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UK manufacturers plan to invest in skills, machinery and r&d

18 October, 2022

Six out of ten UK manufacturers are planning to invest more over the coming two years, with 69% planning to boost their investment in skills, 55% planning capital expenditure on plant and machinery, an 40% planning to spend money on R&D, according to a survey by the manufacturers' association, Make UK and the accountancy firm, RSM UK.

The survey also reveal that net-zero is a priority for many companies, with almost two-thirds of those surveyed (62%) planning to increase investment in capital projects to cut carbon emissions, while more than half (55%) want to improve their processes, and 43% are planning to increase their spending on low-carbon technologies.

But the survey of 196 UK manufacturers, which was carried out during the summer, also makes clear that companies will face significant hurdles to making these investments, as they face barriers such as inflation (cited by 37%) and higher interest rates (22%).

To counter these barriers, Government taxation policy will need to support the investments with incentives that fit in with the lifecycle of manufacturers’ investments, and are aligned with measures to ensure the UK is seen as an attractive destination for investment.

While manufacturers support the decision to make the Annual Investment Allowance permanent, two-thirds believe that the planned increase in Corporation Tax to 25% will make the UK less attractive for foreign investors. More than half (57%) say it will result in manufacturers investing less, while a third feel it will wipe out the benefits from capital allowances.

Make UK has analysed official data and found that manufacturing investment is still 3% lower than it was during the last pre-pandemic year in 2019. The survey shows manufacturers see increasing investment as being “mission-critical” to tackling supply chain disruptions, labour shortages and increased energy costs, as well as improving productivity.

The survey – published in a report called Investment Health: Balancing Risks and Opportunities in Manufacturing Investment – reveals that average investment in plant and machinery as a share of turnover has risen over the past five years. However, UK firms are more likely to invest than foreign-owned businesses with UK subsidiaries. Make UK suggests that the UK may have become a less favourable location for foreign companies with operations in other countries.

Inflation is likely to act as a drag on investment by reducing the rates of return, while the prospect of significantly higher base rates will deter companies which may have built up substantial amounts of debt during the pandemic.

UK manufacturers’ top three investment priorities are skills, plant and machinery, and r&d
Source: Investment Health Survey 2022

“Despite becoming increasingly digitalised, manufacturing remains a capital-intensive sector that must invest continuously to grow, innovate and remain internationally competitive,” points out Make UK senior economist, Fhaheen Khan. “However, it’s clear that investment has not accelerated at the pace it needs to for some time.

“While the pandemic has clearly stopped some investment in its tracks and, despite current uncertainty, manufacturers recognise that upping their investment is fundamental to securing their future,” she adds. “If we are serious about boosting growth and improving productivity, then a step-change in the UK’s business investment must be at the heart of Government policy. This must start with providing economic and political stability, as well as carefully designed and targeted incentives which properly reflect the life cycle of manufacturing investment.”

According to Mike Thornton, RSM UK’s head of manufacturing, “the UK economy needs a buoyant manufacturing sector that continues to make investments in capital to improve productivity and compete on the global stage. With just 9% of manufacturers confirming Government support even factored into their decision-making process regarding investment, there is clearly a huge opportunity for policymakers to do more in the future.

“More generous and accessible incentives and, more time to make use of them, would be welcomed by business leaders across the industry,” he suggests.

Almost half (48%) of the companies surveyed are planning investments to address skills shortages, while 44% are spending to reduce supply chain disruption and 40% to cut energy bills.

Make UK:  Twitter  LinkedIn

RSM UKTwitter  LinkedIn

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