The super-deduction allowance scheme introduced last year by Rishi Sunak to slash the corporation tax bills of companies investing in capital equipment has had no effect on installations of industrial robots in the UK. Fewer robots were installed in 2021 compared with the previous year.
Beginning after the March 2021 budget for two years, the scheme allowed companies to slash their tax bill by up to 25p for every £1 invested. It was designed to ensure “the UK capital allowances regime is amongst the world’s most competitive”.
But figures published this month by the International Federation of Robotics (IFR), a trade body based in Germany and counting 90 of the world’s largest manufacturers of industrial robots among its members, showed that while installations of general purpose robots in Europe increased by 24% to 84,302 last year, uniquely in Britain the number fell by 7% to 2,054 compared with 2020.
The use of robots growing at “breathtaking speed”
Globally, new robot installations in 2021 reached an all-time high of 517,385, a 31% year-on-year rise with China accounting for more than half (268,200). IFR vice president and global head of sales and marketing for ABB Robotics, Marina Bill, said:
“The use of robotics and automation is growing at a breathtaking speed. Within six years, annual robot installations have more than doubled. According to our latest statistics, installations grew strongly in 2021 in all major customer industries.”
This may be true in Europe but with the notable exception of the UK where installations went down after being flat for over a decade at around 2,000 per year.
This came at a time when UK manufacturers, in the first full year post-Brexit, were experiencing an unprecedented shortage of labour and extremely low interest rates. Under the circumstance, and coupled with Sunak’s tax incentives, the IFR had anticipated a significant boost to robot sales and the modernisation of UK industry. That it did not happen calls into doubt Britain’s future as a leading manufacturing nation. It’s not unreasonable to ask if we are already past the point of no return.
The UK did not appear in the top 15 countries as can be seen in the chart below. Alone amongst the G7 group of advanced economies, the UK has fallen below the global average – which includes emerging markets – in its deployment of industrial robots. This raises serious questions about the reversibility of Britain’s economic decline.
Britain is falling further behind
The UK now has around 24,445 industrial robots in operation, but Germany with 245,908, has ten times as many and continues to outstrip us by the same 10:1 ratio with every passing year. Assuming the present trend carries on in Germany, to catch up Britain would need to install about 30,000 robots every year for at least two decades if it started today. This is 15 times more than it has ever managed in the past and not far short of US levels.
British manufacturers show no inclination to embark on such an ambitious plan. The government seems unable to recognise or understand the problem and powerless to force businesses to invest in productivity-boosting equipment by offering sufficient incentives.
Some of last year’s fall was attributable to UK car production output dropping from around 1.7 million in 2016 to less than half of that (763,783) by June 2022. UK car makers cut the number of new industrial robot installations by 42% to just 507 in 2021. The closure of Honda’s Swindon plant and BMW’s decision to shift production of the all-electric mini to China because their Cowley plant “is not geared up for electric vehicles” will not help rejuvenate an ailing UK automotive industry, which has hitherto been the biggest driver of robot installations.
Are taxation levels linked to investment?
There are academic papers which find no statistically significant effects on growth, unemployment or investment from cutting taxes on the rich.
Yet the disastrous Liz Truss / Kwasi Kwarteng mini-budget in September 2022 was driven in part by an unshakeable belief that high taxes do somehow deter investment. Figures from the Organisation for Economic Cooperation and Development (OECD) for tax revenue as a percentage of GDP show no correlation at the macro level between tax revenue raised and investment, certainly in robotics.
Canada, France, Germany, Italy, Spain, and Portugal all have far higher tax levels than the UK but manage to install significantly more robots. In France, taxes amount to 45% of GDP compared with 32.8% for the UK, but in 2021 French businesses installed almost three times as many robots, and have done so consistently since 2012.
On the other hand, the USA, Mexico and Korea have lower taxes and also installed more robots.
Brexit was a misdiagnosis
None of this is necessarily connected with Brexit. Britain has been an economic laggard for years, but undoubtedly it has been made significantly worse by the decision to exit the European single market.
In 2012, the authors of the book Britannia Unchained: Global Lessons for Growth and Prosperity, Truss, Kwarteng, Dominic Raab, Priti Patel and Chris Skidmore said: “The British are among the worst idlers in the world. We work among the lowest hours, we retire early and our productivity is poor.”
It is as if the patient’s chronic and long-standing condition was misdiagnosed by quack doctors who since 2016 have been administering a painful but erroneous treatment, erecting trade barriers between Britain and its largest overseas market, moving towards regulatory divergence and burdening our exporters with red tape, making the situation far worse and possibly terminal.
The government is intent on trying to raise growth to a more sustainable 2.5% per year but it is difficult to see where that might come from given our manufacturing competitors are all disappearing into the distance as we stumble and fall further behind.
As Boris Johnson himself said in 2013:
“If we left the EU, we would end this sterile debate, and we would have to recognise that most of our problems are not caused by ‘Bwussels’, but by chronic British short-termism, inadequate management, sloth, low skills, a culture of easy gratification and under-investment in both human and physical capital and infrastructure.
“Why are we still, person for person, so much less productive than the Germans? That is now a question more than a century old, and the answer has nothing to do with the EU. In or out of the EU, we must have a clear vision of how we are going to be competitive in a global economy.”
He seemed to be making the insane argument that the massive price of leaving the EU – easily in the £trillions – was worth paying simply to confirm our problems are nothing to do with Brussels, something which becomes clearer and more expensive by the day.
Those who profess themselves baffled by our woeful productivity compared to other advanced economies, particularly after the 2008/9 financial crisis, would do well to look at UK PLC’s dismal record in deploying automation and adopting robots to raise productivity. Addressing that question would be a good start.