Rising interest rates and the end of the super tax deduction tax incentive are probably not the best combination for encouraging machinery investment, but we’re actually seeing a remarkable degree of resilience in the aluminium market. As I see it, there are several very good reasons for that.
Underlying confidence
Growth in aluminium continues to outstrip PVC. Despite the most recent figures from the housing market, there is still underlying confidence in the commercial market and in higher-end retail in particular. Our enquiries are fairly well spread from PVC businesses making the decision to add aluminium products to their output for the first time, all the way up to large façade manufacturers.
AIA
While the super tax deduction benefit might have finished in March, the Annual Investment Allowance (AIA), which includes plant and machinery, is still in place for all qualifying business expenditure. The AIA limit is now set at £1m, and looks likely to stay at that level for the foreseeable future, so fabricators are still taking advantage of the fact that any machinery investment below that limit can be offset against their taxable profits, saving them between 19% and 25% depending on their corporation tax threshold.
Interest can be set against tax
The AIA obviously isn’t the only tax incentive continuing to encourage machinery investment. Fabricators who choose to finance their investment can also set the full amount of interest they pay against their corporation tax bill.
Cash is king
We work with trusted partners to help businesses access finance for their machinery investments. They are telling us that the ‘cash is king’ mantra has never been more relevant than it is at the moment. Interest rates might have risen for borrowing but they’ve also risen for saving as well, so many businesses who do have cash available are choosing to hold onto it and opt for finance instead, successfully offsetting at least some of the interest they are paying against interest being earned.
Interest rates not at record levels
Anyone with a mortgage knows that interest rates have risen at remarkable speed over the past year. But as we keep being reminded by the Bank of England, historically they are still fairly low. It is only since 2009 that we’ve got used to rock-bottom rates. The fact is that, for 31 of the 36 years between 1973 and 2009, interest rates were well above their current level of 5%+.
I’ve got some figures from our funding partner which show the typical monthly repayment costs over the years on a £100,000 machine, repaid over five years (not allowing for inflation):
1990, interest rates at 15% = £2,916
2000, interest rates at 8% = £2,333
2005, interest rates at 6% = £2,166
2022, interest rates at 4.5% = £2,041
2023, interest rates at 6% = £2,166
All the indications from the wider economy and the Bank of England suggest that interest rates won’t be coming down any time soon, so lots of fabricators are clearly judging that there’s little reason to postpone their investment.
Investment still pays off
The commercial benefits for fabricators in automating their operations and adding more machining capacity or capability obviously remain as compelling as ever. The cost savings and efficiency improvements that they can achieve via machinery are arguably more valuable than ever when competition is fierce, and margins are under pressure.
Emmegi (UK) is in a great position to help fabricators who want to invest with a comprehensive range of machines to suit every factory and every budget, backed up by practical and resourceful partners.
Ian Latimer
Managing director, Emmegi (UK)
