7 (ish) answers from the Autumn Statement and Spending Review

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This morning we posed seven questions that manufacturers wanted answers to in the Spending Review/Autumn Statement. One 65 minute long speech and a 154 page HM Treasury report later, we have some answers:

 

Productivity enhancing measures

Today’s statement wasn’t just about balancing the books.  Government has a stated aim to boost productivity across the economy. 

1. What will be happening to the Innovate UK budget?

Innovate UK’s budget was maintained in cash terms. Government’s decision to maintain its support for these activities recognises what is necessary if we are to keep up with what our competitors are doing.

Part of the maintenance of Innovate UK’s budget involves the switch away from some grants to loans provision. These schemes will be piloted in partnership with industry to ensure that they are well-designed to boost investment in innovation. Loans cannot be the whole answer, either, and must go hand in hand with access to the expertise and partnering opportunities that were part and parcel of previous schemes. This looks like it will be the case.

There was also a commitment to increase funding for Catapult centres and long-term certainty for the Aerospace Technology Institute and the Advanced Propulsion Centre. Maintaining the balance of funding between Government and the private sector will help ensure the UK continues to encourage the kind of collaboration that will help innovators traverse the ‘valley of death’. The priority now is to keep the existing centres at the cutting edge of technology and expand the network as and when additional resources become available.

2. What does the future look like for UKT1?

Funding for UKTI will amount to £1.2bn over the next four years, with a boost to funding in 2016-17 but annual funding levels are set to decrease a bit thereafter. There will be some refocusing of UKTI’s work, with enhanced direct support to business promised. However, the full detail of how this will look for companies is yet to emerge. Manufacturers – many of whom are already exporters – will want to see support for established exporters moving into more challenging markets maintained. Any changes to current support frameworks must be clearly and simply communicated to users so as to minimise frustration and uphold the high levels of trust companies currently place on UKTI.

3. Do we really have certainty around roads funding?

Yes.  We strongly supported the government’s previous commitment to the Road Investment Strategy and funding for this was confirmed today along with funding for local road maintenance. And here's the proof in pictures

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4. What will the apprenticeship levy look like?

We knew it was coming, but this was potentially the most expensive of our questions .. we have some, but not all of the detail. The apprenticeship levy will kick-in in April 2017. It will be set at a rate of 0.5% of an employer’s paybill and will be paid through PAYE. Each employer will receive an allowance of £15,000 to offset against their levy payment. This means that the levy will only be paid on any paybill in excess of £3 million.

However, there are several future challenges which must be overcome before manufacturers can support the new Levy. Employers must be able to control the funding, with the lowest possible level of red-tape. Any level of funding available to employers must allow them to cover the real cost of providing a quality apprenticeship with predictable and stable funding over the long term.

Reducing the cost of doing business

Cost base matters, particularly for volume manufacturers operating across multiple countries. Meeting the deficit challenge needed to avoid loading costs onto businesses.

5. Will energy intensive manufacturers be compensated from government energy taxes?

The announcement went further on this, committing to an exemption for Energy Intensive Industries, including the steel industry, from the policy costs of the Renewables Obligation and Feed-in Tariffs.

With a move to an exemption rather than compensation, Government has ended uncertainty over this policy and we can now look forward to a more level playing field in terms of energy prices for our steel plants. In the short term, however, we still need to receive state aid clearance from the European Commission and get compensation payments in place until the necessary arrangements can be made to introduce the permanent exemption, probably in 2017-18.

6. Will reform of business rates move it back to being a property based tax as it is elsewhere in Europe?

Hmm, not sure about this yet. The Chancellor did not make any new announcements but rather reiterated his commitment to change the Uniform Business Rate (or multiplier) to a national ceiling with local authorities able to cut this to create their own floor. Local authorities will also retain 100% of growth in business rates revenues. He also announced that metro mayors will have the power to levy a business rates supplement used to fund local infrastructure projects provided they have LEP approval.

We will have to wait until Budget 2016 – when the review period has ended – to get a decision on EEF’s call to remove plant and machinery from the business rates system.

7. Will the incentive to save for a pension remain?

This is another wait and see. The government has consulted, but it doesn’t look like we’ll have any indication of decisions until Spring 2016.

You can find our full press release here

 

 

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Chief Economist

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