28 January, 2021

Speculate to accumulate

24 September, 2014

British manufacturers are ramping up the amount they spend on a wider range of more sophisticated assets to determine their business strategies. This is a key finding in a new report by EEF, the manufacturers’ organisation and Lombard Asset Finance. In addition to investing an average of £1million each year on plant and machinery, the report illustrates that British firms are increasing essential and complementary investment in ‘intangibles’. These include staff training, recruitment, R&D, software and marketing in order to clinch a competitive advantage. However the survey also shows that, despite the majority of companies saying they plan to maintain or increase their expenditure on new plant and machinery in the next two years, this is only at moderate levels and, mainly to replace obsolete technology. A significant number of companies also continue to struggle to raise required levels of funding. According to EEF, raising the UK’s level of investment will be essential in tackling its longstanding position as an underperformer compared to competitors. Looking forward, one in three companies are planning to invest the same on plant and machinery over the next two years as they did in the previous two, although these spending plans are moderate in scale. Nevertheless, the EEF/Lombard report shows 70 per cent of companies plan to increase their investment in staff training and recruitment, with one in six targeting a significant increase. Furthermore, three in five companies plan to increase expenditure on marketing and branding and a similar proportion on R&D, highlighting the need for government to continue to support applied research. The increasing role of intangible investment is highlighted by the fact 60 per cent of companies plan to increase investment in three or more categories. Investment in these business priorities is becoming more important for more than half the companies in our survey, but the value of plant and machinery investment is greater for a balance of 25 per cent manufacturers. Where companies were cautious about investing, uncertainty over demand was given as a primary reason by one in three companies, with a similar number citing constraints on internal finance. One in eight companies identified the availability of external finance, the majority of whom were SMEs. While some supportive measures have been introduced, such as the extension of the R&D tax credit and temporary increase in the Annual Investment Allowance, Government could go further by putting in place the following EEF recommendations: 1. Setting out a clear vision for the economy towards 2020 and the policy and spending priorities that will achieve cross government growth objectives. 2. Increasing the diversity of the finance landscape by creating a more competitive and dynamic banking environment, especially for SMEs. 3. Ensuring the British Business Bank has a long term future and is able to invest in new and innovative funding options such as patent growth capital, mezzanine finance and those supporting supply chain expenditure. 4. Implement a consultation on the UK capital allowance regime to ensure there is a competitive and stable regime in place by 2016. 5. Maintain funding for the Technology Strategy Board in real terms over the next spending review period. 6. Increase funding for the Catapult Centres. 7. Maintain the stable and broad definition of qualifying expenditure for the R&D tax credit. Solving the problem of long-term hurdles regarding acceleration in investment growth will require concerted and continuous efforts to bring down the two main stumbling blocks to more ambitious investment plans; the need for more confidence and greater levels of funding. An individual company’s roadmap for growth is largely something that is discussed in the boardroom. However, without Government providing the right environment and incentives for appropriate levels of investment to take place, hurdles to making the most successful growth plans will remain. Government, the next move is yours. The survey was conducted between 30 April and 14 May with 173 companies responding.

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