News Article

Sector Analysis

Small manufacturers hit hardest by rusting Britain

By CreditMan Tuesday, April 27, 2010

A quarter of all small manufacturers are experiencing problems because they are unable to replace vital operating equipment. According to two new research papers showing that business investment is lower than in the two previous recessions, manufacturing has been hit harder than any industry in the UK.

The research papers by Oxford Economics and the Open University Business School were commissioned by the Finance and Leasing Association to assess whether Britain’s businesses are equipped to meet demand when the economy recovers.

According to the Oxford Economics research the current recession has seen an unprecedented fall in firms’ expenditure on capital equipment. Between 2008 and 2009 business investment across the UK has dropped by 27%. Business growth has been hampered by a lack of internal finance, low profitability, uncertainty over future demand and the restricted credit markets.

The Open University survey shows that 25% of small manufacturers are already experiencing problems coming out of recession because they cannot upgrade equipment due to poor cash flow, difficulties accessing finance or problems sourcing equipment. Manufacturing is closely followed the hospitality industry, with 24% of hotels and restaurants experiencing problems. Affects are also being felt in the agriculture and transport industries, where 16% of businesses in both sectors report problems due to being unable to replace equipment.

The FLA is calling on the next Government to provide incentives to help businesses invest in new and updated equipment. Almost a third of smaller firms across Britain are currently not profitable so do not qualify for existing tax breaks. Making leased equipment eligible for capital allowances would boost their prospects for recovery.

Commenting on the research, Julian Rose, Head of Asset Finance at the FLA, said

“This recession has seen the lowest ever levels of investment. Britain’s 4.7 million small businesses should be the engine of recovery. The risk is that, without the tools to invest, instead of having the latest, high quality equipment the next Government will be faced with repairing Rusting Britain.”