Full and original article in The Manufacturer.
Today’s first Labour Budget since 2010 was an opportunity for the government to build on the initial proposals in the Industrial Strategy green paper to bolster the UK’s manufacturing industry and stimulate economic growth in line with decarbonisation. The Chancellor, Rachel Reeves, promised that the only way to ensure economic growth was to “Invest, invest, invest”.
The Industrial Strategy has identified eight high-growth sectors that will help drive the green economy and the supply chains that are powering them, and to this end the Chancellor commented: “Today’s budget marks an end to short-termism. For the first time, the Office for Budget Responsibility (OBR) has published not only five year growth forecasts, but a detailed assessment of the growth impacts of our policies over the next decade.
“To improve employment prospects and skills, we are creating skills England, delivering our plans to make work pay and tackling economic inactivity. We are also launching our long-term Industrial Strategy and expanding opportunities for our small and medium sized businesses to grow. And to drive innovation, we are protecting record funding for research and development to harness the full potential of the UK science base. And to maximise the growth benefits of our clean energy mission, we have confirmed key investments such as carbon capture and storage to create jobs in our industrial heartlands.”
After hitting out at the previous government’s record, the Chancellor also confirmed expected tax increases, by over £40bn, stating that: “Any Chancellor would face the same reality,” and that, “we cannot undo 14 years of damage in one go and so economic growth will be our mission throughout the duration of this Parliament.”
Initial reaction to the Industrial Strategy green paper raised concerns over a lack of focus for small businesses. This was picked up on by the Chancellor who added: “It is particularly important to protect our smallest companies. So having heard representations from the Federation of Small Businesses and others I am increasing the employment allowance from £5,000 to £10,500. This means 865,000 employers won’t pay any national insurance at all next year.”
There was also the announcement that over three million workers will receive a pay boost after the Chancellor confirmed the National Living Wage will increase from £11.44 to £12.21 an hour from April 2025. This offers a much-needed lift to the manufacturing industry, which is still struggling with labour shortages and stiff competition from other sectors, particularly around emerging digital skills.
As widely expected, the Chancellor also lifted employers’ National Insurance Contributions, but the drop in the threshold at which businesses start paying shifted from £9,100 to £5,000.
The Chancellor added: “To rebuild our country we need to increase investment. The UK lags behind every other G7 country when it comes to business investment as a share of our economy. It means the UK has fallen behind in the race for new jobs, industries and technology. Restoring economic stability by establishing the National Wealth Fund to catalyse private funding, we have begun to create the conditions that businesses need to invest.”
She continued: “We are driving forward our modern Industrial Strategy, working with businesses and organisations like Make UK to set out the sectors with the biggest growth potential. We are confirming multi-year funding commitments for these areas of our economy.
“This includes nearly £1bn towards the aerospace sector, inviting research and development and building on our industry in the East Midlands, the South West and in Scotland; over £2bn pounds for the automotive sector, our electric vehicle industry and to develop our manufacturing base, building on our strengths in the North East and the West Midlands; and up to £520m for a new life sciences and innovative manufacturing.
“And to bring new jobs to Britain and to drive growth across our country, we are delivering our plan to make Britain a clean energy superpower. Earlier this month, we announced a significant multi-year investment between government and business into carbon capture and storage, creating 4,000 jobs across Merseyside and Teeside. Today, I am also providing funding for 11 new green hydrogen projects across England, Scotland and Northern Ireland.”
The gender imbalance in the sector is well documented, with more women and girls needed to help fill the widening skills gap within manufacturing and engineering. In a similar, traditionally male-dominated sector, it was notable that the Chancellor gave mention to the fact that she is the first woman in history to deliver the Budget address saying: “To women and girls everywhere, let there be no ceiling on your ambitions, hopes and dreams.”
Industry reaction from Mike Capaldi, Chair, DER-IC
“The autumn Budget has confirmed some positive changes on the horizon for the manufacturing sector. The proposed business tax roadmap offers a structured, long-term plan, so manufacturers can make better-informed investment decisions with clarity on tax policies, including capital allowances and reliefs for innovation, which have been sought after for years by industry leaders. Concern remains for smaller manufacturers who are still recovering from persistent economic headwinds and may not find the roadmap offers the support they need right now.
“The extension of R&D tax reliefs with anticipated enhancements for SMEs in high-tech manufacturing is another victory, alongside confirmation of £2bn in R&D funding for the automotive sector, and £975m for the aerospace sector. SMEs bring agility and specialisation across industries and their contribution to growth and innovation should not be overlooked. These additional R&D supports can catalyse our transition to a more advanced manufacturing environment, including the adoption of Power Electronic, Machines and Drives (PEMD) technologies, which are critical in driving productivity, innovation and electrification across manufacturing, including aerospace and automotive.
“The expanded capital allowances for low-carbon technologies are pivotal for helping manufacturers cut emissions while improving efficiency. What we’d like to see is further detail on how smaller manufacturers can access support without the capital that larger corporations have to invest in new technologies
“For education, targeted investments in skills and training address one of the sector’s most pressing challenges. By increasing apprenticeship support in engineering and digital manufacturing, we’ll be better equipped to bridge skill gaps and attract the next generation of skilled workers. We hope that there can be more consideration for experienced workers who we want to ensure are taken along this journey.
“Overall, this Budget represents a strong indication that the government is invested in the future of UK manufacturing and a commitment to fostering growth and sustainability within the sector. We hope this is further complemented by the forthcoming Industrial Strategy.”