Following our article setting out our predictions for the Spring Statement, we consider what some of these predictions might mean for businesses in the manufacturing sector.
The Spring Statement comes at a time where manufacturing businesses across the country are seeing a rapid rise in costs. A combination of high rates of inflation driven by the recovery of the UK’s economy and exacerbated by the terrible situation in Ukraine, soaring energy prices, and wider supply chain issues, such as the silicon chip shortage and increased shipping costs, are causing a cost of living crisis for consumers and a rapidly increasing cost base for businesses.
At the same time, manufacturers are also facing pressures from their employees. With the great resignation seeing many employees looking for new jobs, businesses need support to ensure that their workforce meets both the current and future needs of the business. So, with manufacturers seeing challenges in both their supply and demand and from within, what help might they be able to expect from the government on 23 March 2022?
Predictions
The Levelling Up Agenda
In our recent Rethinking the Economy survey, 44% of manufacturers said their business would benefit if the Government delivered against its pledge to level up the UK economy. The recent Levelling Up Agenda white paper set out 12 national missions. Those most pertinent to the manufacturing sector include improving pay, employment and productivity (mission one), boosting investment in research and development (mission two) and increasing the amount of high-quality skills training undertaken (mission six). While many of the funding announcements have already been made, we are hopeful that the Spring Statement might bring more details of the specific areas of investment that the government is planning to make.
A skilled and productive workforce
As we set out in our Manufacturing Manifesto last year, the sector needs to be future-proofed with a highly skilled and productive workforce. Over a third (38%) of manufacturers in our survey highlighted that they are being impacted by a shortage of workers with the right skills. While short term measures may help the immediate issues, we would hope that there would also be a longer term strategy to provide certainty to business and a means to address any structural shortage of skilled labour. Seeing the announcement of specific action and funding, specifically for missions one and six mentioned above, would therefore be welcomed by many manufacturing businesses that are already struggling to access the skilled labour they need.
Research and Development
Whilst there are already some reforms in the pipeline to refocus the relief on research and development (R&D) activities undertaken in the UK, there are also hopes that part of that reform might include further steps being taken to make it more cost effective. The government has set a target to increase its investment in R&D across the UK regions outside of the South East of England by 40%. With much of the manufacturing sector being located outside of the South East, we would expect that they will be able to take advantage of this additional support. Whilst some of this may come in the form of increases or regional supplements to existing R&D tax reliefs and credits, the government is also hoping that its investment will allow them to leverage at least twice as much private sector investment, making the potential benefit for manufacturers even greater.
The Health and Social Care Levy
There has been some speculation regarding the introduction of the Health and Social Care Levy - which would create additional employment costs on businesses - and whether the Chancellor will announce some kind of adjustment, deferral or abolishment. This would be welcome news to manufacturers that are already feeling the impact of significant cost increases, not least the cost of employing their staff. There is concern, however, that any deferral or abolishment would need to be compensated for by an additional tax in some other form. This could negate some or even all of the potential benefit to employers, although any extra income their customers receive might be enough to compensate the additional costs.
What else would we like?
As the government has maintained its position that the announcements on 23 March will be a Spring Statement rather than a mini-Budget, it is likely that any of the announcements made will either be relatively conservative or simply act to add more detail to what we already know. However, more details around the specifics of the Levelling Up agenda, and how and when manufacturers can go about taking advantage of these initiatives and any funding that may be available, would certainly be welcome.
Long term commitments to existing temporary measures may also be considered. These could include extending the capital allowances super deduction regime – which 39% of manufacturers in our survey have made use of - or the £1m limit of the Annual Investment Allowance beyond 31 March 2023 to stimulate medium and long-term investment by manufacturing businesses. Given the nature of capital investment, this more strategic approach to tax reliefs would allow companies to set longer time horizons in their planning and investment decisions without tax uncertainty.
On the other hand, no news may well be good news for many SME businesses. Any changes to capital gains tax and certain tax reliefs available to entrepreneurs that have been rumoured previously could add even more uncertainty for individuals whose businesses are already facing significant challenges. As set out in our Manufacturing Manifesto, we will continue to call on the Chancellor to establish a clear and long-term policy for the manufacturing sector to give manufacturing businesses and entrepreneurs certainty over the UK’s future tax policies and send a clear signal that the UK is a great place to invest.
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