Boosting investment in UK advanced manufacturing – from pilot plant to full commercial scale-up – requires a conducive and internationally-competitive fiscal environment.
The UK’s current Corporation Tax rate is the lowest in the G20 and the Chemistry Council is supportive of the Government’s intent to reduce this further, to 17% by 2020. However, the UK has been the least uncompetitive environment within the G7 countries in terms of Capital Allowances (CA) for investment in plant and equipment, with an annual allowance of 100% up to a maximum £200,000, making the country relatively less attractive as an investment location for pilot and full-scale manufacturing facilities. In relation to industrial buildings too – including manufacturing facilities – the UK removed its investment allowance entirely in 2011. Competitor G20 countries typically offer capital allowances for investment in buildings of between 2-10%. Finally, on capital equipment, France and Canada offer allowance rates of 28 and 50% respectively, in comparison to an annual rate of 18% on a reducing balance basis in the UK.
Against this uncompetitive backdrop, the Chemistry Council very much supports the Government’s 2018 Budget announcement that will see the annual investment allowance threshold for plant and machinery rise from £200,000 to £1 million for two years with effect from January 2019.
The UK is operating in an internationally-competitive environment to attract inward investment and to capture and retain domestic investment in manufacturing.
Building commercial-scale manufacturing capacity is highly capital-intensive and requires significant upfront investment, often several years ahead of commercialisation. Companies need to invest in land and shell buildings, high-quality and competitive utilities and significant capital equipment kit-out costs, in addition to the skills of the workforce to operate the plant.
Key international competitors – from Belgium to Ireland to Singapore – have developed a much more focused and integrated approach to attracting inward investment. They have targeted multinational companies and deployed highly effective account management with a strong ‘offer’ including fiscal incentives, financial incentives and flexible support to help companies get the skills required. Such countries have also focused on ease of access to major markets, with Belgium positioning itself as a continental European hub; Ireland as a gateway to the EU and the US, while Singapore has been seen as a gateway to Asia.
In competitor countries, financial incentives in the form of grants, loans or ‘in kind’ support are available to support capital and revenue investment at a rate of between 10% and 15% of the total commitment. These countries make these incentives available to attract and anchor manufacturing and hence exports in the host location. This is well-established behaviour and the scale of the recurring economic benefit for the host location means that both SMEs and multinational organisations expect to be able to access incentives wherever they look to invest.
The Chemistry Council supports the proposals below made by the Life Sciences Council in their strategy.
The UK should set a target of attracting ten large (£50-250m) and ten smaller (£10-50m) commercial-scale chemical manufacturing facilities in the next five years. At an intervention rate of 10-15%, the low-impact scenarios (10 -£10m and 10-£50m investments) would need £6090m public sector finance and the high-impact scenario (10-£250m and 10-£50m investments) would need £300-450m. The larger financial incentives are more likely to be made available through loans rather than grants. For SMEs, access to market rate loans may be more attractive whereas for larger companies who are better equipped to raise private sector money, loans may only be attractive if offered at below-market rates. Although this might appear costly, it has the potential to capture high-value jobs across the country and generate new business for supply chain companies. It also has a long tail of benefit for the UK trade balance and will substantially influence the ability to close the export gap.
As an energy intensive industry, support is also needed for investment in mature energy efficient technologies with longer payback and for the development, demonstration and deployment of new low carbon technologies. This starts with an effective Industrial Energy Efficiency Scheme for mature technologies. We welcome the potential support for low carbon technology innovation related bids under the Industrial Strategy Challenge Fund and would encourage the Government to build on this with further support for development of low carbon technologies.
In addition to offering fiscal and financial incentives, both domestic and international companies should be supported to make the decision to invest in manufacturing in the UK. Competitor countries offer a ‘one stop shop’, and the UK should seek to emulate this support. The incentives and support that are currently on offer remain highly varied in scope and may be available from a variety of national and local sources. Both domestic and global potential investors have reported that this is a highly challenging landscape to navigate, understand and access.
The Department for International Trade offers free and confidential support for inward investors to make the case to invest in the UK. Once a company has shortlisted the UK, DIT also brokers access to subnational partners and support levers. This could include site selection, skills, supply chain, or regulatory and export support. This same level of support should be made available to scale-up domestic companies.
Offering UK support through the perspective of the company (customer) journey is important. To be internationally competitive, companies need a senior national-level account manager fully accountable for delivery. The majority of support and incentives need to be available “on demand”, and sufficiently mobile within the UK even if the offer needs to be drawn from multiple sources. Reviewing the incentives landscape and simplifying the customer journey could boost the UK’s chances to win high-value, internationally-mobile investment in advanced manufacturing.
Access to finance
Co-ordinated and Expert Support
Make support and incentives for manufacturing investment and exporting available to business through a single front door, provide a senior national account manager accountable for delivery and simplify the customer journey.