UK Budget 2016: Engineering and Technology

16 March 2016
By Jack Loughran
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The engineering and technology sectors received little mention from Chancellor George Osborne

The engineering and technology sectors received little mention from Chancellor George Osborne

Chancellor George Osborne has announced tax cuts for businesses and the oil and gas industry in his 2016 Budget but is scrapping the Carbon Reduction Commitment (CRC) and made few specific concessions to the engineering and technology sectors.

Business rate reforms, which will see 6,000 small businesses pay no rates while 250,000 have their rates cut from April 2017, were welcomed by loud cheers from Conservative backbenchers. By 2020, the rate is set to fall to 17 per cent.

"This is a Budget for small businesses." Osborne said.

The Chancellor also announced tax cuts for the oil and gas industry. Petroleum revenue tax is effectively abolished, something that is only affordable because Scotland has remained in the UK, it was claimed.

Although Osborne made few references to the UK’s technology sector, he did refer to upcoming mobile 5G technology, which is estimated to begin its global roll-out in 2020.

He announced a package of infrastructure measures which included a promise to ‘prepare the country for the arrival of 5G technology’, as well as housing and transport schemes. The measures include a relaxation on planning restrictions for mobile network masts that will make it easier to erect them in ‘not spot’ areas. The reforms, which aim to boost broadband speed and coverage in the UK, will see the introduction of a simplified procedure for companies building tall mobile masts.

"In this government we are the builders," Osborne insisted.

He also pledged to end the practice of handset locking to specific networks outside of the initial contract period. The government said it would welcome voluntary commitments in this area, but would be ready to consult on legislative options if necessary.

Scrapping of Carbon Reduction Commitment

The Budget included the abolition of the CRC, which is a tax on energy delivered to non-domestic users in the United Kingdom with the aim of providing an incentive to increase energy efficiency and to reduce carbon emissions.

Osborne said the lost revenue would be accounted for by increasing the Climate Change Levy from 2019, another climate reduction policy which is estimated to reduce emissions by 1.2 million tonnes of carbon per year by 2020.

He also announced £730m in further auctions to back renewable technologies following a series of widely criticised cuts to renewable subsidies, the most recent of which saw support removed for water-heating solar panels.

However, Richard Warren, senior energy policy adviser for manufacturing industry body the EEF, was largely positive about the impact that removing the CRC will have on his members.

“Manufacturers will be enormously pleased to finally see the back of the CRC energy efficiency scheme, a vastly overcomplicated tax that has had a negligible effect on energy efficiency improvements in industry,” he said.

“We would have liked to see the government go further, however, and relinquish the revenue stream attached to this scheme, but do at least welcome the government’s clear commitment to make changes to the Climate Change Levy in a genuinely revenue-neutral manner.”

Paul Barwell, chief executive of the Solar Trade Association, was pleased that there were no direct attacks on renewables but took the opportunity to criticise earlier subsidy reductions.

“No VAT news is good news on Budget Day. This delay means we can continue to make the very strong case for Treasury to abandon plans to hike up VAT on solar,” he said.

“It makes no sense to penalise British families that want to take meaningful action on climate. The energy department is on the record saying they will look again at support levels for domestic solar if VAT rates are increased so households should be assured it will still pay to go solar whatever happens.

“However, the VAT increase should not go ahead; it would delay the point at which solar will not need public support in the UK and that would be an own goal.”

Northern Powerhouse

Osborne also made a number of announcements regarding the ‘Northern Powerhouse’, the government’s attempt to attract investment to the north of England which includes a drive to boost innovation in materials science in the area.

The Northern Powerhouse schools strategy will involve £20m of funding to improve northern schools.

But Alison Carr, director of policy for the Institution of Engineering and Technology, said: “We’re concerned that the government’s focus on all schools becoming academies and extending the school day could be missing the point. Regardless of whether a school is run by the local authority or the head, the focus must be on providing the vital skills young people need for the world of work.

“Rebalancing our economy, away from financial services, towards engineering and technology, is being undermined by the lack of engineering and technology education in the curriculum.

“There is a huge shortage of engineers so it is vital that young people are aware of the wide range of exciting careers in engineering and technology. But, currently over half of employers say that new engineering recruits do not have the right skills and many are not aware of the exciting range of careers in engineering and technology.”

But Osborne went on to praise the government’s success in this area: "I said we would build the Northern Powerhouse, we've put in place the mayors, we're building the roads, we're laying the track. We're making the Northern Powerhouse a reality and rebalancing our country," he said.

Despite these sentiments, Labour leader Jeremy Corbyn believes many of Osborne’s claims do not ring true.

He accused the government of ‘systematic underinvestment in the north’ and, referring to recent mass redundancies in the steel sector, said: “This is a government that stood by as the steel industry bled.”

Corbyn also said that despite promises to support the UK science sector, "spending [is] down a billion [pounds] compared to 2010".

“Labour will invest in the future, in a highly skilled, high-technology, economy,” he suggested under the presumption that his party would win the next General Election in 2020.

Continuing the stated commitment to growing Britain's Northern Powerhouse, Osborne said more than £230m will be earmarked for road improvements, including delivery of a four-lane M62.

He also said the government will develop the case for a new tunnel road from Manchester to Sheffield.

Corbyn quipped that the ‘so-called Northern Powerhouse’ has literally relocated to London following the closure of the Business Department’s Sheffield office.

Industry responses

Pundits across the engineering and technology sectors have also weighed in on what the 2016 Budget means to them.

Yesterday, it was announced that the Budget will include measures that give a green light to major transport infrastructure projects including the high-speed rail link between Manchester and Leeds, and Crossrail 2 for London.

Dr Colin Brown, director of engineering at the Institution of Mechanical Engineers, said this was ‘welcome news’.

“However it is vital that these investments fit within a wider integrated transport strategy,” he said. “At the moment major infrastructure projects are being developed in isolation and a holistic approach would better serve passengers, tax payers and businesses.”

“The announcement of plans for trials of driverless cars on the strategic road network by 2017 are positive but do not go far enough. Making all vehicles autonomous could prevent up to 95 per cent of all traffic accidents and the widespread adoption of autonomous vehicles could bring billions of pounds to the UK economy.

“Government needs to take urgent action to resolve legislative, technological and insurance issues to help encourage the roll-out of autonomous or driverless vehicles.”

Maf Smith, deputy chief executive of RenewableUK, which represents the wind and marine energy sectors, said: “We welcome the Chancellor’s announcement that funding will be available for future rounds of competitive auctions to support offshore wind farms.

“The Budget is tight but we’re up for the challenge. We’re confident that today’s announcement will deliver 3.5 gigawatts of new offshore wind capacity between 2021 and 2025 – powering more than 3.5 million British homes.

“This Budget shows that offshore wind will be cheaper than new nuclear power and competing with gas by 2025, making it even better value for money.

“Today’s announcement will increase confidence, attracting billions of pounds of investment in the UK’s supply chain. It’s long term commitments such as this which will keep the UK as the number one destination in the world for investors in this technology.”  

Finally, Tudor Aw, who heads KPMG’s technology sector, took an outside view. “The technology sector has been neglected in recent Budgets,” he said.

“If the UK is to punch above its weight on the global tech scene we need to see bolder proposals that will help start-ups get off the ground and back STEM skills and apprenticeship schemes. Without a comprehensive people and digital infrastructure strategy in place, we risk falling behind in hot areas, such as nanotechnology, Internet of Things and driverless cars.”

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