4 minute read - 17th March 2025
Wake up call for government as data shows tax and cost increases start to bite manufacturers hard
Make UK says Britain’s manufacturers are facing new challenges as a wave of increasing employment taxes and wider business costs bite hard, as well as worries of a global trade war.
Following the final quarter of last year, when business confidence slumped at the fastest rate since the pandemic, this has now translated into a fall in both output and orders. Output fell in the first quarter of the year for the first time in a decade, a highly unusual occurrence, according to figures in Make UK’s latest survey published with business advisory firm BDO.
In response, companies are freezing recruitment and considering redundancies, while investment plans are being delayed and, in some cases, cancelled altogether. As a result, Make UK is now urging the government to consider measures to mitigate these actions, particularly reform of the business rates system to remove disincentives to invest and policies to aid industrial decarbonisation and fix the broken skills system.
Furthermore, Make UK says it is now essential that government brings forward a comprehensive and fully funded modern, long-term industrial strategy with advanced manufacturing at its heart. This must be aligned across government with a defence industrial strategy as well as energy, trade and skills strategies to demonstrate to business and foreign investors that there is joined up thinking on how to grow the economy.
Confidence among manufacturers has dropped as a wave of increasing employment taxes and wider business costs start to bite hard, according to the latest Manufacturing Outlook report / Picture: Getty/iStock
Verity Davidge, policy director at Make UK, said: “Manufacturers feel like they are currently wading through treacle, facing barriers and increased costs being imposed on them at every turn. However, there is no more resilient a sector in the economy and, just as they have done in the past, they will find ways to adapt. The one light at the end of the tunnel is the prospect of a modern, long term industrial strategy which will enable them to plan for the future with confidence in a supportive policy environment. But, this cannot be a case of more jam tomorrow, come the summer it has to be a case of jam today.”
According to the Manufacturing Outlook survey, the balance on output fell sharply to -1% from +20% in the last quarter, with total orders following a similar pattern down to -6% from +7%. Export orders are no longer shielding a weak domestic market, falling to +1% from +10% in Q4, while UK orders turned negative at -7%, down from 0%. Recruitment intentions also turned negative at -3%, down from +8% in Q4, while investment intentions, although positive, weakened to +5% from +10%.
Richard Austin, head of manufacturing at BDO, added: “Against a backdrop of economic uncertainty, the manufacturing sector has relied heavily on exports to help protect it from other downward trends. As this data shows, we cannot be complacent – our manufacturers are resilient but they’re not invincible. While there are pockets of investment and opportunity, output levels are down across the board and, in order for manufacturers to continue their push on growth, they need targeted support from government, whether that be reducing complexity, streamlining trade or boosting access to capital.”
In response to this much weaker picture, a separate survey by Make UK in response to the measures announced in the Autumn 2024 Budget showed almost half of companies (48%) are freezing recruitment and four in ten (41%) will reduce planned pay increases. Worryingly, around a quarter (27%) are considering redundancies. Furthermore, a third of companies (34%) are delaying investment plans, while 15% have cancelled planned investments altogether.
Make UK says companies are freezing recruitment and considering redundancies, while investment plans are being delayed and, in some cases, cancelled altogether / Picture: Getty/iStock
In addition to the impact on companies from increased employment costs, with more than 9 in 10 companies expecting them to increase this year, the survey also showed the scale of increases hitting companies from other business costs. Almost three quarters of companies (70%) expect their energy costs to go up this year, with a similar number (71%) seeing their logistics and transportation costs go up. Almost eight in ten (79%) are seeing raw material costs increase.
Make UK is now forecasting that manufacturing will contract by -0.5% in 2025, down from a forecast of -0.2% in the last quarter, before growing by 1% in 2026. GDP is forecast to grow by 1% in 2025 and 1.5% in 2026.
You can download the full report below:
