UK manufacturing gives its views on Chancellor's Spring Statement

4 min read

UK Chancellor Rishi Sunak yesterday gave his Spring Statement 2022 that included a range of cuts and changes that will impact businesses and workers.

Sunak said investment is a key driver of productivity growth. By adding to the economy’s capital stock and improving the skills of the workforce, the economy can produce more with the same input from workers. Investments in machinery and improved skills have delivered higher levels of output for the same amount of labour, throughout history and across all sectors of the economy.

In March 2021, the government announced the super-deduction – temporary enhanced first year capital allowances that will end in April 2023. It is the biggest two-year business tax cut in modern British history.

Ahead of April 2023, the government is considering reforms to best support future business investment. The super-deduction is expected to cost around £10bn a year at its peak. The government’s priorities are to ensure that any future support aligns with the government’s fiscal objectives and that taxpayer money is effectively targeted. As part of this the government will look at how reforms could best support economic growth, and ensure the UK remains a competitive place to invest.

The super-deduction allows companies to write-off the costs of qualifying plant and machinery investments against taxable profits (excluding cars, second-hand assets and assets held for leasing). It provides a deduction of 130% of qualifying main rate plant and machinery expenditure (instead of 18% through normal writing down allowances), and 50% of qualifying special rate plant and machinery (instead of 6%).

Sunak also said boosting productivity and growth by creating the conditions for the private sector to invest more, train more and innovate more – fostering a new culture of enterprise. To do this, the government intends to cut and reform business taxes, to create a culture of enterprise and the conditions for private sector-led growth.

To help SMEs gain the skills they need to succeed, the government is subsidising the cost of high-quality training. Help to Grow: Management offers businesses 12 weeks of world class leadership training through the UK’s top business schools, with government covering 90% of the cost. The cost of apprenticeship training is 95% subsidised for SMEs that do not pay the Apprenticeship Levy.

Sunak said small and medium-sized enterprises (SMEs) have been affected by rising costs and the Spring Statement builds on previously announced support for SMEs, including business rates relief worth £7bn over the next five years; increasing the Annual Investment Allowance from £200,000 to £1m until March 2023; subsidising the cost of high-quality training through the Help to Grow: Management scheme; and helping firms to adopt new digital technologies with Help to Grow: Digital. Businesses will also benefit from the cut to fuel duty, and the Employment Allowance will increase to £5,000 from April – a tax cut of up to £1,000 for around half a million small businesses.

The government will reduce the basic rate of income tax to 19% from April 2024. This is a tax cut of over £5 billion a year and represents the first cut in the basic rate of income tax in 16 years. Alongside tax cuts, the government also wants to make the tax system simpler, fairer and more efficient, and will confirm plans for reforms to reliefs and allowances ahead of 2024.

UK manufacturing and key decision-makers from across industrial sectors, gave their thoughts on the Spring Statement.

Make UK chief executive Stephen Phipson said: "It is right that the Chancellor should prioritise help for the lower paid and those most in need at such a difficult time and business will understand this.

“However, Government cannot escape the fact that manufacturers are facing eye watering cost increases that are pushing many towards a tipping point and companies would have been looking for substantial business support measures to help alleviate these. In particular, the lack of action on energy costs for business is especially hard to fathom.

“It has been two years to the day since lockdown began and there is very little in today’s statement to support a sector that kept working throughout the pandemic, ensuring that there was food on the shelves, PPE for our NHS and medicines for the people who needed them. The promise of jam tomorrow with consultations through the summer and action in the Autumn will also be of little comfort for many who would have liked to have seen action and support immediately”.

“We have also yet to see a long-term economic vision that has enterprise, growth and innovation at its heart. Without adding a turbocharger for growth the Government risks leaving the economy spluttering along as a two stroke.”

Chief executive of the Manufacturing Technology Centre Dr Clive Hickman OBE said: “We welcome the Spring Statement, which outlines concrete steps to ensure that the manufacturing sector remains competitive, sustainable, and resilient. The Government’s commitment to cut tax rates on business investment is important if the UK is to boost manufacturing productivity and create high-quality jobs.

"In addition, the reform to R&D tax credits is a very positive step that will enable the scheme to be more effective, better value for money, and more generous. These measures will be crucial to spur innovation and encourage investment across the country.”

SMMT chief executive Mike Hawes said: “Measures to help address the accelerating cost of living are welcome but business also needs support, especially on energy, investment and skills. Time is of the essence as the industry is not yet in recovery but costs are increasing rapidly, undermining U.K. competitiveness. Government could have acted today to help automotive manufacturers alleviate soaring business energy costs and encourage investment.

“We look forward to working with Government on its proposals for business investment and, especially, super deductions which are highly valued. Manufacturers have committed £10.8 billion to UK EV and battery R&D and production in our first ‘electric decade’. Driving even more investment will be essential if we are to supercharge automotive manufacturing - and the jobs and economic growth it creates - during its biggest transformation in 100 years.”

ADS chief executive Kevin Craven said: “Today’s statement recognises the economic pressures facing UK households, workers and businesses.

“Alongside measures to mitigate the impact of rising costs of living, accelerated measures to support decarbonisation and reform R&D tax relief will encourage UK businesses to invest in sustainability and innovation.

“The Chancellor has signalled he will consider future changes to improve the operation of the Apprenticeship Levy and to further incentivise business investment through the tax system, measures that would be supported across our industries.”