Manufacturers looking for long-term measures from the government (Authored by Kunal Sawhney, CEO, Kalkine)

The United Kingdom has a vast and vivid manufacturing sector, including various industries like electricity, water, mining, oil & gas, and many more. As per industry body Make UK, the current annual output of the UK’s manufacturing sector is about £183 billion, and it continues to maintain its position as the ninth-largest manufacturing country globally.

However, the industry has been going through a crisis due to rising inflation, and the businesses within it are facing growing pressures due to the rise of input costs and supply chain disruptions. Manufacturing is severely impacted by high energy and commodity costs. At the same time, finding talent has become a major challenge, with vacancies at record levels, at 4.1 vacancies per 100 jobs. According to ONS data, as on 10 June 2022 number of online job adverts was the weakest in the manufacturing sector when compared with three weeks ago, among all the major industries.

Pandemic and its impact on manufacturing

The COVID-19 pandemic had impacted almost all the sectors and manufacturing was among the severest hit with a significant reduction in the output in 2020. As per ONS data (Office for National Statistics), the total value of the UK’s manufacturing product sales declined by 10.8% to £358.7 billion in 2020 compared to £402.2 billion in the previous year.

While almost all the manufacturing divisions witnessed a decline in sales, the manufacturing of pharmaceuticals and paper and paper products witnessed modest improvement during the period. However, once the restrictions started easing, the output value of the sector began returning to normal despite high prices and supply chain bottlenecks, and it was being expected that things would be back on track by the end of 2022.

All the high hopes to see a turnaround by the year-end were dashed amid a worsening cost-of-living crisis. Producers of consumer goods struggled to raise the demand as households face surging energy bills and there is a continuous decline in consumer confidence.

The latest data revealed that British manufacturing activity expansion was weakest in May 2022 since January 2021 at 54.6. It clearly shows the squeeze on household finances and the risk of recession weighing on the minds of consumers. For yet another month, costs paid by manufacturers and selling prices witnessed a rise in May.

What is the sector asking for?

The Q2 survey report of Make UK/ BDO has revealed that investment has taken a big hit, and companies have been deferring or shelving their plans to maintain their cash flow, amid weakening consumer confidence with growth and orders showing a sharp decline. Exports are still not showing any signs of sustainable recovery.

Rapidly rising input costs may not leave the manufacturers to continue till Autumn, when Chancellor Rishi Sunak had promised help during the Spring Statement. The prevailing situation calls for an immediate and urgent need for help for the manufacturers, keeping in view the grim outlook for the next six months.

As per Make UK, manufacturers are now not looking at any short-term measures and would rather expect the government to focus more on business and foreign investors, which could portray the country in a more serious manner with a long-term vision.

  • Manufacturers have been asking the government to either remove or reduce the business rates for the coming one year.
  • SMEs should be provided with a waiver of VAT, while large businesses can be given some deferrals.
  • There has been a demand for the extension of the super-deduction investment policy, a means that allowed the businesses to claim a much higher tax deduction in the tax year of purchase for qualifying equipment compared to what it could have been normally.
  • The climate change levy should be stopped for the time being, and if the energy cost continues its rising spree, it should be completely abolished.
  • There is also demand from the manufacturers to make the increase in AIA (Annual Investment Allowance) permanent. Late last year, the government had temporarily increased the AIA from £200,000 to £1,000,000 for a qualifying outlay on plant and machinery.