While it will have a limited impact for those manufacturers that are now forecasting a loss in this current year of trading, tax incentives do have a role to play. It will be essential for HMRC to have the resources to maintain a quick turn-around on claims, including R&D tax relief claims, especially for those companies requesting a cash credit. Where this is split across the SME and RDEC schemes, a concerted effort is required to ensure these claims are not held up as a result slower processing times from the latter scheme.
HMRC could also consider introducing a quarterly mechanism for R&D tax relief claims to ensure cash-strapped companies are not waiting until the end of their financial year for cash credit payments.
Access to short-term working capital will also be a key issue for many manufacturers post-lockdown. Government intervention to increase the banks’ role in offering a wider range of working capital solutions is crucial. This could include giving an increased role to challenger banks as we have already seen within the CBILs scheme.
Stimulating capital investment, another major Government challenge, could be aided by the introduction of innovative policy measures, modelled on the R&D tax relief scheme, with enhanced deductions for capital spend. This view is echoed by UK manufacturing body MakeUK in its recent report Manufacturing Our Road to Recovery in which it suggested a Future Factory Investment Scheme to support firms that repurposed production to support the Covid-19 response in reverting back to normal operations and those seeking to modernise their manufacturing operations.
Tiered enhancements to accelerate investment in specific types of capital assets – such as automated manufacturing equipment or IT infrastructure – would also bolster the order books of equipment manufacturers, and improve productivity within acquiring companies.
Similarly, a medium-term move to create tiered expenditure enhancements for specific types of R&D could be used to direct the focus of UK industry’s innovation spend.
Enhancing accessibility to grants is another potential tool for economic stimulus.
Given the financial impact of the pandemic, support agencies and government bodies will, however, need to consider creating a cash advance facility to cover initial expenditure that is often required from companies to qualify for grant funding. Alternatively, agencies responsible for managing grant funds could be empowered to make advanced payments directly.
Innovate UK and all grant-awarding bodies have an important role to play in amplifying publicity and improving application processes around funding to ensure those businesses that could most benefit are able to get access to it.
The UK Government should also be looking to longer-term improvements on existing support mechanisms to ensure public investment is fully aligned to our industrial strategy. Companies must also demonstrate greater commercial discipline - subject to careful scrutiny from HMRC if they are seeking tax relief - when investing in innovation projects.
UK manufacturing remains innovative through this lockdown period, with numerous companies switching processes to manufacture healthcare products. Leamington Spa-based global vehicle manufacturer Drive System Design has also put an imaginative proposal to the Government to mobilise furloughed engineers to create collaborative programmes aimed at generating world-class IP for the UK.
The sector will, however, also need a range of short and medium-term Government-supported financial support tools to stimulate further innovation activity. This will help ensure UK manufacturers remain resilient and are able to grasp new opportunities that will arise from the recovery.
