With the Annual Investment Allowance now permanently fixed at £1 million for UK companies, manufacturers looking at spending plans for 2023 should weigh up the technologies most likely to help them succeed in a tough economy.
Just three weeks after the then Chancellor Kwasi Kwarteng announced his Emergency Mini Budget on 23 September, his successor Jeremy Hunt delivered an Emergency Statement on 17 October in which many of Kwarteng’s proposed tax reforms were unceremoniously dumped.
One policy that remains, however, is a permanent increase of the Annual Investment Allowance (AIA) to £1 million from April 2023 onwards. This means that businesses can deduct 100 per cent of the costs of qualifying plant and machinery up to £1 million in the first year.
For UK manufacturers, it’s a bit of positive news at a challenging time. In particular, it brings a little more certainty to their 2023 investment and innovation plans. Previously, it was proposed that the AIA level would drop to £200,000 in 2023, in yet another change after six previous adjustments to AIA over the last 14 years.
It also provides some consolation for the fact that the well-received 130 per cent super-deduction launched in response to the Covid-19 pandemic is still set to come to an end in April 2023.
According to industry body Make UK, this permanent increase to the AIA will be most welcome, particularly to smaller manufacturers, “who will now be able to make long-term plans to invest in critical areas of their business, from automation to improving energy-efficiency and self-generation.”
Speaking to PTC customers, digital transformation is widely seen as a common-sense response to a range of current challenges, including supply-chain disruption, rising energy costs and persistent skills shortages. Companies are investing accordingly, replacing analogue and manual tasks on factory floors with digital automation tools that include industrial IoT technologies and robotics, with the goals of minimising complexity, increasing productivity, and reducing errors and production costs.
Another trait that confident investors in digital manufacturing share is that they don’t waste time and money on rolling out one-off ‘point’ solutions that tackle just one particular pain point. Instead, they invest in foundational technologies capable of embracing new use cases and delivering new value on an incremental basis, as their company’s needs and priorities evolve. This might mean expanding or scaling out a solution to support different employees, departments, geographies or business processes, for example.
In other words, confident investments are based on achieving regular incremental wins. This helps those responsible for proposing and rolling out digital projects speak the language of the boardroom and attract further sponsorship and buy-in for new ideas from senior leadership.
The conversations that PTC regularly has with customers are broadly in line with the findings of the recently published MakeUK/PWC ‘Executive Survey for 2023: Cost, Competitiveness and Confidence’. Thirty-eight percent of the UK manufacturing executives surveyed told researchers they plan to “significantly increase” their investments in digital technologies and data analysis during 2023.
Encouragingly, previous research from the industry body shows that these investments tend to pay off and leave manufacturers better able to cope with challenging economic conditions, according to the report’s authors.
For example, almost six out of ten (58 per cent) told Make UK that their digital technology investments enabled them to move more quickly and provide new critical components in the face of supply chain disruption. Four out of ten (40 per cent) said they’ve boosted productivity by streamlining processes using powerful big data analysis tools. And just a little over one-third (34 per cent) said that their adoption of digital technologies has improved energy efficiencies, with a similar proportion reporting that process improvements are contributing to the reduction of emissions, both of which are vital to achieving the sector’s net zero ambitions.
It’s clear that 2023 won’t be easy for any company in manufacturing. But it’s equally clear that there are still significant wins to be had by companies with the courage and confidence to invest. As Make UK puts it, “When it comes to productivity and resilience, organisations that are intensely focused on driving revenue, investing in the right markets and investing in development and innovation will find themselves in a strong position.”