Manufacturers are calling for an emergency, pre-recess package of business support measures including extension of temporary tax reliefs to support companies from escalating costs

The call comes on the back of the Make UK/BDO Q2 Manufacturing Outlook survey which shows growth and orders slowing significantly, exports almost at a standstill and, investment falling as companies cut or postpone their plans in order to maintain cashflow.

According to Make UK, the seriousness of the situation and, the prospects for the next six months, means that industry cannot wait for the promised help in the autumn which the Chancellor made in the Spring Statement. It is calling for urgent actions before MPs go on their summer break.

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 130% super-deduction tax break, due to end in March 2023; and
• 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 strategy.

Stephen Phipson, chief executive of Make UK, said: ‘Whilst industry has recovered strongly over the last year we are clearly heading for very stormy waters in the face of eyewatering costs and a difficult international environment.

‘Clearly some of the factors impacting companies are global and cannot be contained by the UK government alone. However, 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.’

Richard Austin, head of manufacturing at BDO, added: ‘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.

‘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, investment intentions dropped sharply from +27% in Q1 to just +5% as companies cut or postpone their plans in response to rapidly escalating costs.

Two thirds of companies (67.8%) said rising energy costs were causing major disruption, almost three quarters (71.9%) cited increased raw material costs posing a similar threat and, two thirds (66.8%) cited rising transport costs.

Manufacturers expect to continue to increase their UK and export prices substantially in the next quarter to +69% and 63% respectively, with both these figures dwarfing previous record levels in the survey’s 30-year history.