The leading association of independent accountancy firms, MHA has been providing an insight into the UK’s manufacturing and engineering landscape over the past six years with its annual Manufacturing and Engineering Survey, writes Kate Arnott, partner, head of manufacturing in the Thames Valley.
Drawing on national and regional insight from over 450 UK manufacturing & engineering firms, the report reveals that the majority of businesses achieved growth over the past 12 months, that optimism is still high and that respondents continue to have a positive outlook for the coming year, irrespective of Brexit.
78% of respondents are anticipating growth over the next 12 months, with 24% of those expecting it to be over 10%. Key drivers for growth are understandably quite varied, but 40% cited increased demand from customers, followed by expansion of product range (16%), followed by diversification (15%). However, 22% were anticipating either negative or no growth, up from only 8% last year, which may be due to uncertainty around the outcome of Brexit negotiations.
Employment and skills
57% of businesses expect to see an increase in staff in the coming year, up 10% from last year and on top of 59% who are planning to take on apprentices. However, 75% have indicated they have difficulties finding staff, with the biggest single problem with recruitment being the shortage of applicants with relevant skills. 62% picked this as their top issue, followed by lack of motivated local applicants for lower skilled jobs, which was the top issue for 16% of respondents. Unrealistic salary expectations was the joint third reason (8%), along with competition from larger businesses (8%).
With 17% of respondents indicating their main barrier to growth was recruiting appropriately skilled staff, it is concerning that 20% believe they have lost staff or are at risk of losing staff as a direct consequence of the Brexit vote. In some parts of the country, such as London and the South East for instance, the percentage of affected businesses rises to 35%. 72% of respondents said these staff losses were due to uncertainty over post Brexit EU worker’s rights, with 40% blaming the drop in the value of the pound. Other reasons given included businesses experiencing reduced orders since the result of the vote was announced, a reduction in EU funding and the negative attitude that the Brexit vote may have fostered towards foreign workers.
Only 6% of respondents believe that their cost of production will remain at present levels, with 77% anticipating an increase in the cost of raw materials. Businesses in this sector have in the past been reluctant to pass on cost increases to customers, relying on improving productivity and efficiencies, however this year 38% have indicated they have no choice but to raise prices, compared to only 29% last year.
The sector appears to be embracing technology, with 92% saying they saw robotics, automation and the “Internet of Things” (the principles underlying Industry 4.0) as an opportunity. Post Brexit, one of the Government’s newest departments BEIS (Business, Energy and Industrial Strategy) has put ‘digitisation’ at the heart of its ambitions and we expect to see more incentives and funding opportunities to help business in this area to ensure the UK remains competitive.
R&D tax credits
Of our respondents, 88% invest in R&D, however almost half (43%) do not claim for R&D tax credits. Not all activity will be eligible, but many who have not claimed could save their business thousands of pounds in the process.
Almost half (44%) have applied successfully and we would urge those that have claimed R&D tax credits to share their experience with their supply chain and with business contacts to make sure that they too are taking advantage of this offering from the Government.
There has been a concerted push to help UK companies break into new markets across the globe. Through schemes such as ‘Passport to Export’ and subsidised trade missions, UKTI and others have been tasked by the Government to increase the UK’s global share. 51% of our respondents export, with the eurozone remaining the most popular destination, with 96% shipping goods there (a 6% increase on last year). Asia (excluding China) was the second most popular exporting destination, with 62% of respondents (a 15% increase on last year), followed by the US at 61%.
Inevitably, Brexit and the associated uncertainties feature heavily in our survey results, which provides an important insight into the sentiment and concerns of the sector. The reality of a United Kingdom outside of the EU undoubtedly brings significant challenges, but there will also be massive opportunities which we must grasp and take advantage of.
Manufacturing and engineering are a cornerstone to sustainability of the UK economy. Even at the relatively low level of 9.5% of GDP, it contributes around two thirds of business R&D and nearly half of the nation’s total exports. It is crucial that government policy supports these businesses operating in the UK to realise their potential.
The full report covers each of the highlighted topics above in more detail, as well as the apprenticeship levy, sustainability, future energy requirements, capital investment and a number of case studies.