Autumn Budget 2021 and Manufacturing:

A missed trick to make a difference for the sector’s recovery. 

The Chancellor missed a trick by failing to address long standing issues blighting the manufacturing sector including supply chain issues and freight costs. 

The Chancellor’s budget did little to address ongoing pressures being felt across the UK manufacturing sector including supply chain issues and rising shipping and fuel costs.  

The highlight for manufacturers will be the positive expected tax relief from the increased scope of qualifying costs within the R&D Tax Reliefs regime to include certain data and ‘cloud’ costs which up to now were the burden of businesses. However, the Chancellor should have gone further by making Robotic Process Automation software costs a specific inclusion as a qualifying cost, which would help the government accelerate its aim of ‘high productivity, high wages’ across the economy. 

The extension of the £1m Annual Investment Allowance (AIA) until the end of March 2023 is welcome but is unlikely to change many businesses’ investment plans and certainly will not offset the negative financial impact to come from the rise in Corporation Tax announced in the March 2021 budget, or the increased level of National Insurance for employers (which will become the Health and Social Care Levy) announced in September.   

The increase to the National Minimum Wage and National Living Wage which will come into effect from April 2022 are clearly beneficial for employees but will add to the wage inflation being experienced by employers. The combined impact of the NIC increases and the Minimum/Living Wage levels will automatically cause wage inflation of more than 5% for many employers from April 2022. Ultimately these will likely end up being passed on to end consumers. 

In short, it was a very quiet budget for the manufacturing sector that did little to solve the ongoing issues being experienced across the sector. As some in the industry have said, it may not be a ‘high productivity, high pay’ economy but more a ‘high cost’ economy.  

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