Sector relief at Budget statement but warning bolder action needed

 The initiatives taken by Hunt to offset the worst effects of Liz Truss’s abortive premiership and continuing post-Brexit and lockdown effects together with those emanating from the Ukraine invasion were broadly welcomed by the sector.

Chief executive of Make UK Stephen Phipson acknowledged the Government was responding to a “potent cocktail” of domestic and global factors, adding: 

“Economic and political stability is the spine of our economy. The Chancellor has recognised this and taken action which is welcome.”

He cited the help provided with business rates, infrastructure and the extension of Made Smarter, plus scaled up funding from Solvency II reform. Science and R&D commitments were also applauded by Phipson and other key industry figures.

Royal Academy of Engineering CEO Dr Hayaatun Sillem stated that protection of research budgets was a welcome outcome for UK R&D and innovation. 

“Strengthening innovation capacity across the entire country will ensure that the benefits from investment in research are shared more evenly across society. The emphasis of leveraging local research strengths through investment zones offers potential to do this,” she said.

However, she warned that continued and increasing Government investment was vital to ensure economic growth:

“While the government continues working towards association to Horizon Europe, we need to continue to give confidence to researchers that the UK remains a great place for them to bring their talents and build their careers.” 

And while public spend on R&D remains unchanged, thanks in part to the Government belief that this will play a key part in boosting growth, the revised R&D investment regime is likely to receive a mixed response. 

Accountancy firm Menzies LLP said the Chancellor‘s plans to restructure tax breaks for businesses investing in research and development, would result in “an increase in the competitiveness of the Research and Development Expenditure Credit (RDEC) scheme for larger businesses, at the expense of reduced rates for the SME scheme”. 

R&D partner at the firm Anthony Lalsing suggested that problems with the operation of the SME scheme had contributed to the decision. He said Hunt had responded to recent criticism of the scheme, and the number of erroneous or spurious claims submitted and sought to reduce its “generosity”. 

But he pointed out that previously announced measures to target abuse and improve compliance were still being allowed to proceed, saying the Government had not given these the opportunity to take effect. The impact of the changes would be felt most among innovative start-ups and growing businesses said Lalsing.

Royal Academy of Engineering president Sir Jim McDonald pointed out that many of the growth priorities relied upon engineering skills and innovation.

“More than eight million people work in the nation’s engineering economy and the profession is generating up to an estimated £645 billion gross value added to the UK’s economy annually,” said McDonald. 

This was equivalent to 32%, nearly a third of the country’s economic output, he added and illustrated the need to nurture talent and provide more people with engineering and technical skills. 

The appointment of Sir Michael Barber as Skills Adviser to Government has suggested a strengthened commitment to fulfilling this need but Make UK director of policy Verity Davidge said further action was required beyond implementation of current reforms, some of which will not come into effect for another three years.

She called on Barber to work with the Department for Education and Treasury to reforming the apprenticeship levy, “providing greater support for employers to offer T Level placements and improving options for retraining and upskilling before the introduction of the Lifelong Loan Entitlement.”

However, her colleague and Make UK CEO Phipson cautioned that energy costs and access to labour remain manufacturers’ biggest challenge, hinting strongly that a review of foreign labour rules must be considered. 

“We currently face a labour crisis and today’s statement did little to address this. Without a fast improvement, Government will need to urgently consider options such as radical changes to the shortage occupations migration list or access to labour from our closest neighbours, if we are to deliver growth,” warned Phipson. 

“Furthermore, energy support for business has been very welcome and helped many firms survive. However, the apparent decision to end support next April when prices are likely to remain high for much longer is troubling. The certainty and lower costs enjoyed by our near neighbours gives them a large competitive advantage which puts UK jobs at risk.” 

Full details of the Chancellor’s Budget speech can be viewed here.