In the first of our pre-budget series, we look at sectors doing well and what they need most to grow their businesses at a time when borrowing is at a 15-year high and the economy is struggling to gain traction.
Aimie Stone, the chief economist at ADS, a trade body that represents Britain’s aerospace, defence, security and space industries, is all smiles. She has just hosted its civil aviation council for the first time since the chancellor’s autumn statement in November.
“The mood was really positive,” she says. And for good reason. The 3,850 aircraft orders placed last year was the highest since the trade body began recording the figures in 2010, when the Conservative Party came to power as part of a coalition government.
ADS estimates that the backlog of 15,753 planes on order is worth £244 billion to the economy and represents almost 13 years of work for suppliers across the UK: for instance, manufacturers in Northern Ireland — including Collins Aerospace and Thompson Aero Seating — make a third of the world’s airline seats, ADS said.
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The 25 executives attending the council meeting were also encouraged by government action to support the industry. Despite recent criticism from a trio of former business secretaries of the government’s handling of industrial strategy, Jeremy Hunt’s pledge to invest £975 million in a new research and development-focused Aerospace Technology Institute, along with a more detailed roadmap of priorities and areas for future investment, were well received.
Even the recent announcement that the economy fell into a mild recession in the final quarter of the year failed to dent the optimism. “There is a big order book; there is money committed by government for research and development, and we have an advanced manufacturing plan. Industry is feeling buoyant,” says Stone, 32.
“Everyone is seeing a lot of growth and feeling it quicker than it is coming through in the data. What is happening in the wider economy does not necessarily ring true for aerospace. We are on a hiring spree because we have so much work to do.”
Pharma in healthy position
Amid concerns about the long-term challenges facing the UK economy — including low growth, poor productivity, under-investment and low rates of participation in the labour market — there are still reasons to be positive about the nation’s prospects.
The pharmaceutical industry, for example, is starting to talk more positively about its prospects. After years of declining manufacturing output and research and development spending as a share of the global total, as well as difficulties with pricing drugs and clinical trials, Richard Torbett, chief executive of the Association of the British Pharmaceutical Industry, said that companies were optimistic for the year ahead.
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“The UK’s life sciences industry continues to be one of the country’s highest potential growth sectors,” Torbett, 48, said. “If we get the policy environment right, we can transform NHS health outcomes while boosting British scientific research and reinvigorating medicines manufacturing in this country.”
The £520 million allocated to the industry by Hunt in November to enhance manufacturing means that more “medicines being developed are also produced here, resulting in jobs across the UK and export revenues,” according to Steve Bates, chief executive of the BioIndustry Association, which also represents the industry.
In November, the government accepted all the recommendations of a review by Lord O’Shaughnessy into how commercial clinical trials were working “in principle” and committed £121 million of funding to five specific reforms that it said would “make the UK one of the best places in the world to conduct clinical trials”.
Torbett says that action is needed. “There are many countries seeking to replicate our innovation ecosystem. We must focus on keeping the UK a competitive and attractive place to invest in development as well as research.”
Green shoots in the City
Services make up four fifths of Britain’s economic output and the rate of growth recorded before the pandemic slowed afterwards. Despite the dearth of dealmaking and stock market flotations in the City, financial and professional services continue to punch above the country’s weight. Euan West, KPMG’s Leeds-based head of private enterprise, says that their due diligence teams are busy again after a subdued 2023 — a promising early sign of renewed corporate deal activity across the country this year.
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While the UK’s equity-funded technology industry has entered a more challenging period after a Covid-era funding boom, levels of investment in private companies are still high by historic standards and London has established itself as a leading European destination for venture capital.
TheCityUK, a lobby group for the industry, also sees “green shoots”. Miles Celic, its chief executive, says. “Our sense is that there are once more good reasons to be upbeat about the UK. The political leaderships [from both main parties] seem to understand the need for high regulatory standards that work to deliver growth and competitiveness.”
Celic, 50, adds: “Without a successful financial centre, we can’t have a successful UK. We’ve seen increased international interest in Britain, and while there may be moments of international political and economic turbulence ahead, the UK looks well placed to once more be an island of stability.”
Financial and professional services employ nearly 2.5 million people, two thirds based outside of London, and contribute 12 per cent of economic output.
On TheCityUK’s wishlist from the chancellor is help to kickstart moribund capital markets, which it says are “not fulfilling their full potential and are hindered in their ability to service the UK public, businesses and the wider economy”.
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Part of the problem is that politicians, regulator, and the man in the street have become too nervous about the City, it argues. “There is growing concern that the UK’s current political, regulatory and societal mindset is focused on eliminating risk of loss from the financial system. We are not advocating for deregulation, rather for an approach that understands the relative risks and growth opportunities in using the financial system to fund growth for the economy and savings returns for individuals,” writes TheCityUK in its budget submission.
Stability is key
The bosses of individual companies that are already doing well are hoping the budget doesn’t ruin the party. Matt Cannon is chief executive of Clancy Group, a construction and civil engineering firm that specialises in the water and energy industries and has £334 million in revenues. Record profits in the past two years and a bumper order book as the utilities gain approval from regulators to charge consumers to upgrade their infrastructure means that progress should continue. “The key thing for us — and this is pan-government and pan-party — is around stability so we can make investments and plan for the future,” says Cannon, 44.
Long-term thinking and stability to assist with planning were repeated requests from thriving industries ranging from defence (which provides 147,000 jobs) and cybersecurity (which grew by 203 per cent to £23 billion in 2022) to quantum computing.
A lower headline rate of corporation tax is a goal mentioned by many business groups, but one that remains likely for a future budget rather than next week’s statement. In the meantime, initiatives to help accelerate the decarbonisation of industry and the maintenance of incentives such as the full expensing of capital investment against taxes are the priority.
Quantum leap in technology investment
Glasgow-based M Squared saw its name in lights in last year’s budget. The Treasury gave the quantum computing and photonics company a namecheck for working on projects with the University of Glasgow to develop new quantum technologies. Two of their projects were awarded a share of £100 million in funding, as part of a plan to invest £2.5 billion in applied quantum research over the next ten years.
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The UK has some of the world’s most promising young quantum computing businesses and Graeme Malcolm, M Squared’s founder and chief executive, says that is testament to a perhaps all-too-rare functioning partnership between industry, universities and government.
“The government has been very long-sighted. We’ve had academia, industry and government in a collaboration for over a decade now and that has become the model globally for how to build an ecosystem,” he says.
“You don’t just wake up one morning and have a quantum industry. These are long, hard problems. It has been over 100 years since the first theory came through and it takes time to make these things practical.”
As part of reaching its investment target, the government said at the start of this month it was releasing £45 million, a large part of which will go towards developing prototype quantum computers for scientists and engineers to test.
Quantum technology is the physics of sub-atomic particles and is one of the government’s five priorities — the others being artificial intelligence, engineering biology, semiconductors and future telecoms. Malcolm said: “You can’t do everything at a country level, but you can do five things really well and quantum is one where we are disproportionately high up the ranks globally.”
Malcolm, who employs 120 people, said it was vital that following Brexit the UK had finally rejoined Copernicus, the Earth observation component of the European Union’s space programme, on January 1, along with the Horizon Europe collaborative research funding programme.
His top priority for the spring budget is more detail, and intent, on the financial reforms outlined in Hunt’s Mansion House speech last summer, which were intended to lead to more pension fund money being directed towards growth companies. “We want to start to utilise the investment capital of the UK’s pension funds to drive economic change,” Malcolm said. “This is a new industrial revolution. If you are not fast, you are last.”
