Soaring energy costs and wage inflation are not the only costs that are crippling manufacturers at this time. In the last 12 months, we have seen both employer and employee National Insurance Contributions (NICs) increase, as well as National Living Wage and National Minimum Wage rate rises. In the coming months, manufacturers will be faced with a Corporation Tax increase and likely increase in business rates following the revaluation in April.
⚙ Private manufacturing investment is still 4% below its pre-pandemic level in 2019, driven primarily by the worsening cashflow position of manufacturers.
But manufacturers plan to accelerate investment in capital in the next two years, and given existing evidence suggests they tend to use past profits as the preferred method of financing investment, Government should consider how capital allowances can be used to stimulate greater investment during a cost of doing business crisis.
Government should consider enabling full expensing for up to two years, as well as making the increase to the Annual Investment Allowance permanent. With 60% of manufacturers saying the National Insurance rise will have a moderate or significant impact on recruitment, Government should reverse the decision to increase NICs that came into force in April 2022.
In the longer term, Government should also incentivise investment in digital and green technologies by expanding the R&D tax credit to include capital equipment, especially for technologies that support industrial decarbonisation.