Budget 2017: What it means for UK manufacturing

Whilst there were no game changing announcements for the UK manufacturing sector, there were some highlights in the 2017 Budget that should have a positive impact on the industry in the long run.

• An increase in Government spending on R&D of a further £2.3 billion in 2021-22, taking total spend on R&D in that year to £12.5 billion


• The increase in R&D Expenditure Credit rate for large companies or SMEs carrying out grant funded or subsidised work from 11% to 12% in January 2018 is likely to benefit a broad range of companies in the sector


• The focus of Enterprise Investment Scheme and Venture Capital Trust investments on more knowledge intensive companies (and a diversion away from investment where the investment is underpinned by property backed assets) will help to encourage investment into higher risk, early stage, manufacturing companies


• The extension of the classes of assets which qualify for Enhanced Capital Allowances and also the extension of the period in which companies can surrender the tax relief for a cash credit (until 2023), will encourage further investment in green technologies and encourage investment in lower energy consumption in the sector


• An aspect which is both a benefit and also a challenge for companies within the manufacturing sector is the increase in the National Living Wage and some of the National Minimum Wage thresholds from April 2018. This is a benefit for the employees, but also a challenge for employers, who may struggle to pass on the costs to customers (and so the changes can also have the unintended consequence of reducing the ability to create new jobs)


• The focus on supporting business funding via the British Business Bank, the National Productivity Investment Fund, and exports via the UK Export Finance guarantee, should all assist companies in the sector

Finally, a welcome theme in the Budget for the manufacturing sector is the commitment to the education system, to encourage teaching of maths, computer science and also seek to balance the participation in STEM subjects by both genders.

James Selka, CEO of the Manufacturing Technologies Association, commented: “We welcome the funding that is being made available for R&D in connection with the Industrial Strategy and look forward to the imminent White Paper. We also welcome the increase in the R&D Expenditure Credit for large companies from 11% to 12%. The current pace of technological change means that we have a once in a generation opportunity to re-industrialise the UK’s economy.

“The enhanced role of UK Export Finance is welcome too but it is disappointing that the Chancellor did not take the opportunity to offer a boost to firms looking to break into emerging markets with extra support through the Tradeshow Access Programme. The UK is getting left behind on the world stage because our Government doesn’t back up industry as our competitors do.

“The Government has missed an opportunity to reform the way that the tax system treats capital investment. Our Capital Allowances regime is uncompetitive in relation to other countries’ systems and is putting us at a disadvantage when it comes to global investment decisions."

Scott Henderson, managing director of Jumpstart, one of the UK’s leading R&D tax relief specialists, commented: “The plan to bring UK R&D spending into line with the world’s other rich nations within a decade is just the fillip that businesses need against the backdrop of Brexit uncertainty. The commitment to improve productivity signals that Britain is serious about maintaining its primary role as a trading nation.”

Mr Henderson continued: “Whilst welcoming the increase in the RDEC rate, it’s disappointing not to see a similar increase in the relief available to SMEs. 83% of claims in 2015/16 were from SMEs – with a cost to the treasury of £1.3bn. Large company and RDEC claims cost the Treasury £1.5bn – yet only large companies are benefitting from a rate increase.”

“There is a danger which must also be addressed: that too much support in the levels of Government spending on R&D could have the counterproductive effect of increasing dependency on the public purse. The ideal situation is to create a business and innovation environment which convinces companies of the commercial virtues of making their own investments in R&D. This budget goes a long way to achieving that goal.”

Budget highlights courtesy of Tait Walker. Tait Walker are an audit, tax and advisory firm based in the North East of England.

MTA www.mta.org.uk

Tait Walker www.taitwalker.co.uk