Comment: The unexpected rush to automation and outsourcing

However, there may be an unexpected spin-off to Reeves’ policy that could have a long-term benefit for UK industry.

Additional tax measures announced in the recent Budget could help trigger a wave of spending in automation and outsourcing.

I expect the £25bn annual rise in employers’ National Insurance Contributions (NICs) to test the resilience of manufacturing even further, with companies pivoting strategies to grapple with high operational expenses and widespread skills shortages.

Many companies will instead turn to investing in new technology and partnering with manufacturing specialists for non-core competences to alleviate immediate financial pressures whilst also building foundations for sustainable growth.

Our sector is highly sensitive to changes in employment costs, given its dependence on a diverse, skilled workforce. NICs, representing a significant portion of employers’ expenses, directly impact our operational expenditure (OpEx).

Strategic outsourcing and automation can give management teams some comfort if they can look past the initial investment and instead look at it through the joint lens of long-term productivity and efficiency gains.

Automating repetitive, high-labour tasks can lead to substantial savings, including NICs, wages, and training investments, whilst also freeing up team members to take on higher value tasks.

Machines also offer consistent performance with minimal error, contributing to higher product quality and fewer costs associated with rework or quality control. You can also easily manage fluctuations in demand, whether that is scaling up or scaling down.

Interest

My company, PP Control & Automation, has already seen an initial increase in enquiries following Rachel Reeves’ tax changes.

We operate from a facility in the West Midlands and are one of the UK’s leading strategic outsourcing manufacturing specialists, helping build machines that robotically milk cows, provide everyday packaging solutions, protect your phone from water damage and cut parts that are used in F1 cars and by the world’s airlines.

Since the Budget, we have seen a spike in interest and are currently working through a host of enquiries from companies operating in the clean energy, agritech, and warehouse automation sectors.

All these potential customers are keen to tap into how outsourcing can shift certain fixed costs associated with in-house capabilities into variable, on-demand costs. This aligns expenses with operational needs and is particularly valuable when NIC increases make the cost of ownership for employees and assets prohibitive.

Rather than investing in an in-house team for every phase of production, manufacturers might contract with outsourcing partners for supply chain management, engineering and production requirements, from new product introduction (NPI) to final assembly.

People are a big part of this equation. By adopting this approach you can scale expenses directly with demand, eliminating the burden of maintaining full-time employees for capabilities that may only be periodically required.

You are also opening up a very specialised talent pool and advanced technologies that may be too expensive to develop in-house – a key consideration when you consider the specialised engineering shortages we are currently seeing in the UK.

When making this decision, it is important to evaluate which processes are critical to competitive advantage and which can be automated or outsourced without compromising quality or brand value. You’ll then be faced with a decision – who do we partner with? 

For manufacturers considering automation and/or outsourcing, several factors should guide the decision-making process.

Firms should select businesses that align with their strategic goals, ensuring quality standards, compliance with regulatory requirements, and the ability to scale alongside their growth. Finally, conduct a thorough cost-benefit analysis, considering not only the initial costs of automation or outsourcing, but also the long-term financial and operational benefits.

The strategic shifts I believe will now play out will enable manufacturers to transform traditionally rigid cost structures into agile frameworks, allowing them to respond effectively to both current challenges and future demands.

As we embrace innovation and rethink strategies, we will not only overcome the immediate impact of the NIC increase but also pave the way for sustainable growth in a competitive, high-cost global environment.

Rachel Reeves probably didn’t realise it at the time, but her employment tax rises could well have given the UK the biggest push towards automation and outsourcing we’ve seen in decades.

Tony Hague, CEO of PP Control & Automation (PP C&A)

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