The call comes on the back of the Make UK/BDO Q2 Manufacturing Outlook survey that shows growth and orders slowing significantly, exports almost at a standstill and, investment nosediving as companies cut or postpone their plans in order to maintain cash flow.
According to Make UK, the seriousness of the situation and, the prospects for the next six months, mean that industry cannot wait for the promised help in the autumn that the Chancellor made in the spring statement, with action required urgently before the summer recess. In response, Make UK has made a number of recommendations for measures government can introduce now to address rising business costs including the following:
- Waive or reduce business rates for the next 12 months.
- Implement VAT deferrals for larger businesses and waive completely for SMEs.
- Temporarily freeze the Climate Change Levy and, if energy costs continue to rise, remove it completely.
- Review the efficacy of the business interruption loan schemes introduced during the pandemic and deploy a successor scheme by Q3.
- Extend the super deduction investment policy.
- Make the increase in the Annual Investment Allowance permanent.
In addition to immediate measures, Make UK also stressed that the government must move away from short-term, gesture politics. Instead, it must focus on demonstrating to business and, foreign investors, that it has the capacity to operate in a serious manner with a long-term vision befitting a modern and outward-looking Britain.
Stephen Phipson, chief executive of Make UK, said while industry has recovered strongly over the last year there are challenges ahead.
“Clearly some of the factors impacting companies are global and cannot be contained by the UK Government alone,” he said.
“However, just as it is quite rightly taking measures to protect the least well off, given the rate at which companies are burning through their balance sheets just to survive, it must take immediate measures to help shield companies from the worst impact of escalating costs and help protect jobs. The government moved swiftly to implement the furlough scheme two years ago; it would be a wasted investment if the jobs saved then are lost now.
“We are also now seeing the effects on investment of the political chaos and uncertainty of the last six years. As a result, there is an urgent need to move away from the weekly roster of short-term gimmicks and put in place a long-term economic plan and vision, in particular with an immediate and laser like focus on tackling the shortage of vocational skills. This will provide companies and investors with the certainty and confidence they so badly need for a return to real growth.”
Richard Austin, head of manufacturing at BDO, said manufacturers have shown their ability to overcome a wave of challenges over the last couple of years to remain competitive.
“The question is when fatigue will overcome resilience. The tipping point where the shorter term need to retain cash outweighs investment is starting to be reached and could have significant implications for future growth,” he said.
“Rapidly rising input costs, ballooning energy bills and in some cases inflation-busting pay settlements have hit margins and frozen investment plans. There is now a strong case for Government action to help UK manufacturers weather the immediate storm and incentivise investment for long-term growth.”
According to the survey, the balance on output fell from +24 per cent in Q1 to +10 per cent with total orders almost halving from +42 per cent to +20 per cent. The domestic market with a balance of +16 per cent (+30 per cent in Q1) continues to outpace the export market that has almost ground to a halt at +4 per cent (+18 per cent in Q1).
Recruitment intentions fell significantly to +9 per cent from +26 per cent while investment intentions dropped sharply from +27 per cent in Q1 to just +5 per cent as companies cut or postpone their plans in response to rapidly escalating costs. According to the survey two-thirds of companies (67.8 per cent) said rising energy costs were causing catastrophic or major disruption, almost three-quarters (71.9 per cent) cited increased raw material costs posing a similar threat and, two-thirds (66.8 per cent) cited rising transport costs.
The survey showed these costs are still being passed on, adding to the inflationary picture. While UK prices fell very slightly (+54 per cent from +58 per cent) export prices reached another record level (+52 per cent from +50 per cent). Significantly, looking forward, manufacturers expect to continue to increase their UK and export prices substantially in the next quarter to +69 per cent and 63 per cent respectively, with both these figures dwarfing previous record levels in the survey’s 30-year history.
Companies continue to face pressures in finding talent with vacancies at record levels at 4.1 vacancies per 100 jobs (around double historic averages). In response to this and inflationary pressures companies are paying settlements in line with inflation (38.7 per cent) or above it (15.3 per cent).
Make UK has forecast growth for manufacturing in 2022 of +2.3 per cent (down from 3 per cent in Q1 and 3.3 per cent in Q4 2020) and 1.7 per cent in 2023.
