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How Will the Latest Budget Affect Technical Industries?

  • by: Adam Coath
  • On: 13, Mar 2020
7 min read

Technical and Engineering-related fields have weathered a difficult few years: Brexit, IR35, skills shortages and now COVID-19 have each delivered new challenges.

On 11th March 2020, Prime Minister Boris Johnson’s UK Government announced their new budget for the year ahead. Here’s how Engineering and Manufacturing across sectors will be impacted by the spending plans.

Aviation, Automotive & Engineering Fields: March 2020 Budget Impact

1. Aviation Budget Spend – R&D Over Tax Relief

Chancellor of the Exchequer Rishi Sunak’s announcements met with concern from the Aviation sector. The Chancellor confirmed a review of Air Passenger Duty (APD), which carriers have heavily campaigned to suspend following recent industry and global market crises. Air Passenger Duty will rise in line with inflation next year:

· Short-haul flights will be frozen at £13

· Long-haul economy journeys will increase by £3 per passenger

· The UK Government have stated that they will carry out a consultation on reforming APD in the spring.

International Airlines Group, which owns airlines including British Airways, Aer Lingus and Iberia, comment: ‘Given the acute pressure on business, the hike in APD will make it even harder for UK firms to trade overseas. This costs UK jobs and growth. If the government is serious about making Britain a global trading economy, the world’s highest Aviation tax should be scrapped now.’

On the same day as the Budget, Aviation Minister Paul Maynard launched the Airfield Development Fund. The Fund will award a £2million budget to increase support for airfield owners, operators, local councils and relevant suppliers. The terms of the grant also include the possibility for using the money for legal and business advice, which could drive Aerospace innovation into building sustainable aircraft.

The Budget announcements have further contributed to negative overview on the Aerospace & Aviation sector. When combined with rapid fall in flights around the world due to coronavirus – IATA predicts a 24% reduction in demand across the UK and western Europe – as well as the news that the UK will leave the Civil Aviation Authority after Brexit,

However, the Budget did present some good news for the industry. Amongst the announcements were a commitment to increase overall R&D investment to £22billionn a year by 2025; £800million of this will be funnelled through the National Space Strategy and space innovation fund with £800m promised for a new “blue skies” research agency. Politicians have also pledged a £1billion facility for UK Export Finance to support overseas Defence and Security procurement and £100million in Defence R&D across Aviation and Space propulsion.

Although executives are frustrated with the lack of aid for the current year, Aviation companies that can weather the storm of 2020 will be sure to reap the benefits of innovation in the coming decade. Following the collapse of Flybe in recent days and the 23 airlines that went bankrupt in 2019, industry leaders will be implementing urgent discussions and measures to avoid the current ‘airline malaise’ and protect businesses in 2020.

2. Automotive Budget Spend – Investing for Electric Vehicles

Rishi Sunak’s pledges included spending at least £500million on building rapid car-charging points and extending the plug-in grant to taxis, vans and motorcycles for the next two financial years. This aims to ensure that drivers are never more than 30 miles away from being able to charge their car. Sector leaders and environmental groups have welcomed the news, hoping that motorists will be encouraged to switch to electric cars in the next few years.

Sue Robinson, Director of the National Franchised Dealers’ Association called the move ‘extremely encouraging’and commented: ‘Access to charging infrastructure is one of the key barriers preventing consumers from buying an electric car and, as a result. We welcome further investments, which will continue to encourage motorists to purchase low- and zero-emission vehicles.’

This news initially seems at odds with the following announcement of a further freeze to fuel duty. For the tenth consecutive year, petrol and diesel tax will remain at £0.57 per litre. The Government has defended this unpopular policy by reasoning that this option is more sustainable, as reversing the freeze would have increased driver costs, and phasing out petrol and diesel cars will take longer during times of economic uncertainty.

However, Sunak also introduced measures to eliminate existing tax cuts for fuel used in off-road vehicles – known as red diesel – for all industries except farming before 2023. The move intends to encourage businesses to transition to cleaner, zero- or low-emission vehicles and fuels within the next few years.

The Government has also promised a further £900million for scientific research which will include electric vehicles. The Budget included a decision to remove VED road tax on electric vehicles priced over £40,000 for the next five years.

The UK’s Automotive industry delivers an £82 billion annual turnover and employs over 823,000 workers. Although the spending plans have received mixed responses from Automotive manufacturers and retailers, the measures are mostly focused on improving environmental sustainability in the sector, which the industry as a whole has begun prioritising in recent years.

3. Engineering & Technology

The Research & Development investment continues into the wider Engineering and Technical sectors. The Science Institute in Weybridge, Surrey will be allocated £1.4billion funding as well as the £900million pledged across the UK to research into nuclear fusion, space and electric vehicles.

The rate of R&D expenditure credits for companies will increase from 12% to 13%. The move follows calls from manufacturers’ organisation Make UK to enhance investment into innovation. Overall, the government plans to increase annual public R&D investment to £22billion by 2025.

Plans are geared towards shifting all industries into low-carbon and more environmentally friendly practices in the short- and long-term. Manufacturers and importers who make or purchase products with less than 30% recyclable material will now be charged £200 per tonne. This will aim to increase use of recycled plastic in packaging by 40% to reduce carbon use by 200,000 tonnes.

Carbon Capture and Storage (CCS) clusters are a group of technologies that can remove almost 100% of the carbon dioxide from large sources of carbon such as energy intensive industries (for example steel, cement and refining) and fossil fuel power. The new Budget contains an investment of £800million to establish at least two CCS clusters by 2030, which are expected to create 6,000 new jobs.

The latest announcements bring positive news for the skills shortage. 1 in 5 Engineering business leaders view skills shortages as their most significant business challenge – ahead of Brexit, IR35 and global political and economic uncertainty. Sunak declared that eight new ‘Institutes of Technology’ will be created with a £120million fund in efforts to unite schools, colleges and Universities with Engineering companies and leaders. The financial commitments and Government encouragement hope to close skill gaps in regional areas through a revolution in technical education.

Prof Sir Jim McDonald FREng FRSE, President of the Royal Academy of Engineering, comments, ‘We are deeply impressed with the government’s commitment to more than double UK public spending on R&D. It is vital to enhance spending on creative new ideas and catalysing innovation if our world-leading engineering research and enterprises are to reach their full potential and improve opportunities for all through economic and social development.’

Economic Outlook for the UK in 2020

In addition to the challenges and opportunities for the Engineering and Manufacturing-related disciplines, UK business as a whole will encounter new obstacles and changes in 2020. Whilst predictions for Britain’s economy have dropped from 2019, economic growth is still predicted, at a lower figure of predicted to grow by 1.1% this year. As this number does not factor in the as yet unknown effects of the coronavirus, the slowest growth since 2009 could again be reviewed.

Good business news is forecast for the years ahead: UK economic growth is expected to rebound to 1.8% by 2022, 1.5% in by 2023 and 1.3% by 2024.

How Can Organisations Weather the Challenges of 2020?

The chancellor pledged measures costing £12billion to tackle the virus and its effects, including the suspension of business rates for many companies. With the current COVI-19 situation around the world, the UK government has pledged to help employers access business interruption loans of up to £1.2million for productivity lost due to sickness. This will further reduce financial burden on businesses when combined with the raised tax threshold for National Insurance Contributions from £8,632 to £9,500.

Stay informed about developments in the coronavirus, Brexit, IR35 and global economic events to give your business as much time as possible to create an effective response. Subscribe to government updates for your country and reliable national news to ensure you are the first to know of any virus changes, new employment guidelines or market impact. Workforce planning

Reinforce your existing partnerships with suppliers and industry representatives to ensure you can collaborate in response to challenges and opportunities. Speak with your recruitment company to plan hiring strategies and workforce retention plans through difficult time periods.

Read our 2020 industry reports:

· Global Aviation Challenges & Market Predictions Report 2020

· Automotive Market Report & Predictions 2020

· Engineering Industry Trends for 2020

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