UK-owned manufacturers bet more on the UK economy, says RSM UK

UK-owned manufacturing businesses invest a greater share of their turnover on capital and innovation than internationally owned companies shows a new report by leading audit, tax and consulting firm RSM UK and industry body Make UK.

The report found that international companies with UK subsidiaries on average invest just 5% of their turnover on plant and machinery and research and development (R&D). In comparison UK companies invest a greater share in both plant and machinery (9%) and R&D (6%), with larger UK organisations with international operations investing 11% of their turnover in each of these areas. This demonstrates a real need for government to focus on making capital incentives more attractive for domestic and inbound investment.

More than half of manufacturers (53%) said that plant and machinery was an investment priority for their business in the next 12 months, with a third (33%) also prioritising investment in R&D programmes, yet less than half surveyed (46%) use R&D tax credits to fund innovation. Over a quarter (26%) said that the government’s introduction of a long-term industrial strategy would impact their investment decisions in the UK by increasing their investment in R&D.

In addition, the Investment Monitor report revealed that almost six in ten manufacturers perceive confidence in the domestic market as the most important factor influencing their investment decisions (59%). This was followed by a need to replace or upgrade equipment (43%), and confidence that the export outlook has improved (40%).

Findings also show that over half of manufacturers surveyed (58%) said that raising funds for investment has been very or somewhat easy, despite 14 back-to-back increases in interest rates since 2021.

James Tetley, Partner and Head of Innovation and Capital Tax Reliefs at RSM UK, said: “With UK companies investing more in R&D than internationally owned businesses, the government must continue to support homegrown manufacturers, but there also needs to be greater focus on incentivising overseas businesses to invest in the UK.

“Making our capital allowances regime simpler and more attractive, will act as a catalyst for domestic and inbound investment, ensuring manufacturers have opportunities to scale up. More than half of manufacturers continue to prioritise investment in plant and machinery, with investment intensity in capital equipment expenditure also growing for two consecutive years, indicative of the size of the prize for the government.

“While it’s encouraging that economic stability is returning, giving businesses time for better decision making and more capital to invest, there’s still progress to be made in closing the productivity gap with international competitors. Continued investment in plant and machinery will help to increase productivity, especially as the industry moves towards greater automation and adopts new technologies.”

He added: “The government’s Industrial Strategy outlines plans for advanced manufacturing as a key growth-driving sector. However, to ensure businesses are making long-term investment decisions which support the wider economy, favourable tax conditions are essential. The Chancellor’s announcement of the Corporate Tax Roadmap will provide more stability for manufacturers to invest with greater certainty. Additional funding for aerospace, automotive and R&D will further catalyse manufacturing investment and innovation, to deliver long-term economic growth.”