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Budget 2020: and the manufacturing sector

Johnathan Dudley, Partner, Head of Manufacturing
engine gears in the sun

While today’s Budget did not directly address the manufacturing sector, changes announced regarding incoming plastic packaging legislation and additional support for SMEs will impact the sector.

Plastic packaging

As announced at Budget 2018 and following consultation in spring 2019, the government will introduce a new Plastic Packaging Tax from April 2022 to incentivise the use of recycled plastic in packaging. The Budget sets the rate at £200 per tonne of plastic packaging that contains less than 30% recycled plastic. This will apply to the production and importation of plastic packaging.

The government will keep the level of the rate and threshold under review to ensure that the tax remains effective in increasing the use of recycled plastic. The government will also extend the scope of the tax to the importation of filled plastic packaging and apply a minimum threshold of 10 tonnes of plastic packaging to ensure the smallest businesses are not disproportionately impacted. The Budget also announces the launch of a further consultation on the detailed design and implementation of the tax, which includes consideration of an exemption for certain types of medical packaging.

Support for SMEs

Opening his statement with the current global situation surrounding coronavirus, the Chancellor made it clear that the pandemic will have a significant impact on the UK economy – however, it will be temporary.

Announcing a £30billion package to combat coronavirus, most of the business revenue relief seem to be targeted at SME’s with less than 250 employees, including refunds for statutory sick pay and access ‘business interruption’ loans of up to £1.2million.

It will not just be small businesses that will be affected by the Chancellor’s prediction that 1/5 of the workforce will be affected by coronavirus. It is therefore concerning that there appears to be  little help for businesses with more than 250 employees, other than the promise of providing bank guarantees for working capital lend and an immediate ‘time to pay’ extension through  HMRC. These latter reliefs help with cash but they don’t replace profitability and ultimately these losses will still need to be paid back.

However, there have been a number of additional announcements which go a long way in supporting a range of businesses in the longer term. These include, increasing investment in Research and Development to a record £22 billion a year, providing inspiration for the country as an inventing nation. As a percentage of GDP, it will be the highest in nearly forty years, higher than the US, China, France and Japan. The announcement also saw £130 million of new funding to extend Start-up Loans as well as £200 million for the British Business Bank to invest in scale-ups as well as dedicated trade envoys representing the North, the Midlands, Wales and the West of England in embassies around the world.

If the macroeconomic policy adopted in the Budget, to invest and inflate the economy while putting more cash into the pockets of the consumer, pays off, then this will, over time, be seen as a good Budget for business, particularly in the civil engineering, construction and related supply chains, including of course the manufacturing sector.

It was good to note that the Climate change levy rebate mechanism has been extended for relevant businesses for a further two years which will continue to help most manufacturers ceramics businesses and metal finishers

It was slightly disappointing to see very little mention regarding exports in our new post EU era, with only the hint of more help for export guarantees. We hope to see a clearer response in the support businesses will receive as we move to an open trade era… maybe in October?

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Johnathan Dudley
Johnathan Dudley
Partner, Head of Manufacturing