Speaking in parliament on the day that UK inflation hit a 30-year high of 6.2%, Rishi Sunak set out to reassure members of the public and businesses facing rising costs, with measures including a rise in the National Insurance starting threshold and a cut to fuel duty.
Aiming to save businesses more than £200m over the next five years, the chancellor announced two business rate reliefs that will come into effect next month – no business rates due on a range of green technology used to decarbonise buildings, including solar panels and batteries, and 100% relief for eligible heat networks.
Those measures will not go far enough to help businesses, according to manufacturers' organisation Make UK. Director of policy Verity Davidge said: “The lack of support for businesses to tackle spiralling energy costs is beyond disappointing, and deeply frustrating.
“With manufacturers seeing historically high energy bills, today was the government’s chance to give businesses much-needed support. Reducing the policy costs that make up a large part of overall electricity costs, together with a boost to extending energy funds and grants, would have given manufacturers the best chance of cutting their energy bills and keeping their businesses afloat.”
Make UK chief executive Stephen Phipson said: “It is right that the chancellor should prioritise help for the lower paid and those most in need at such a difficult time, and business will understand this.
“However, government cannot escape the fact that manufacturers are facing eye watering cost increases that are pushing many towards a tipping point, and companies would have been looking for substantial business support measures to help alleviate these. In particular, the lack of action on energy costs for business is especially hard to fathom.
“It has been two years to the day since lockdown began and there is very little in today’s statement to support a sector that kept working throughout the pandemic, ensuring that there was food on the shelves, PPE for our NHS, and medicines for the people who needed them. The promise of ‘jam tomorrow’, with consultations through the summer and action in the autumn, will also be of little comfort for many who would have liked to have seen action and support immediately.”
He added: “We have also yet to see a long-term economic vision that has enterprise, growth and innovation at its heart. Without adding a turbocharger for growth, the government risks leaving the economy spluttering along as a two stroke.”
Automotive businesses also criticised the chancellor. The industry, which last year fell to its lowest level of productivity in 65 years, has been badly affected by the Covid-19 pandemic and Brexit-related issues.
“Measures to help address the accelerating cost of living are welcome, but business also needs support, especially on energy, investment and skills,” said Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders (SMMT). “Time is of the essence, as the industry is not yet in recovery but costs are increasing rapidly, undermining UK competitiveness. Government could have acted today to help automotive manufacturers alleviate soaring business energy costs and encourage investment."
He added: “We look forward to working with government on its proposals for business investment, and especially super-deductions, which are highly valued. Manufacturers have committed £10.8bn to UK electric vehicle and battery R&D and production in our first ‘electric decade’. Driving even more investment will be essential if we are to supercharge automotive manufacturing – and the jobs and economic growth it creates – during its biggest transformation in 100 years.”
R&D reform
Make UK also criticised the chancellor for not delaying a planned increase in National Insurance contributions (NICs) of 1.25 percentage points.
“Today was a missed opportunity for the chancellor to act on concerns, raised by employer and employee groups alike, to delay the NICs hike until the economy is in a more robust position,” said Davidge. “The NICs increase is a tax on jobs, with six in 10 manufacturers saying it will impact recruitment, and the majority planning to pass onto the customer, leading to further inflationary pressures.
“The NICs increase is just one of many significant costs facing UK manufacturers, and there will be a big question as to whether the UK is a competitive place to do business right now.”
Other announcements in the statement included an examination of how the tax system – including the operation of the Apprenticeship Levy – can be used to encourage employers to invest in training, and a reform to R&D relief.
UK business R&D investment is less than half of the OECD’s average as a percentage of GDP, so the chancellor hopes a reform of R&D tax reliefs will deliver better value for money for the taxpayer, “while being more generous where they can make the most difference”. The scope of reliefs will also be expanded to cover data, cloud computing and pure maths.
“The R&D tax credit scheme is the most commonly used form of innovation support among manufacturers. Any changes to the scheme must be done in close consultation with the manufacturing sector, which is responsible for 64% of private R&D investment,” said Fhaheen Khan, senior economist at Make UK.
“Government must be careful not to throw the baby out of the bath water. While the scheme may not be perfect, it should be reshaped and not radically reformed, and any suggestions it should be scrapped entirely must be ignored.
“We look forward to continuing to work with government to make the scheme work better for businesses of all sizes, and ensure the UK can continue to compete on the global innovation stage.”
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