Spring Budget 2020 – Manufacturing sector

When I asked manufacturing companies what they wanted from the budget, they highlighted several recurring wishes:

  1. Assistance in funding or incentives/stimulus to help SME’s invest in new capital, be that some sort of regional growth fund providing grants and/or increasing Annual Investment allowances.
  2. Continued support for the R&D regime. Some did have concern for the mooted salary cap on R&D tax credit repayments.
  3. Innovative ways of bridging the skills gap.
  4. Careful management of the national minimum wage increases as this can have a big impact on the cost base of more manual production lines.

So how did Chancellor Rishi Sunak do in delivering against these wishes in his maiden budget and what else of note was there for the manufacturing sector?

Coronavirus

He couldn’t avoid addressing the impact of Covid-19 on all businesses and has introduced measures and support for increased costs and disruption to cashflow arising from the Covid-19 virus. One would assume that manufacturing businesses showing downturns in trade, staffing issues or problems with their supply chain will be able to benefit from deferring tax payments and gain access to the “Business Interruption Loan Scheme”, which will provide up to £1.2m to support individual SME’s.

This £1bn of potential lending will be from banks via a government backed loan scheme where the government guarantee 80% of losses on the bank lending which could possibly be used to help capital investment plans that are put at risk by the impact of the Covid-19 virus. Similar schemes in the past have seen the banks reluctant to lend this type of government guaranteed loan, so we will see whether in practice these funds are released to SME businesses.

The only capital allowance change was an increase in the structures and building allowance rate to 3%.

R&D

The R&D regime is largely unchanged. There is to be an increase in the R&D credit for large companies from 12% to 13%, which will be welcome news. The salary cap on SME R&D refunds that had been suggested to come into effect from 1 April 2020 in the run up to the budget has been postponed for a year whilst the government looks into making sure these measures impacts on those businesses the Treasury feel are abusing the system rather than those genuinely performing R&D activities.

Skills gap

Measures were announced for funding a £1.4 boost to a science institute in Weybridge and an extra £900m into research into nuclear fusion, space and electric vehicles but no mention of the individuals carrying out the research.

There were measures announced for boosting the teaching of science, technology, engineering and maths with capital investment for up to eight new Institutes of Technology and 11 maths schools.

There was also comment that the government will ensure that sufficient funding is made available in 2020-21 to support an increase in the number of new high-quality apprenticeships in small- and medium-sized businesses.

Wages

The national Living Wage, the rate for over 25’s, will increase by 6.2% from 1 April, going up from £8.21 to £8.72 an hour. The rates set by the Low Pay Commission will equate to an increase of £930 over a year for a full time worker aged 25 or older working 35 hours a week.

Manufacturing companies with high levels of staff or temporary staff at these levels will need to budget the impact carefully as this increase may have been slightly more than they had perhaps anticipated. To compensate slightly, there is also an increase in the employers’ allowance for qualifying companies of £4,000.

Other points

Other points to note include a plastic packaging tax to come into force from 2022. Manufacturers and importers whose products have less than 30% recyclable materials will be charged £200 per tonne. A consultation has been launched at how to best implement such a scheme.

The Chancellor also announced huge spending plans on building an array of services including 40 new hospitals, extensive road, rail, broadband and housing programmes, carbon capture plants and flood defences as well as spending on nuclear fusion and electric vehicles. Manufacturers in these supply chains will be happy with the added stimulus this will create.

Improved road and rail infrastructure and no increase fuel duties will have welcome impacts on manufacturers distribution costs.

Summary

Overall, whilst the budget could have done more to help stimulate capital expenditure, not least because anecdotally spending has been held back in the run up to Brexit, there would not appear to be too much bad news for the manufacturing and engineering sector.

If you would like more detailed one-to-one advice on any of the issues raised in the Budget, please get in touch or give us a call on 01903 234094.