With thanks to Jack Semple, Secretary of EAMA (of which MTA is a member) for providing the bulk of this note, here are some of the highlights of this week’s Autumn Statement by the Chancellor of the Exchequer. We will start with those that are of most relevance to the engineering industries and then cover some of the more general economic points, but first, it is worth noting that manufacturing featured strongly (perhaps more than for a long time) in an unsurprisingly controversial autumn statement, predicted to be the last before the next general election – the speech was littered with references to lobbying by MPs in marginal conservative held constituencies.
The top highlights for Members included:
- £4.5 billion has been earmarked over 5 years from 2025 “to help unlock” private investment in eight manufacturing sectors “of economic strategic importance”, as announced 5 days before the Autumn Statement. In the speech, this was specifically mentioned to include the following amounts (note that this totals £4.445 billion which does not leave much for the other 4 manufacturing sectors):
- Over £2 billion for the automotive industry (probably mostly related to electric vehicles and batteries).
- £975 million for aerospace.
- £960 million for the Green Industries Growth Accelerator to support clean energy manufacturing.
- £520 million for life sciences manufacturing to build resilience for future health emergencies and capitalise on the UK’s world-leading research and development.
- Full expensing of capital investments is to be made permanent, rather than just for three years, as announced in March. This means that 100% of any investments can be offset against the tax bill, assuming that the company is making profits to be taxed in the first place! The rate of this benefit is now 25% of the capital expenditure with the increase in the rate of Corporation Tax in the current financial year. The Office for Budget Responsibility (OBR) forecasts that investment will rise by £3 billion a year as a result of the measure. This measure was proposed by the CBI (of which MTA is currently a member), whose submission was supported by EAMA.
- There is a big boost for Made Smarter Adoption, the advice service, which has a four-year commitment from 2025, when the scheme is to go England-wide, with a budget of £30 million in each of the three years to 2028/29. There will be more if the other parts of the UK agree to join and there are indications that it will continue beyond the first funding period if it is seen to be successful. This expansion is in line with the central EAMA ask of the Autumn Statement, for a “coherent, national, long-term” scheme. The Department for Business and Trade has confirmed to EAMA that, contrary to the impression given in the government press release, the scheme will be for all manufacturing, not just the eight priority sectors.
- On skills, there is a £50 million fund over two years “to pilot ways to increase the number of apprentices in engineering and other key growth sectors”. Government is aware from research and evidence, including from EAMA, of the extent of problems in engineering apprenticeships and trade associations have much to offer the pilot. However, there was nothing on any reform/improvement of the Apprenticeship Levy which was something that MTA had been working on with the CBI.
It is worth noting that the support for key manufacturing sectors and the expansion of the Made Smarter Scheme don’t start until 2025 – i.e. after the General Election – although they were among the announcements that have cross-party support so, should Labour win the next election, they are likely to go-ahead.
Also, in respect of the £4.5 billion, it is not clear how much, if any, of this is new money and how much is a regurgitation of previous announcements. For example, the announcement this week of new models to be made by Nissan in Sunderland is to be supported by money from the Automotive Transformation Fund which is the vehicle though which the £2 billion for the automotive industry will be channelled.
The other budget highlights include:
- A new R&D tax relief system is being created, combining aspects of the large-company and SME schemes, Hunt said. The rate at which loss-making firms are taxed within the new scheme is reduced from 25% to 19%.
- On prompt payment, Hunt said that, from April 2024, any firm bidding for large government contracts “should demonstrate they pay their own invoices within an average of 55 days, which will reduce progressively to 30 days”. This could prove highly unpopular in time with some firms.
- The main rate of Class 1 NICs is being cut from 12% to 10%, to take effect from January 6th. Various commentators have noted that workers are losing badly elsewhere, for example as a result of inflation, from the freezing of personal allowances and higher-rate thresholds in March 2021, now due to last until 2028.
- The National Living Wage goes up from £10.42 to £11.44 and the age threshold drops to 21. This is said to be worth around £1,800 for full-time workers. The increase is said by some firms to create problems in maintaining differentials; others hope it will help to drive investment in processes and technology
- Barriers to investment in critical infrastructure will be removed by reforming “the UK’s inefficient planning system and speeding up electricity grid connection times”. Firms will be able to pay more for their applications to be processed quickly. Frustration with the electricity grid has been arguably the biggest of all complaints from business.
- A “concierge” service for large inward investors, to help land their investments.
- Several new Investment Zones (IZ) were announced and tax incentives for IZs and freeports were extended by five years. Many of these areas are designed to attract “advanced manufacturing”, which is not defined but will doubtless include the strategic priority sectors, identified above.
- The UK Infrastructure Bank will be able to invest in strategic areas, including semi-conductor manufacturing and critical minerals.
- UK Export Finance is to provide more support for SMEs and is believed to be undergoing internal changes to achieve that. Its relatively new General Export Facility is already its most popular product.
- The government will invest £145 million through Innovate UK to support business innovation. This includes £20 million for productivity and decarbonisation of foundation industries, £50 million for battery innovation, £50 million for investment in Catapults, and £25 million for innovation in critical technologies.
Overall, the Autumn Statement received lukewarm reviews. Commentators have noted that higher inflation has increased tax receipts but living standards have fallen sharply over the past four years and there is more pressure on public services and capital investment.
The Office for Budgetary Responsibility’s (OBR) summary of the Autumn Statement says that, compared with its view in March, the economy has proved more resilient than it anticipated but that inflation has been more persistent and interest rates higher.
We don’t have space here to comment on all of the updated OBR forecasts which it produces in parallel with major fiscal events such as the Autumn Statement (although, most noticeably, not a year ago around the Liz Truss / Kwasi Kwarteng event) but it is worth noting that although their GDP forecast for 2023 was revised up compared to 6 month earlier (from -0.2% to +0.6%), the forecasts for the following 2 years have been revised down significantly. For 2024, the forecast for GDP is now +0.7% (Spring edition showed +1.8%) and for 2025 it is now +1.4% (previously +2.5%).
Finally, an Advanced Manufacturing Plan (AMP) that was expected to be published with the Autumn Statement has been delayed by a few days. The reason for the delay is unclear but plausible explanations include that it was not signed off in time and that the government wanted greater impact.
The AMP started life as a Manufacturing Investment Prospectus, which was promised by end-2022 but never appeared. It was to support the commitment in the Levelling Up White Paper (February 2022) that “we must… reverse the historic decline in manufacturing in the UK”. At last, and with an election looming, we are starting to see more clearly what the government has in mind.
The AMP is expected to give more detail of the support available to the sector and firmly to come down on the side of advanced manufacturing meaning the application of the latest technology, rather than specific sub-sectors of the manufacturing sector. The McLean Report for the chancellor, published last week, made a similar point.
McLean also noted that the manufacturing sector generally sees itself as well-regulated and that “in many cases the industry benefits from alignment with major trading partners such as the EU, given the ease of market access”.