Business confidence among Britain’s manufacturers has taken its sharpest nosedive since the dark days of the Covid-19 pandemic, following Rachel Reeves’ tax-raising Budget.
The findings, revealed in Make UK and BDO’s Manufacturing Outlook Q4 2024 report, paint a bleak picture for Britain’s industrial backbone, with confidence plummeting just months after initial optimism under the new Labour government.
According to the report, 70% of manufacturers have already seen their costs rise by up to 20% over the last year, while nearly one in ten (8%) reported staggering increases of up to 50%.
The blow has been compounded by Labour’s “Make Work Pay” reforms, with 86% of businesses stating they expect payroll costs to rise—and almost half (44%) warning the increase will be “significant”.
Fhaheen Khan, Senior Economist at Make UK, didn’t mince his words:
“Having faced a cost creep for most of the year, manufacturers are now facing a cost crisis which has brought a sharp dip in their confidence. While overall conditions had begun to gradually improve during the year, the Budget has brought this to a shuddering halt, with the substantial increase in National Insurance Contributions potentially the straw that might break the camel’s back for some.”
The impact on growth forecasts is dire, with Make UK now predicting a -0.2% contraction for the manufacturing sector in 2024, followed by an anaemic 0.7% growth in 2025.
Labour’s Broken Promises
This sharp decline in confidence raises serious questions about Labour’s ability to manage the economy. Despite its lofty promises to deliver a “new deal” for British businesses, Rachel Reeves’ policies are already having the opposite effect—adding new fiscal burdens and further undermining investment.
Manufacturers, who are the backbone of the UK’s economy, are now warning that Labour’s anti-growth agenda could prove catastrophic. Promises of deregulation and industrial strategy have been overshadowed by tax hikes and rising payroll costs, with many businesses on the brink of scaling back operations or cancelling planned investments.
Richard Austin, Head of Manufacturing at BDO, echoed the concerns, highlighting how Reeves’ policies are exacerbating an already turbulent environment:
“While manufacturers have welcomed the Government’s Industrial Strategy green paper, optimism across the sector is declining, driven by increased input costs, the implications of the latest budget on employment costs and lacklustre domestic demand.”
He added:
“An overlay of a turbulent geo-political landscape and talk of potential tariffs adds to future uncertainty in the short to medium term. Increasing investment in improving productivity is vital now more than ever to maintain stability and offer opportunities for growth in the sector.”
The report also issued a stark warning about the cumulative effect of Labour’s fiscal policies, particularly the rise in National Insurance Contributions, capital gains changes, and burdens imposed by the “New Deal for Working People”.
Richard Austin noted:
“there is no escaping the fact that the surprising change in National Insurance Contribution thresholds, at a time of other cumulative increases in costs associated with the National Living Wage, Apprenticeship Levy and other policies is causing many to think twice about pay rises and investment in new equipment.”
Referencing The Grapes of Wrath, Seamus Nevin, Chief Economist at Make UK, drew a powerful parallel between John Steinbeck’s depiction of economic hardship and the plight facing manufacturers today:
“While most media coverage of the Autumn Statement has focused on British farmers, manufacturers too are grappling with external pressures and cost increases that threaten to pull them under. As this quarter’s Manufacturing Outlook survey shows, family firms once buoyed by optimism, may find themselves struggling to stay afloat.”
Nevin further highlighted the erosion of confidence, contrasting current sentiment with earlier positivity:
“Though recruitment and investment intentions remain stable, the mood among companies has darkened markedly since the Chancellor’s Autumn Statement. Confidence among UK manufacturers has dipped sharply to the lowest level in a year. That contrasts sharply with our previous Make UK/BDO survey when almost six in ten companies (58%) were looking ahead to a brighter future under a new government with its clear commitment to a modern, long-term, industrial strategy.”
The message from Britain’s manufacturers is clear: rising costs, punitive fiscal measures, and lacklustre domestic demand are jeopardising their recovery and ability to invest in the future.
The Reality of Reeves’ Policies
Labour’s promises of “Make Work Pay” reforms and renewed industrial strategies are now being met with scepticism as businesses face escalating pressures. What was billed as a “new deal” for Britain’s economy is now being described as a recipe for stagnation, with manufacturers bearing the brunt of policies that critics say “punish hard work and stifle growth”.
The Cost of Labour’s Incompetence
The findings from Make UK and BDO serve as a chilling warning: Labour’s policies are stifling business confidence at a time when the country desperately needs growth. With rising costs, stagnant domestic demand, and punitive taxation, manufacturers face a crisis that threatens to derail the UK’s economic recovery.
One industry insider summed it up bluntly:
“Labour promised a ‘new deal’, but they’ve delivered nothing but higher costs and lower confidence. This government doesn’t understand business—and it shows.”
The Make UK report, representing 20,000 manufacturing firms, should serve as a wake-up call. The manufacturing sector, long a symbol of British ingenuity and resilience, now finds itself grappling with policies that threaten to pull it under. Unless the Labour Government changes course, the damage may be irreversible.
For more details, the full Make UK/BDO Manufacturing Outlook Q4 2024 report can be found on Make UK’s official website here.
