Technology, skills and infrastructure should be key priorities in Gov

Technology, skills and infrastructure should be the government’s top three priorities in its upcoming Industrial Strategy, according to MHA’s latest manufacturing report.

The accountancy and advisory firm’s survey of 1,000 manufacturing business owners and C-suite executives across the country was undertaken in May to understand both the challenges and opportunities they currently face and what lies ahead for the sector over the next 12 months.

In the short term at least, the outlook remains difficult. The majority of respondents said that the biggest current challenge facing their businesses are the tax increases announced by the UK government in October 2024, which have significantly increased their wage bill as well as creating uncertainty around investment.

The survey also highlights that while businesses can see that technology and innovation are important for their sector going forward to allow for more automation, the ability to access the investment that is required to do this still remains a significant challenge.

Andrew Matthews, a North West partner for MHA, said: “The North West of England remains one of the UK’s most significant manufacturing hubs in 2025, contributing substantially to national output. The region has shown resilience amid global economic pressures, although challenges persist.

"The region excels in advanced manufacturing, aerospace, automotive, and pharmaceuticals, with continued investment in digitalisation and green technologies.

"The region faces a skills shortage, particularly in engineering and digital roles, prompting collaboration between industry and educational institutions to upskill the workforce. Our North West responses reflected what I am seeing in my clients, with recruitment, particularly of apprentices, being high on the agenda.

“While the manufacturing sector and the people who work within it are above all resilient and innovative, the UK government has the opportunity to shift the dial for the manufacturing sector with the upcoming announcement of its Industrial Strategy.”

Industrial Strategy

Across the UK respondents felt the top three priorities for the government’s Industrial Strategy should be technology, skills and infrastructure. In the North West, improving data and tackling the burden of regulation and energy prices were also highlighted as key priorities.

In terms of what has already been published by the government as to the contents of the strategy, respondents felt that the government had done little to address the specific issues impacting SMEs as well as implementing the detail of recent trading announcements and improving relationships, particularly with Europe.

Unsurprisingly there were also worries about the competitiveness of the UK’s taxation environment in contrast to our key trading partners and there were real concerns from SMEs that the board of the Industrial Strategy was focused more on larger businesses.

Tax increases remain biggest challenge for manufacturers

While there is some positivity around growth from manufacturers, significant challenges remain across a varied spectrum of issues. Nationally, 35 per cent percent of respondents (the biggest number) said that the recent employment tax increases were their biggest challenge, 34 per cent said that the technological evolution was a concern and 33 per cent stated that it was cyber security.

Looking at the North West responses, Andrew Matthews added: “Manufacturers are grappling with increased energy prices, raw material costs, and employment taxes, which are expected to impact profit margins significantly into 2025 and beyond. Indeed, all these aspects featured heavily in responses from our respondents; grading skills shortages and energy costs as two of the top challenges facing their businesses.

“Interestingly, the North West manufacturing responses considered technical evolution to be the number one challenge impacting their business; considerably higher than the rest of the UK.

"Furthermore, nearly 51 per cent of North West responses considered investment in strengthened IT systems as the critical step to address their challenges; being almost 10 per cent higher than the average response nationally. This begs the question as to whether the North West, whilst steeped in manufacturing heritage, has been slow to develop local complementary businesses in manufacturing tech and IT.”

When asked about how the Autumn 2024 Budget had affected future potential investments, 68 per cent of respondents nationally said the increased costs as a result of the Budget had negatively impacted their plans.

The top three areas where investments were most likely to be scaled back were technology, AI and R&D - all mentioned by 70 per cent of companies. These are all areas where, ideally, companies should be investing in order to develop their businesses in view of the threats previously identified.

Addressing challenges

The survey respondents, who could choose multiple options, had a variety of practical and innovative ways of how these challenges could be addressed: 43 per cent said that they would be increasing their supply chain options, 42% said that they would be investing in strengthening their IT systems, 40 per cent said that they would look at more efficient energy options, 39 per cent said that they would be upskilling existing staff and 38 per cent said that they would invest in new technology or AI. Only 27 per cent said that they would respond by recruiting new staff, while at the same time, an equal proportion said they would actively reduce headcount.

Optimism for the future

UK plc has suffered from a series of economic upheavals in the last decade. However, despite this, the manufacturing sector remains remarkably optimistic about the future with virtually all of our survey respondents anticipating some growth in the next 12 months. While 55 per cent anticipate modest growth of between three and five per cent, a significant minority - 22 per cent - believe that their business will grow by more than 6% in the next year. In the North West, these figures are 43 per cent and 33 per cent respectively.

Investment in R&D

Despite the Autumn Budget, 45 per cent of North West respondents said that they would be investing between three and five per cent more in R&D in the next 12 months compared to last year, and even more encouragingly, 31 per cent said that they would be investing more than six per cent above their previous budget. These are positive signs for the long-term future of the sector.

When asked where they would be spending their R&D budget, out of five choices, 44 per cent of North West respondents said that they would be investing in equipment and machinery, 42 per cent in new product development, and 41 per cent in process development.

Closing the skills gap

Although not their number one priority the shortage of skills has been a perennial concern for manufacturers for years. Our respondents are unwilling to wait for central government action. They are acting now to close the skills gap by creating an apprenticeship programme, training partnership with college or university or alternatively, investing in AI with a view to closing the skills gap in a different way all listed as equally valuable.

For companies of different sizes, there were divergent options. 45 per cent per cent of businesses with a turnover of under £100m are planning to use a training partnership with a college or university, whereas 48 per cent of businesses with a turnover of over £250m are planning to invest in AI with a view to closing the skills gap in an alternative manner.

Looking ahead

Matthews concludes: “While the survey highlighted that there are considerable challenges for the manufacturing sector, it also showed that there are bright spots ahead in the next 12 months. The announcement of the long-awaited Industrial Strategy could and should be the impetus that the sector needs to set it on the path to more sustainable growth in the UK, with public and private investment and the ability to withstand any further economic volatility.

“Regardless of its impact there is clear evidence from our research that despite the obvious challenges it faces UK manufacturing is above all resilient and looking to the future. Investments in technology, R&D and bridging the skills gap are all welcome signs of a sector that is charting its own course for success.”

Full report https://www.mha.co.uk/spotlight-on/2025-mha-manufacturing-report