On October 30, 2024, Chancellor Rachel Reeves announced the Autumn Budget, a mix of tax increases and government spending measures aimed at balancing the nation’s finances while boosting economic growth.
The response from the UK manufacturing industry has been diverse, with leaders expressing both hope and concern over the long-term impacts of these measures. Here’s a detailed analysis of what the new budget means for manufacturing.
Below, we have outlined what we believe are some of the most interesting changes from the Autumn Budget that will impact UK manufacturing.
1. Employer National Insurance Contributions and Rising Employment Costs
One of the most contentious aspects of the budget is the increase in Employer National Insurance contributions and changes in tax thresholds. Stephen Phipson, Chief Executive of Make UK, pointed out that these measures come at a challenging time for businesses already grappling with cumulative increases in employment costs. For many SMEs, these additional financial burdens will be difficult to absorb and could lead to job losses, restrained hiring, and lower pay increases for workers.
Verity Davidge, Make UK’s Director of Policy, further emphasized the risks, noting that the cumulative impact of the National Living Wage increase and the apprenticeship levy has already strained manufacturers' ability to invest in their workforce. With the added pressure of higher National Insurance contributions, some companies may be forced to make tough decisions, including cutting jobs or limiting workforce expansion.
The National Living Wage is set to rise to £11.60 an hour, a 6.6% increase that will further add to the financial pressure on manufacturers. Combined with the Employer National Insurance increase, these changes could collectively cost the manufacturing sector an estimated £1.2 billion annually, based on industry projections.
2. Industrial Strategy and Corporate Tax Roadmap
Despite the challenges, the budget outlines promising initiatives for the medium to long term, especially regarding the government’s renewed focus on industrial strategy. The UK’s commitment to a comprehensive Industrial Strategy is seen as a welcome development.
Stephen Phipson noted that advanced manufacturing is set to play a crucial role in regional economic growth. The strategy’s focus on long-term investment and job creation, including formal plans for sector-specific groups, provides a roadmap that many have been waiting for.
Fhaheen Khan, Senior Economist at Make UK, praised the Corporate Tax Roadmap, which promises more predictability and stability in tax policy. This consistency is essential for manufacturers making substantial investments in innovation and productivity-enhancing projects. The government’s backing of research and development (R&D) investments, particularly in high-growth areas like automotive, aerospace, and life sciences, is expected to drive forward the UK’s industrial output.
Investment in R&D will be a cornerstone of the strategy. The budget outlines that R&D tax reliefs will remain, with £4 billion earmarked for innovation projects, including advancements in green technology and digitalisation.
3. Positive News: Made Smarter and Digitalisation
One of the most celebrated aspects of the budget is the continued funding of the Made Smarter programme, which supports SMEs in adopting digital technologies. Nina Gryf, Digitalisation Lead at Make UK, highlighted that this programme has been instrumental in improving productivity for smaller manufacturing firms. Without it, many SMEs would struggle to take crucial first steps towards automation due to fragmented support systems.
Chris Iveson, CEO of FourJaw Manufacturing Analytics, also echoed the sentiment that digitalisation is vital for the future of manufacturing. The focus on growth, investment, and technology use is seen as a positive step that could help manufacturers navigate rising input costs and adopt productivity-boosting measures.
The Made Smarter programme has reportedly helped over 2,500 SMEs in the North West adopt advanced manufacturing techniques, resulting in an average productivity boost of 20%.
4. Challenges: Capital Gains Tax and Investment Concerns
On the other hand, certain tax changes have sparked worry among high-tech and export-focused firms. Mitchell Barnes, CEO of RYSE 3D, criticized the Capital Gains Tax increase, expressing concerns that it could deter entrepreneurship and risk-taking. This sentiment reflects a broader concern among businesses that these financial policies may stifle innovation and long-term growth.
Entrepreneurship Impact: The Capital Gains Tax rise could potentially slow investment in start-ups and innovative projects, which are crucial for the UK's manufacturing advancements. Industry leaders argue that for the UK to remain competitive globally, it must incentivize risk-taking, not penalize it.
5. Skills and Workforce Development Initiatives
Another key focus of the budget is on education and skills. Beatrice Barleon, Head of Policy at EngineeringUK, welcomed the £40 million investment in shorter apprenticeships and the creation of Skills England. These initiatives aim to bridge the skills gap and make engineering careers more accessible to young people. However, Barleon also stressed the need for a long-term commitment to teacher retention in STEM fields to address the teacher recruitment crisis effectively.
Emma Roberts, Director of External Affairs at WorldSkills UK, emphasized the importance of world-class technical skills in boosting productivity. The budget’s focus on upskilling aligns with industry needs, especially in sectors like aerospace and automotive that depend on a highly skilled workforce.
Projected Impact: According to EngineeringUK, the STEM sector needs 124,000 new engineers annually to meet demand. The budget’s focus on skills development is a step in the right direction but will require consistent and substantial investment.
Conclusion: A Mixed Bag for UK Manufacturing
In summary, the Autumn Budget brings both opportunities and challenges for the UK manufacturing sector. While rising employment costs and tax increases pose significant hurdles, the government's commitment to an Industrial Strategy, digitalisation initiatives, and skills development could pave the way for long-term growth. However, execution will be key, and manufacturers will need to adapt quickly to maximise the benefits.
As the government moves forward with its plans, the manufacturing industry will need to prioritise automation, invest in R&D, and upskill its workforce to remain competitive. At Emerson Oxley, we understand the complexities of these challenges and are ready to connect manufacturers with the highly skilled talent needed to thrive in this evolving landscape.
Contact Emerson Oxley today to learn how we can support your hiring needs and help you stay ahead in a rapidly changing market.
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