Manufacturers missing out on £10bn investment potential
Published: 22 April, 2024
The level of investment by Britain’s manufacturers could be boosted by up to £10 billion in the next year if they were to take advantage of the range of public and private finance options available to them, according to a major report published today (22/4) by Make UK, NatWest and Lombard.
Such a boost would raise the investment potential of the sector overall by up to a fifth and help address the UK’s long-term productivity weakness. Furthermore, the report shows that more than a quarter of companies (26%) would increase their investment by up to a fifth if access to finance was improved, while more than one in ten (12%) would increase their investment by up to half. In particular, the report shows access to finance will be critical for companies’ investment plans in the next two years in critical categories such as capital equipment, automation, energy efficiency and cyber security. These investments are essential if the UK is not to fall behind in the race to net zero and in areas such as innovation and robotics.
However, the report also shows that barriers to finance remain, with more than half of companies (54%) unaware of the range of public sources of finance and government schemes tailored towards manufacturers. Furthermore, domestic economic and political uncertainty (58% and 42% respectively), together with the threat of increased costs (54%) is also deterring manufacturers from accessing finance in the next two years.
Commenting, Fhaheen Khan, Senior Economist at Make UK, said: “Access to finance is like fuel for manufacturers. Without it many manufacturers would be unable to make the continuous investments in capacity and innovation which are so essential in such a dynamic sector with an ever-changing external environment. However, there is currently significant investment which is lying untapped due to a lack of awareness among companies of the private and public options available to them. If we can unlock the options that finance provides then it will produce significant potential for manufacturers.”
Laura Capper, Head of Manufacturing and Construction at NatWest added: “Finance is fundamental to helping UK manufacturers unlock investment to grow, innovate or become more sustainable. In the face of constant significant challenge, the manufacturing sector has remained resilient, and businesses have continued to invest to ensure they remain future fit. Access to external finance is a key enabler to support these ambitions. That said, with such a broad range of options and providers available, choice can seem overwhelming. There is a real opportunity for greater engagement between manufacturers, lenders and other key supporters across the eco-system to collaborate to provide flexible funding and solutions to ensure future financial stability. At NatWest and Lombard, we look to continue to evolve our support to UK manufacturers to help businesses navigate challenges and seize opportunities.”
According to the report, unlocking manufacturers’ investment potential through access to private and public sources of finance could be worth £9.2bn in the next twelve months alone (1). This would be additional to the annual investment in capital equipment (£33bn) and R&D (£19bn).
Boosting investment is critical to the sectors’ efforts to improve productivity and innovation performance given the top priorities for investment are capital equipment (62%) while access to finance will be required for investment in automation and energy efficiency by a third of companies (32% and 31% respectively). Furthermore, the report also shows almost three quarters of companies (70%) said that investment would not take place without access to finance, while just under a third (30%) said their investment would have taken place without any access to finance.
However, the report shows that, as well as improved awareness of private financial options available to manufacturers, there needs to be far greater awareness of the public sources of finance and Government schemes. More than two thirds of companies (67%) have not heard of the Horizon Europe programme, while a lack of awareness of domestic schemes such as the Government’s flagship management Help to Grow scheme (61%) and British Business Bank (58%) is also alarmingly high. By contrast, just 2% of companies have successfully accessed the Horizon programme, 14% accessed the Help to Grow scheme and 12% accessed the British Business Bank. According to Make UK, this means Government must be cautious before scrapping schemes that companies are unaware of.
A lack of awareness of Horizon Europe funding is especially concerning given Government’s recent efforts re-launch the scheme, especially as evidence between 2010 and 2022 showed grants from the scheme to manufacturers fuelled a 20% increase in employment and, a 30% increase in total assets by recipients.
To improve manufacturers’ awareness of the range of public and private finance available Make UK is calling for a centralised database which would signpost both public and private provision, a case supported by almost half (48%) of companies. Whilst this would require substantial resource, Make UK believes that the emergence of new technologies such as digital dashboards and AI should aid this task. According to Make UK, at the very least, a centralised system of exclusively public support could work in conjunction with the private sector and become a tool that lenders can use to advise manufacturers appropriately.
Sleepeezee, a UK bed manufacturer that built a reputation for its use of pocket spring interior mattresses, capitalised on the opportunities created when using finance to improve energy efficiency.
Steve Warren, Managing Director of Sleepeezee comments: “For any business to grow you need to be flexible and access to the right finance at the right time is crucial to enabling flexibility and quick response to market changes. At Sleepeezee we were looking to improve our energy efficiency. Finance helped us with the installation of nearly 600 solar panels that enabled us to cut carbon emissions and produce our own electricity.”
In addition to the energy generation investment, the business also invested in new automation equipment to enable workers to focus on more value-added tasks and improve productivity.
Warren continues: “External finance enabled us to avoid comprising cashflow for working capital needs, while meeting our ambitions for growth. It can open doors for manufacturers and I would urge businesses to find out more and explore all the options. Keeping our lenders, Lombard and NatWest, involved in our business plans and ambitions from the start has meant they have been a trusted partner throughout, making it easier to access the right finance to suit our needs. It can seem overwhelming but it pays off if you find the right lender to support you on your journey.”
- The figure of £9.2bn was calculated by estimating the average expected increase in investment (as a % of turnover) for each of the categories from chart 7 in the report, multiplying this by the average turnover of the sample. The survey asks manufacturers what their turnover range is to work out an average turnover of the sample.
- The survey of 100 companies was carried out between 4 and 15 January.
- Last year NatWest Group committed to provide £1bn in additional lending to UK Manufacturing to support the Net Zero transition.
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