OK we get all these machines, but surely there exists a reason why investors are not willing to provide for this capital expenditure themselves, and prodiving it by government subsidy is not going to fix that? If the route problem is energy prices/planning then that has to be fixed first, no?
We do not have the state capacity to do this. Whenever we try to "focus" investment, we create badly administered, glacially slow bureaucracy that makes things worse not better. R&D credits are a great example of this, but so is Innovate UK. The paperwork, speed and clueless people administering these grants actively harm the businesses that receive the grants (most of which are no-hopers anyway) by distracting them from their core purpose and market. Ask any VC...
Agree more machine tools would be good as a general sentiment, but what we need is supply side reform to make manufacturers more competitive. The super-deduction was a good policy. But trying to cherry pick random aspects of manufacturing cost bases is doomed to failure.
I would argue that, since the government already distributes billions in grants annually, a £1 billion annual grant scheme is achievable.
On supply-side reforms, they are desirable, but will take longer to make an immediate impact. The super-deduction did see a temporary spike in robots, but since moving to full-expensing the shipments have gone down again.
Machine tools are not random, they are the key system for turning crude metal into fabricated products. They are a clear and acute bottleneck for the rest of industry.
There are indeed many cherry-picked industries which are doomed, with hydrogen being one. But a substantive targeted grant scheme for machine tools is well within the government's capacity to implement.
I'm unconvinced. From experience I believe much of the grants currently distributed are wasted and also, actually negative for the companies that win them, i.e. would have been better left in the hands of taxpayers or used to procure goods and services directly.
If a grant comes with months of "due diligence", monitoring officer meetings, "exploitation plans", collaboration agreements, spend profile, expenditure statements, month-long change requests, reams and reams of policies... just to get a new machine tool, then it will fail just like Innovate UK.
The biggest failing of InnovateUK is that the strongest companies would never apply for it, because it's known as a waste of time and sign of failure to VCs, so only weak/no-hopers bother.
Also I think you are agreeing that super-deduction was a success - it is a better mechanism.
I would argue that in the case of machine shops that would benefit from this scheme, attracting VC money is not a consideration. I agree that grants currently are often given to the most speculative recipients. This would be targeting established businesses who are clearly capital-constrained.
The super-deduction saw a very temporary uplift in orders, likely helped by Covid. It was replaced by full expensing in 2023. Since then, capital equipment spending and private sector manufacturing investment has fallen.
Thanks, great piece. Are you concerned that the sector would not have the skills to operate the tools? I note that manufacturing has recruitment and skill deficiencies as is.
I guess as firms receive the machinery, co-investment in skills would occur, but the benefits would take a longer time to materialise. I guess this is almost a chicken , egg problem.
Should open up funding for new hires. I think it is underestimated just how constrained capital investment is in manufacturing. If you have a machinist who can operate one CNC, they can probably operate two. A bottleneck might come in system integration. There may have to be more policies signalling to the market that it’s time to invest.
OK we get all these machines, but surely there exists a reason why investors are not willing to provide for this capital expenditure themselves, and prodiving it by government subsidy is not going to fix that? If the route problem is energy prices/planning then that has to be fixed first, no?
We do not have the state capacity to do this. Whenever we try to "focus" investment, we create badly administered, glacially slow bureaucracy that makes things worse not better. R&D credits are a great example of this, but so is Innovate UK. The paperwork, speed and clueless people administering these grants actively harm the businesses that receive the grants (most of which are no-hopers anyway) by distracting them from their core purpose and market. Ask any VC...
Agree more machine tools would be good as a general sentiment, but what we need is supply side reform to make manufacturers more competitive. The super-deduction was a good policy. But trying to cherry pick random aspects of manufacturing cost bases is doomed to failure.
I would argue that, since the government already distributes billions in grants annually, a £1 billion annual grant scheme is achievable.
On supply-side reforms, they are desirable, but will take longer to make an immediate impact. The super-deduction did see a temporary spike in robots, but since moving to full-expensing the shipments have gone down again.
Machine tools are not random, they are the key system for turning crude metal into fabricated products. They are a clear and acute bottleneck for the rest of industry.
There are indeed many cherry-picked industries which are doomed, with hydrogen being one. But a substantive targeted grant scheme for machine tools is well within the government's capacity to implement.
I'm unconvinced. From experience I believe much of the grants currently distributed are wasted and also, actually negative for the companies that win them, i.e. would have been better left in the hands of taxpayers or used to procure goods and services directly.
If a grant comes with months of "due diligence", monitoring officer meetings, "exploitation plans", collaboration agreements, spend profile, expenditure statements, month-long change requests, reams and reams of policies... just to get a new machine tool, then it will fail just like Innovate UK.
The biggest failing of InnovateUK is that the strongest companies would never apply for it, because it's known as a waste of time and sign of failure to VCs, so only weak/no-hopers bother.
Also I think you are agreeing that super-deduction was a success - it is a better mechanism.
I respect your position.
I would argue that in the case of machine shops that would benefit from this scheme, attracting VC money is not a consideration. I agree that grants currently are often given to the most speculative recipients. This would be targeting established businesses who are clearly capital-constrained.
The super-deduction saw a very temporary uplift in orders, likely helped by Covid. It was replaced by full expensing in 2023. Since then, capital equipment spending and private sector manufacturing investment has fallen.
Thanks, great piece. Are you concerned that the sector would not have the skills to operate the tools? I note that manufacturing has recruitment and skill deficiencies as is.
I guess as firms receive the machinery, co-investment in skills would occur, but the benefits would take a longer time to materialise. I guess this is almost a chicken , egg problem.
Thanks.
Should open up funding for new hires. I think it is underestimated just how constrained capital investment is in manufacturing. If you have a machinist who can operate one CNC, they can probably operate two. A bottleneck might come in system integration. There may have to be more policies signalling to the market that it’s time to invest.