According to a major survey published by Make UK and RSM UK, UK manufacturers will increase investment with a focus on improving capabilities, reaching net zero and R&D.
The poll also shows that while manufacturers support the decision to make the annual investment bonus — the overwhelmingly backed investment stimulus measure — permanent, a majority of manufacturers believe the corporate tax hike announced last month will Kingdom a less attractive destination for foreign investment.
Manufacturing investment still remains 3% below the last year before the pandemic in 2019, according to Make UK analysis of official data. While there are now significantly greater downside risks given the current market and business sentiment, the survey shows that manufacturers increasing investment as critical to success in addressing supply chain disruptions, labor shortages and increased energy costs, as well as improving productivity.
In Scotland, manufacturers are focused on investing in technology that improves productivity, meets future demand and encourages a more sustainable and efficient production line.
Stuart McCallum, RSM UK Production Manager in Scotland said: “Following discussions with our manufacturing customers in Scotland, particularly companies in the food and drink sector, technology investment and innovation is a priority as demand builds in the run up to Christmas and companies look to scale up and foster global relationships while working towards more sustainable production methods.
“Scotland has already made significant capital investments in whiskey production in particular which, given its importance in Scotland’s export market, will help to further develop the sector as a major player in the Scottish economy whilst also helping to meet the challenge of greener and cleaner manufacturing cope with solutions. As an energy-intensive industry, the cost of living crisis and rising energy costs have accelerated the need for manufacturers to innovate and find new ways to maintain and increase production while reducing energy costs.’
He added: “Although the annual investment allowance of 1 million of consumers. However, these challenges are alleviated by the development of the National Manufacturing Institute Scotland (NMIS) in the Glasgow City area. This development will highlight Glasgow as a center of excellence in manufacturing, promoting knowledge sharing and linking academia, industry and government.’
At the national level, increased manufacturing investment will also help boost overall business investment, which is key to the government’s goal of improving the trend rate of economic growth.
Fortunately, the survey also revealed that the share of average investment in machinery and equipment in sales has increased overall over the past five years. However, the survey shows that there is a clear difference between the average proportion of turnover invested by UK companies compared to foreign-owned companies with UK subsidiaries. According to Make UK, this could indicate that the UK factories have become a less favorable location for foreign companies with other locations.
In addition, the survey also showed that the cost of inflation is likely to weigh on investment by lowering yields, while the prospect of significantly higher policy rates will deter companies that may have accumulated significant debt during the pandemic.
Fhaheen Khan, Senior Economist at Make UK, commented: “Despite increasing digitalisation, manufacturing remains a capital-intensive sector that needs continuous investment to thrive, innovate and remain internationally competitive. However, it is clear that investment has not accelerated at the required pace for some time.
“While the pandemic has clearly halted some investments and despite the current uncertainty, manufacturers are realizing that increasing their investments is fundamental to securing their future. If we are serious about boosting growth and increasing productivity, then a significant shift in UK business investment needs to be at the heart of government policy. This must begin with the provision of economic and political stability and carefully designed and targeted incentives that appropriately reflect the manufacturing investment life cycle.’
Mike Thornton, National Head of Manufacturing at RSM UK added: “The UK economy needs a vibrant manufacturing sector that continues to invest in capital to improve productivity and compete on the global stage. With only nine percent of manufacturers confirming that government support is even factored into their investment decision-making process, there is clearly a major opportunity for policymakers to do more in the future. More generous and accessible incentives and more time to take advantage of them would be welcomed by business leaders across the industry.’
According to the survey, six out of ten manufacturers plan to increase investments in the next two years. The overall priorities for companies’ investment plans are skills (69%), capital (55%) and R&D (40%).
The specific challenges of recent years are also factors spurring more investment, as the need to address skills shortages, cited by almost half of companies (48%), together with reducing disruptions in the supply chain (44%) and reducing energy costs (40%).
The survey shows that net zero remains a key priority for businesses, with nearly two-thirds of companies (62%) planning to increase capital investments to reduce carbon emissions, more than half (55%) Raise capital to improve processes and more than four-fifths (43%) increased investment in low-carbon technologies.
In contrast, rising inflation (37%) and rising interest rates (22%) are the factors that are likely to prove an obstacle to greater corporate investment. Given the likelihood of both increasing, the survey makes it clear that companies will face significant hurdles in realizing their investment ambitions.
To counteract these potential obstacles, it is vital that government tax policy supports investment with incentives appropriately tailored to the life cycle of manufacturers’ investments and aligned with measures to ensure that the UK as a whole is presented as an attractive place to invest is seen.
Two-thirds of companies believe raising the corporate tax rate to 25% will make the UK less attractive to foreign investment, more than half (57%) said it will result in manufacturers investing less capital, while a third said the benefits are being nullified from capital allowances.
However, for a third of companies (32%) the most popular investment incentive was to permanently set the annual investment allowance (AIA) at £1m. Conversely, a third of companies (34%) said they would have reduced their investments in plant and machinery if the exemption had not been made permanent and the £1m threshold reset to just £200,000.
Outside of the AEI, a quarter of companies (26%) would support introducing full expense reporting (100% capital allowance), while the same proportion would support a two-year extension of the special deduction system.
The survey of 196 companies was conducted between July 4th and August 1st.