Autumn Budget 2021: Manufacturing wish list

Triple threat to manufacturing

The manufacturing sector has experienced a difficult last 18 months as a result of the pandemic. Just as it is starting to get back to some type of normality, things appear to be getting much harder again. We look at the three threats faced by the manufacturing sector and offer our wish list for the Autumn Budget.

COVID reliefs ending

With the worst of the pandemic hopefully now over, a lot of the Government backed COVID reliefs and grants are coming to end. These include business rates relief and CJRS payments, and leave businesses to fund these cost again.  Some may say that this is simply putting business back to where they were before the pandemic; the Government does not have endless funds to keep supporting theses business.  However, business rates have been an area of debate for many years and many have called for a review of these as they are no longer seen as fit for purpose.  An urgent revamp is required to bring the regime into 21st century.

Corporation tax increase

If it was simply that businesses would be paying what they were before, that may be fine. However, recent announcements that the corporation tax rate is going to increase to 25% from 1 April 2023 together with the National Increase/social care tax of 1.25% will intensify the tax burden on these businesses.  This leaves businesses with a choice: increase their prices (which will contribute the rising inflation levels across the globe) or reduce their costs.  There is no doubt that the national insurance rise will increase the cost of employing staff. It may lead to a cull in personal, which will have a negative impact of the Treasury’s tax receipts from PAYE and NI.

There is a lot of evidence that supports a low tax rate drives an increase in economic activity which ultimately increases the tax intake for the Treasury. At a time of an economic recovery surely the UK wants to be attracting inward investment rather than disincentivising those businesses by putting up the headline corporation tax rate.

Fuel and energy cost increase

As mentioned above, rising inflation was always going to happen when a country has effectively been shut down for 12 to 18 months. However, the recent fuel and energy cost increase has perhaps taken many by surprise.  The manufacturing sector is undoubtably a high consumer of power supplies, whether it be gas or electricity. The rise in costs of those supplies will put further pressure on cash flow. 

Many are calling for Government bailouts for struggling industries. At what point should the taxpayer keep stepping in to fund private businesses which perhaps might not have budgeted for such scenarios?  One way the Government could help to ease the pressure for the manufacturing sector would be a temporary reduction in the climate levy charge to compensate the rising energy costs.  This might help the sector weather the storm but this would be in direct contravention of the Government’s new green agenda.  Some may argue that there have been enough grants and incentives for businesses to adopt environmentally friendly technology over the past decade.

Another area we would like to see would be to introduce a temporary reduced rate of VAT on energy costs.  Currently businesses pay the standard rate of 20% on their energy costs compared to domestic consumers at a rate of 5%.  Reducing the rate to 5% or even 10% would help ease the burden on cash flow for businesses struggling to cope with the increased energy costs.

Final thoughts

It will be interesting to see what the budget brings especially for the manufacturing sector. There are very interesting time ahead for the manufacturing sector and many areas up for debate.  We would love to hear your thoughts and suggestions on the difficulties facing the industry.

If you would like any further advice, please contact a member of our Manufacturing and Engineering team on 01903 234094.