New Government, same problems?

When, finally, Britain found itself with a new Government on 11th May, it had a shape few had expected.Paul O'Donnell, head of external affairs at the Manufacturing Technologies Association, considers some of the implications for manufacturing

Aformal coalition between the Conservatives and the Liberal Democrats had not featured in the thoughts of most election pundits, with the expectations instead centring on a Conservative administration either with, or without, an overall majority. Overnight, the policies that each party had stood on only a week previously were once again up for grabs. Manufacturing itself was not a key area of contention. The Liberal Democrats' preelection economic policies focussed on reform of the financial services sector and the Conservatives on tax. Both of these areas will have significant effects on manufacturing, as will the Coalition's policy on training. A review of the banking sector, carried out by the Treasury and the Business, Innovation and Skills Department, is underway. This report may be published as early as the summer, and it is widely believed that it will contain measures aimed at increasing the affordability and availability of finance to SMEs. In opposition Vince Cable MP was clear that the 'utility' functions of banks were not working as they should have been. Manufacturing businesses will be watching carefully to see how much of that he is able to carry into Government. An early sign that Government understands that business is still suffering was the extension in the budget of the Enterprise Finance Guarantee Scheme until well into 2011. The Treasury believes that the scheme has been a significant factor in preventing business collapses since it was introduced in early 2009. The Conservatives had long heralded a reduction in the rate of Corporation Tax as a key part of their strategy to make the UK a more competitive place to do business. Profitable businesses will have welcomed George Osborne's announcement of four annual 1p cuts in the rate to take it down to 24% by 2014. But manufacturers will have been disappointed at his announcement of a reduction in the rates of Capital Allowances. The Annual Investment Allowance is to be reduced from £100,000 to £25,000 and the rate thereafter to be reduced from 20% to 18%. To be fair to the Government they have clearly listened to strong representations from manufacturers on this issue and the changes themselves, and the fact that they will be postponed till 2012, represent a less bad scenario than others being floated only a few weeks ago. Manufacturers can be heartened too at Osborne's endorsement of James Dyson's recommendation to maintain or even enhance R&D Tax Credit, although the lack of a firm set of plans means that there may still be some curtailment, perhaps in relation to very large companies. On training, the new Government has acted decisively to break with the policies of their predecessors. The funding allocated to the Train to Gain budget has already been slashed and is tipped to fall still further. However in a good piece of news for business, much of the money saved is to be recycled into greater support for apprenticeships - something most manufacturers will welcome. Although there was much discussion at the time of the budget about the severity of the cuts that the Government believes are necessary, most of the pain was actually postponed, with the axe hovering somewhere above the neck until October 20th 2010. This is the date that Osborne set for the Comprehensive Spending Review, the point at which each Government Department (except Health and International Development which are protected) must announce what is going to be chopped off. A number of Departments have already made some 'emergency' savings, BIS among them, with the loan to Sheffield Forgemasters to invest in equipment for the nuclear industry an early casualty. It is unlikely to be the last.