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.