Today’s Autumn Budget was a pivotal moment for the manufacturing industry, long considered the backbone of the British economy. Stakeholders have been watching closely for measures that would address rising costs, global competition and persistent policy uncertainty.
“The rise in the UK manufacturing PMI to 49.7 in October was a cautiously encouraging indicator, but the Autumn Budget has underlined both opportunities and ongoing challenges for our sector. While the uptick suggests a slight improvement in activity, we must remain realistic: a reading below fifty still signifies contraction,” says Colin Barton, Director of Coldene Castors.
One of the most pressing concerns remains the cumulative tax burden facing manufacturers. The Budget confirmed that the overall tax take will rise to a historic high by the end of the forecast period, driven largely by personal taxes and reduced reliefs, and it also confirmed a cut in writing-down allowances for capital investment. For a sector that is considerably more capital-intensive than services, this raises the after-tax cost of investment in plant, automation and decarbonisation. The OBR’s outlook reinforces this challenge, pointing to higher long-term interest rates, a historically low real return on capital and only modest business-investment growth over the coming years. Many manufacturers were hoping for measures to stimulate capital spending, but instead face a more demanding investment environment.
Global conditions add further pressure. The OBR highlights sharply higher US tariffs and projects UK export growth of barely more than half a per cent a year between 2026 and 2030. It continues to assume a long-run reduction in UK trade intensity following Brexit. For a sector deeply integrated into international supply chains, this means weaker external demand, more friction at borders and ongoing margin pressure. These are not policy choices within the Budget, but they form a critical part of the landscape against which manufacturers must operate.
Domestically, the temporary shutdown at Jaguar Land Rover earlier in the year was one factor behind weak third-quarter GDP growth and illustrates the vulnerability of large-scale manufacturing operations during major technological transitions, particularly in the shift to electric drivetrains. Policy changes in motoring taxation also matter here: the move to a mileage-based charge for electric and plug-in hybrid vehicles from 2028, even at around half the petrol rate, removes the sense of a complete tax exemption and may temper long-run demand growth for UK-produced EVs.
Energy policy delivers a similar mix of long-term promise and short-term cost. The government’s decision to proceed with Sizewell C under a regulated asset base model introduces a new levy on consumer energy bills, raising charges in the second half of the decade. While the eventual benefit should be a more stable low-carbon baseload, energy-intensive manufacturers face further upward pressure on electricity prices well before those advantages materialise. Temporary bill relief for households does not extend to businesses, leaving many firms exposed during the transition.
While the earlier launch of a new Industrial Strategy was welcomed, this Budget needed to show real substance through clear funding streams and timelines. Manufacturers were looking for commitments that matched the scale of the UK’s productivity and competitiveness challenge. The need for a multi-year public investment programme, set out by department and aligned with priority sectors, is becoming more pressing as the UK continues to slip in global manufacturing rankings.
The skills shortage also remains a defining constraint. Although the Budget reiterates commitments to skills development, manufacturers are looking for support that is more directly aligned with emerging technologies and regional needs. “As we adapt to new manufacturing technologies, it is imperative that we invest in training programmes that equip our workforce with the skills needed for the future,” says Barton. “Effective training initiatives remain essential if we are to maintain a skilled workforce capable of meeting the demands of modern manufacturing.”
Apprenticeship reform, vocational training and partnerships with local education providers will be vital if the sector is to close the skills gap. The government’s introduction of new V Levels, supported by significant investment, is a start, but it is too early to judge whether they will address the shortfalls experienced by manufacturers on the ground.
Despite some constructive signals, many in the sector feel disappointed by the lack of movement on R&D tax relief and capital allowances. MHA’s summer report indicated that over two-thirds of manufacturers expect these tax burdens to negatively affect their spending on technology, AI, and R&D – all critical areas for maintaining global competitiveness. Complexity remains a barrier for smaller firms, and the absence of changes to wider trade facilitation or broader corporation tax policy risks slowing innovation and expansion. At the same time, tariffs and electricity prices are expected to rise further, reinforcing the sense that the cost of the green transition is being passed through before the benefits are felt.
“With the UK’s commitment to achieving net zero by 2050, the Budget needed to accelerate support for sustainable manufacturing,” Barton adds. “Investment in research and development for eco-friendly materials and processes would not only help the environment, but open new markets for UK manufacturers.”
“While October’s rise in the PMI offers a glimmer of hope, we must use the Budget period to implement the strategic changes needed to secure the sector’s long-term future,” Barton warns. “Focusing on innovation, sustainability and skills development will enable us to build a more resilient manufacturing base that is ready to thrive in 2026 and beyond.”
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