British Manufacturing Seeks Business Rate Holiday to Accelerate Recovery

Summary

• Manufacturers in the country are demanding business rate holiday similar to the one extended to trading businesses like shops, bars, and hotels
• Sector activity levels are lowest in 30 years, being further weighed down by social distancing measures
• Both domestic, as well as export demand continue to remain poor
• There have been calls for a wider government recovery plan, as well as a strategy to promote growth

The manufacturing sector has approached the government with a demand to allow business rate holiday to the sector on the same lines as that has been extended to other sectors like shops, bars, hotels, and other commercial establishments. The sector which had been deeply battered by the coronavirus pandemic and the resultant lockdown is seeing a very slow recovery in business activity levels after the government allowed the opening of the economy last month. The social distancing measures still in place is leading to productivity remaining low in the sector and at places are even unsustainable. The government has in the past few months announced several measures to help this sector and the people working in it, but industry experts believe that more direct action is required to help the sector to achieve sustainable levels. The extension of the business rate holiday to this sector will be a big help in this regard and help it achieve a speedy recovery.

The coronavirus pandemic has brought the worst to many industries. The manufacturing sector is currently witnessing its lowest in 30 years. During the seven weeks when the country was under lockdown, the sectors saw dismal business activity levels. Even now, when the government has allowed for a phased opening of the economy, a lot of people are still worried about their wellbeing and are preferring to stay indoors. While the country is slowly opening up, the pandemic is showing no major signs of abatement in the country. To date, the virus has infected more than 296,000 people in the country out of which more than 41,000 have already succumbed to it. For the quarter ending April 2020, the economy has already registered a contraction of 20 per cent, and for the full year, it is expected to contract by about 14 per cent.

A recent survey was conducted by the British manufacturers’ trade body “Make UK” which after a poll conducted of 309 participating companies in the country in the month of May, stated that the balance of output for the sector stood at minus 56 per cent, which is the lowest in thirty years the trade body has observed in its history. For the entire year, the trade body expects that the sector will contract by about 10 per cent with little scope for a sharp recovery in the forthcoming year. As of now after one month since the first phase of opening up of the economy, only about 12 per cent of the factory units in the country are operating at full capacity and the way things are moving on the pandemic, very little, if at all any capacity is expected to be added to that in the very near term.

Two of the subsectors in the wider manufacturing sector are worth mentioning here the British car manufacturing sector and the British Aerospace sector. British car manufacturing is the largest exporting sector of the British economy. The industry is not only largely dependent on exports for much of its revenues, but a significant amount of its input components are manufactured outside the United Kingdom and are imported. The sector at this time is not only witnessing paucity of labour but also of components which are not able to find their way into the country because of the restriction of movement of goods across most countries. The aerospace sector in the country is also facing similar conditions and has been forced to lay off a number of its workforce. Both these industries are significant foreign revenue earners for the country, and potential support to them will help jump-start the export sector of the country.

One of the major factors that are affecting the offtake of activity levels in the manufacturing sector is the demand levels that this sector is facing—owing to the pandemic and the lockdown conditions most people have either curtailed or postponed their spending. It has been observed in several surveys done recently that consumer behaviour in the country has gone through a sea change in the past couple of months. People have become more concerned about their future wellbeing and livelihoods than they were before the outbreak and are now more interested in retiring off any debts they may be having rather than spending on non-essentials. Internationally also the demand situation is not very good, not only has the movement of goods between countries been restricted because of the pandemic but many countries are now resorting to protectionist measures to protect their local industries facing the pandemic onslaught. In the coming months as the world economy slowly creeps back to life, the situation is likely to improve albeit at much lower levels.

At this time, the manufacturing sector in the economy requires a comprehensive plan so that an effective recovery takes place. Although the government’s various loan schemes and the furloughing scheme have helped many from going bust, a different set of measures are required to jump-start the sector and a business rate holiday could be a crucial starting point. Other measures like the car scrappage scheme and increased spending on infrastructure will also go a long way in ensuring that the demand conditions facing the sector will improve. In long term measures, the government has to invest in improving the skill levels of the country and bring the manufacturing processes back to the country that had earlier migrated to low-cost countries and also take suitable measures to make it internationally competitive.