying the system to ensure it is more accessible to SMEs.” 

On the extension of the Job Retention Scheme, Stephen Phipson, Chief Executive, said:

“The Job Retention Scheme has been a lifeline for many manufacturing businesses and their employees. The extension will be a sigh of relief for manufacturing employers who experienced some of the highest churn rates in years in 2020 due to redundancies and are still considering further lay-offs. The Chancellor has balanced the need to maintain support for jobs while clearly signalling the scheme must end when the economy opens up.”

On the National Infrastructure Bank, Ben Fletcher, Executive Director, said:

“Manufacturers will be pleased to see the Government follow through on its commitment to invest in infrastructure as part of the need to level-up the economy. In the immediate-term as we recover from the pandemic, better digital connectivity, improved transport and a focus on regional growth can be a catalyst for reviving and rebalancing our regions, as well as powering our industrial base.

On Help to Grow, Verity Davidge, Director of Policy, said:

“Improving management skills has long been underestimated in its importance in boosting UK productivity. If manufacturing is to reap the full benefits of digitalisation and adapt to new working practices, manufacturers know improving management skills is key. Today’s announcement of additional support through Help to Grow can prove pivotal for manufacturers as they look to upskill and retrain workforces to embrace and digital and green future.”