Spring Budget 2024: a Manufacturing perspective

The 2024 UK Spring Budget has left many in the Manufacturing sector cautiously optimistic but craving more concrete measures for stability and growth. Despite promises of long-term economic prosperity, the Chancellor's speech lacked ambition and fell short of delivering substantial changes.

With the Office for Budget Responsibility's optimistic growth forecast of 0.8%, there's a lingering concern about the feasibility of reversing the current recessionary trend.

Overall investment

There were glimmers of hope for the manufacturing sector with £270 million of investment in advanced manufacturing, which follows the Advanced Manufacturing Plan announced in the Autumn Statement to provide £4.5 billion of targeted support over the next five years for strategic manufacturing sectors, including automotive, aerospace, life sciences and clean energy. While these are all steps in the right direction, serious questions remain about its efficacy without a comprehensive industrial strategy for sustained growth and clear lines of accountability to make sure the money reaches the right places.

Research & Development

Much of the proposed investment over the next 5 years is earmarked for R&D and manufacturing projects, such as cutting-edge automotive R&D projects to support the development of electric vehicle technology and the development of energy efficient and zero-carbon aircraft technology, to deliver highly skilled jobs and cement the UK’s position as a global hub for EV manufacturing. Other measures will support the expansion of low carbon manufacturing supply chains across the UK, to help lower costs and accelerate the transition to Net Zero.

The UK is a global leader in engineering, so any measures to increase investment in R&D activities is welcomed, however, the reality is that previous cuts to R&D tax credits and reforms announced in the Autumn Statement to unify the two R&D tax credit schemes from 1st April 2024, alongside the aggressive treatment of claims by HMRC have been somewhat at odds with the rhetoric, which acts as a barrier, particularly for SMEs.

A new R&D expert advisory panel will be established to advise HMRC and support the administration of R&D tax reliefs and provide more clarity and certainty on qualifying R&D activities. It is essential that this leads to a more consistent approach to claims by HMRC and encourages businesses to make positive investment decisions on R&D.

Capital Allowances

The decision to make full expensing permanent represents a considerable advancement in the treatment of capital expenditure for manufacturing businesses, who invest in plant and machinery and benefit from significant tax savings. The Chancellor also announced an extension of the 100% Full Expensing Allowance to include leased assets, once fiscal conditions allow, which will be of particular benefit to smaller manufacturers. Industry commentators have also suggested the government should explore whether it can be expanded to cover refurbished and second-hand technologies to support sustainability goals.

Skills and Apprenticeships

To boost apprenticeship training in sectors which contribute to economic growth, like engineering and manufacturing, the government announced a £50 million Apprenticeship Growth Sector pilot, in the autumn statement.

While there were no new measures announced in the Spring budget to invest in skills, Prime Minister Rishi Sunak's subsequent announcement on 18th March on Apprenticeship Levy Reforms does inject some optimism, particularly for SMEs and young people entering the workforce. The announcement confirms that from 1st April apprenticeships for anyone below 21 in small businesses will be fully funded, while employers paying the Apprenticeship Levy will be able to share up to 50% of unspent funds, up from the 25% they are currently able to transfer to another employer.

Summary

While the 2024 UK Spring Budget offered glimpses of support for the manufacturing sector, it still fell short of providing the clarity and certainty needed for sustained growth. As industry leaders and policymakers navigate the road ahead, a concerted effort to address pressing challenges and implement a comprehensive industrial strategy is paramount. The building blocks of an industrial strategy are starting to emerge – it just needs the leadership and ambition to bring it all together in a cohesive plan.