Autumn Statement: "Government has eventually listened to industry”

London – The UK chancellor’s Autumn Statement includes a number of measures in areas including environmental costs, skills and infrastructure, that could benefit the UK process industries and the wider engineering sector.

Among these potentially significant announcements in the 29 Nov Westminster statement is a compensation package for energy-intensive industries to offset the growing impact of government policies on the competitiveness of UK electricity prices.

According to Lee Hopley, chief economist of UK manufacturers’ organisation the EEF, major funding has been allocated to compensate energy intensive industries for the impact of the EU ETS (£110 million) and the UK’s unilateral carbon price floor (£100 million) on electricity prices for the period April 2013 to March 2015.

The scope of the former is currently being developed by the European Commission, whilst the scope of the latter will be consulted on by the UK government early in the New Year, noted Hopley.

There are also real benefits for less energy-intensive manufacturers, the EEF economist pointed out.

“All companies participating in Climate Change Agreements will see the relief they receive on the electricity rate of the Climate Change Levy go up from 65% now to 90% from 1st April 2013,” said Hopley. “More broadly still, £100m of the Green Investment Bank’s funds will be ring-fenced for non-domestic energy efficiency projects in financial year 2012-13.”

Likewise, in his response to the chancellor’s statement, Steve Elliott, chief executive of the UK Chemical Industries Association stated: “I am very relieved that Government has eventually listened to industry on how sectors such as chemicals play a key role in delivering green economic growth.

“The supportive measures around the Climate Change Levy, European Union Emissions Trading Scheme and the UK Carbon Price Support mechanism in particular will give some much needed reassurance to sectors such as chemicals who are ideally placed to not only deliver economic growth but also our green future.

Much of the detail, though, still needs clarifying, noted Elliot. This, he said, includes the level of support for operators of combined heat and power plants and, most crucially, the need for longer term sensitivity on the impact of the government’s Electricity Market Reform proposals on UK chemical businesses.

However, the CIA boss concluded: “I do acknowledge the positive cross-Government response to our concerns. This is a very encouraging start and I am hopeful we can build on this over the coming months and years as we in the UK strive to ensure secure energy supplies and establish a leading global position on the green economy.”

Another important announcement by the Chancellor concerned plans to improve the UK’s tax environment for R&D today by announcing that the R&D tax credit will become payable ’above the line’ from 2013/14.

According to Hopley of the EEF, this reform will increase investment from companies already the UK as well as bring additional investment in R&D to the UK. The change, she said, means that rather than large firms accounting for the R&D tax credit in their tax return ’below the line’, the benefit will be accounted for upfront in R&D budgeting ’above the line’.

The key benefits of moving to an above the line credit are:
• Creating a simpler system;
• Strengthening the link between the R&D tax credit incentive and the parts of companies where investment decisions on R&D are made;
• Increasing certainty around the timing of the benefit of the R&D credit by decoupling it from a company’s tax profile.

While the R&D tax credit system has helped UK industry, many other countries are also now incentivising spending on innovation and attracting R&D investments by introducing reforms to their own schemes.

“This week Mr Osborne has responded,” said Hopley. “He has made clear that the ambition he stated in March, to make the UK ’the most competitive tax environment in the G20’ means the whole tax system, not just the headline rate. This is welcome news because it corresponds to how companies see the impact of taxes.

According to the EEF, accountancy firm PwC has conservatively estimated this reform would deliver £665 million per annum of additional value to the economy at a net cost to the Exchequer of £205 million per annum. These, it said are “meaningful numbers at a time when the UK must be doing all it can to support growth.”

In other areas, the Association for Consultancy and Engineering, welcomed the government’s commitment to strengthen skills and tackle youth unemployment as it seeks to drive economic growth.

The chancellor announced a £1billion youth contract scheme to offer private sector work experience for young unemployed people. There will also be financial support for taking a private sector job. The autumn statement also included a commitment to support engineering and science graduates and to promote STEM subjects in schools.

ACE chief executive, Nelson Ogunshakin OBE, said: “Generating the infrastructure and construction that the UK needs will require greater skills and greater certainty for companies that take on and train new staff in specialist areas of work.

“There are examples underway that government can learn from, including the formation of apprenticeship consortiums by several engineering and consultancy firms to secure skills and best practice.

“It is also crucial that government works to support Science, Technology, Engineering and Maths subjects to strengthen the prospects of key industries taking on graduates for vital careers, but more detail is needed on government plans to make this happen.” 

Mark Tully, head of Roevin Engineering Recruitment, described the chancellor’s autumn statement and infrastructure plan as significant advances for UK industry. However, he added, further investment is needed to ensure we have the skills needed to deliver these schemes.

Despite high unemployment, the UK is facing a shortage of qualified engineers who can lead major infrastructure projects. The proposed support for apprenticeships is important - but it is only a first step in a long-term battle, said Tully.

“The government must do more now to promote engineering careers. Providing apprenticeships and training … is important, but it is not the only way to develop a skilled workforce, he added. “Many people already working in different careers are budding engineers, but they feel the door is closed to them, perhaps because of the subjects they chose to study at school.”