UK manufacturers plan to boost investments

According to a survey by Make UK and RSM UK, manufacturers in Britain are planning to increase their investments, with a major focus in boosting skills and net zero. Information garnered from the survey also suggests that manufacturers support the decision to make the Annual Investment Allowance permanent, but many believe that an increase in Corporation Tax will make foreign investors less likely to choose the UK as their investment destination of choice.

Make UK looked at official data, and declared that manufacturing investment is still 3% lower than 2019. This is largely due to the fact that there are greater risks involved, thanks to business sentiment and the current market. The survey highlights that manufacturers are increasingly viewing investments as a vital part of tackling supply chain disruption, labour shortages and rising energy costs. With investment, it’s hoped that productivity will also be boosted.

The survey also showed that the average investment in plant machinery as a share of turnover has increased in the last five years. However, it also shows that there is a difference between the average share of turnover invested by UK firms, compared to foreign owned firms with locations in the UK. According to Make UK, this could mean that UK plants have become a less sought after location for foreign companies.

It’s also likely that inflation could have an impact on manufacturing investments, as the rates of return are likely to be lower. Plus, rising base rates could deter companies who have accumulated debts during the pandemic.

60% of manufacturers are planning to increase investments

The survey highlighted that 60% of manufacturers are planning to increase investments in the next two years, with 69% and 55% of those prioritising skills and capital respectively. The challenges brought about by COVID-19 are also encouraging more investment, as the skills shortage is having a big effect on the industry. 48% of companies are experiencing a skills shortage and 44% reported supply chain disruption; 40% also cited reducing energy bills as a reason for boosting investments.

The Make UK and RSM UK survey also shows that net zero is a key focus for a lot of companies, with 62% of them planning to increase investment in capital to reduce carbon emissions. 55% are planning to increase capital to improve processes, and 43% are increasing capital to invest in low carbon technologies.

Of course, there are some barriers that could hinder these investments. A rise in inflation and increased interest rates are a huge factor for investors at the moment, and both are likely to continue increasing. This is why it’s important for government taxation policies to support investment, which can be done using incentives designed with manufacturer investment in mind.

Disagreements over the rise of Corporation Tax

Two in three companies think that increasing the rate of Corporate Tax to 25% will make the UK a less sought after destination for foreign investment, and 57% believe it could result in manufacturers investing less altogether. Of all of the investment incentives put forward, making the Annual Investment Allowance (AIA) permanent at £1m was the most popular. If this didn’t happen - which would have seen the AIA reversed to £200,000 - then a third of companies said they would have reduced their investments in plant and machinery.