< Previous20 East Midlands Business Link www.eastmidlandsbusinesslink.co.uk PETROCHEMICAL SPOTLIGHT T he petrochemical industry, a cornerstone of modern manufacturing, is undergoing a profound transformation. While demand for its products remains strong, driven by sectors like packaging, automotive, and construction, the industry faces mounting pressures related to sustainability, technological disruption, and geopolitical uncertainty. Companies must balance innovation with economic realities to remain competitive in a rapidly evolving landscape. The urgent need to address climate change has placed petrochemicals under intense scrutiny. Traditional production methods, reliant on fossil fuels, contribute significantly to greenhouse gas emissions. Governments and regulators worldwide are tightening environmental policies, prompting companies to invest in circular economy initiatives. Chemical recycling, which breaks down plastic waste into its constituent monomers, is gaining traction, allowing previously unrecyclable plastics to re-enter the supply chain. Bio-based feedstocks, derived from renewable sources like biomass and agricultural waste, are emerging as viable alternatives, reducing reliance on fossil fuels. Carbon Capture, Utilisation and Storage (CCUS) is also playing an increasing role, capturing emissions before they reach The petrochemical industry is changing with technology and sustainability As sustainability pressures and global competition rise, the petrochemical industry must adapt. With lower US energy costs pulling business from Europe, UK regions like the East Midlands face economic risks. Innovation and policy shifts will determine the industry’s future. www.eastmidlandsbusinesslink.co.uk East Midlands Business Link 21 PETROCHEMICAL SPOTLIGHT the atmosphere and repurposing them for industrial applications. However, these innovations require substantial capital investment and technological refinement, making widespread adoption challenging. Technological advancements are reshaping the petrochemical sector. Digitalisation, automation, and artificial intelligence (AI) are optimising production processes, enhancing efficiency, and improving safety. Advanced analytics and AI can predict equipment failures, minimise downtime, and optimise energy consumption. Companies like Honeywell are leading the way with tools such as the UniSim Design suite, a multipurpose simulation platform used for process design, safety studies, and operations monitoring. This enables optimisation of production processes, reducing waste and improving overall efficiency. Digital twins, virtual replicas of physical assets, are also transforming operations by allowing real-time monitoring and process simulation. Automation is streamlining workflows, reducing labour costs, and ensuring product consistency. Siemens, for instance, offers the Xcelerator software package, which accelerates digital transformation by integrating digital twins with engineering simulations. 22 Á22 East Midlands Business Link www.eastmidlandsbusinesslink.co.uk PETROCHEMICAL SPOTLIGHT These technologies enable real-time evaluation of operational performance by gathering data from sensors mounted on physical infrastructure. Despite these advancements, implementing new digital systems requires a highly skilled workforce, which remains in short supply. Additionally, as industrial networks become increasingly connected, cybersecurity threats are a growing concern. The rapid pace of technological change necessitates continuous investment and adaptation. Economic and geopolitical factors continue to shape the future of the petrochemical industry. Global supply chains remain vulnerable to disruptions caused by trade tensions, fluctuating energy prices, and shifting regulatory policies. Emerging economies, particularly in Asia, are driving demand for petrochemical products, but economic slowdowns in key markets, such as Europe, could dampen growth. Meanwhile, geopolitical instability in regions rich in oil and gas reserves poses a risk to supply chain security, leading companies to seek alternative production hubs and diversify sourcing strategies. The industry is also evolving its product portfolio, shifting towards specialty chemicals and advanced materials. These high-value products, used in pharmaceuticals, electronics, and high-performance materials, offer greater profit margins and resilience against market fluctuations. In response to supply chain vulnerabilities, many firms are regionalising their operations to reduce dependence on single-source suppliers. This diversification is particularly evident in the UK, where manufacturing regions such as the East Midlands are emerging as key players in materials innovation. With strong links to the automotive and aerospace industries, this region benefits from research collaborations with universities and a strategic central location that facilitates efficient distribution. Despite these efforts, the European petrochemical sector faces significant challenges. Sir Jim Ratcliffe, founder of Ineos, has warned that Europe’s chemicals industry is at risk of decline due to high energy prices and stringent environmental policies. He argues that www.eastmidlandsbusinesslink.co.uk East Midlands Business Link 23 PETROCHEMICAL SPOTLIGHT the EU’s carbon tax and regulatory burdens are driving companies out of Europe, making it difficult for domestic industries to compete with regions that offer lower production costs and more industry-friendly policies. Ratcliffe has called for competitive energy pricing, the abolition of the carbon tax, and the introduction of tariff barriers to protect European producers. By contrast, the US has taken a different approach, prioritising industrial growth and competitiveness, which Ratcliffe claims gives American firms a significant advantage. The European petrochemical industry must navigate these regulatory challenges while maintaining investment in sustainable technologies to ensure long-term viability. These concerns are particularly relevant for the East Midlands, where the petrochemical industry plays a crucial role in the regional economy. The area is home to key chemical production facilities and supply chain networks that support a range of industries, from manufacturing to agriculture. If companies begin relocating production outside of Europe due to rising costs and regulatory pressure, the East Midlands could face economic disruption, job losses, and reduced industrial activity. Sustainability efforts within the industry extend beyond production methods to product applications. The push for greener alternatives has driven innovation in sustainable packaging solutions. Companies like DuPont and BASF are developing Furandicarboxylic Acid (FDCA), a bio-based polymer derived from fructose, which can be used to create biodegradable plastics. Coca-Cola is among the corporations investing in FDCA-based packaging, aiming to reduce its reliance on petroleum-based plastics and increase the bioplastic content of its bottles. These initiatives align with consumer demand for environmentally friendly products and regulatory pressure to reduce plastic waste. As the petrochemical industry adapts to these technological, economic, and regulatory shifts, collaboration between industry, government, and academia will be essential. Innovation in materials science, process engineering, and sustainability solutions requires coordinated investment and knowledge- sharing. Governments must balance environmental objectives with policies that support industrial competitiveness, ensuring that the sector remains viable while transitioning to cleaner technologies. Ultimately, the future of the petrochemical industry will be shaped by its ability to embrace change. Companies that invest in digitalisation, automation, and sustainable alternatives will be better positioned to navigate evolving market dynamics. While challenges remain, including high capital costs, regulatory uncertainties, and geopolitical risks, the sector’s ability to innovate and adapt will determine its long-term success. By prioritising technological advancements and sustainable practices, the petrochemical industry can drive progress while meeting the demands of an increasingly complex global economy.24 East Midlands Business Link www.eastmidlandsbusinesslink.co.uk FINANCE T he ebb and flow of domestic demand, influenced by consumer confidence and spending patterns, plays a crucial role in shaping inflation trends. When consumer confidence is high, and spending increases, demand-pull inflation can occur. Conversely, decreased demand can lead to deflationary pressures. In response to these pressures, the Bank of England continues to utilise monetary policy, notably interest rate adjustments, as a key tool to manage inflationary expectations and maintain price stability. The Bank of England recently lowered interest rates by 25 basis points, reflecting a cautious approach amidst mixed economic signals. Inflation concerns persist, with recent data showing an unexpected rise, complicating the outlook for further rate adjustments. Policymakers are balancing growth support with the need to manage inflationary pressures. The Bank’s decisions are closely watched by businesses and consumers alike, as they have a direct impact on borrowing costs and investment decisions, influencing everything from mortgage rates to business expansion plans. The East Midlands, a key hub for manufacturing and logistics within the UK, is navigating a period of economic transition. The region’s diverse economy, encompassing sectors from advanced manufacturing to logistics and retail, is facing both opportunities and challenges. Notably, the number of companies in the Midlands filing for administration during the first nine months of 2024 has outpaced last year’s figures by more than 10%, according to Interpath Advisory. Analysis of notices in The Gazette shows there have been 126 Inflation, policy and industry struggles shape the UK economy The UK economy is navigating a complex mix of inflation, supply chain disruptions, and shifting tax policies. With rising insolvencies in key sectors and ongoing adjustments in monetary policy, businesses and consumers face an evolving financial landscape. administrations across the Midlands in the first nine months of 2024, representing a rise of 11.5% when compared to last year’s figures. The most impacted sectors in the Midlands have been industrial manufacturing, building & construction, and retail. Specifically, recent data highlights the impact of shifting supply chains and the evolving landscape of international trade on the East Midlands’ manufacturing sector. Businesses are adapting to increased www.eastmidlandsbusinesslink.co.uk East Midlands Business Link 25 FINANCE 26 Á competition and the need to invest in automation and sustainable practices to remain competitive. The region’s logistics sector, crucial for the UK’s distribution networks, is also experiencing a period of significant change. Growing e-commerce demand, coupled with container shipping congestion, is driving significant growth in air cargo at East Midlands Airport. The airport anticipates a record-breaking freight operation, with projections showing a substantial increase in tonnage compared to pre-pandemic levels. EMA’s 24-hour cargo operation plays a vital role in facilitating UK trade and supporting just-in-time supply chains. The rapid growth of e-commerce has increased demand for warehousing and distribution facilities, leading to investment in infrastructure and technology. However, rising fuel costs and labour shortages pose 26 East Midlands Business Link www.eastmidlandsbusinesslink.co.uk FINANCE challenges to the sector’s long-term sustainability. The East Midlands is also seeing significant investment in renewable energy projects, particularly in solar and wind power, as businesses and local authorities seek to reduce their carbon footprint and enhance energy security. Energy Secretary Ed Miliband has approved two major solar projects in the East Midlands: Mallard Pass and Gate Burton. These farms will generate significant renewable energy, powering hundreds of thousands of homes. Despite local concerns, the projects are seen as crucial for the UK’s energy security and net-zero goals. These investments are creating new opportunities for growth and employment in the region. Furthermore, the development of the East Midlands Freeport is expected to stimulate economic growth and attract investment, providing businesses with access to streamlined customs procedures and tax incentives. However, the success of the Freeport will depend on its ability to attract investment and create sustainable jobs. The region’s local authorities are also focused on addressing skills gaps and promoting inclusive growth, recognising the need to ensure that all residents benefit from the region’s economic development. Initiatives aimed at improving access to education and training, particularly in STEM subjects, are being implemented to support the region’s future workforce. The UK’s tax and finance scene is also in a state of flux. Recent budget announcements, like the Autumn Statement and Spring Budget, have brought in a raft of changes to taxes and spending, affecting everyone from individual taxpayers to big businesses. These adjustments are aimed at tackling the nation’s economic challenges and steering government finances. Just think, tweaks to income tax or corporation tax rates can have knock-on effects across the board. Plus, the core tax rules themselves – income tax, corporation tax, VAT – are constantly evolving, meaning businesses have to stay on their toes. On top of that, financial regulations in areas like banking, investment, and insurance are always being updated, adding another layer of complexity to keep the financial system stable. And if you want to get a handle on where the economy might be headed, the Office for Budget Responsibility’s reports are essential. They give independent forecasts and analyses of the UK’s economic and fiscal www.eastmidlandsbusinesslink.co.uk East Midlands Business Link 27 FINANCE outlook, shedding light on the potential impact of government policies and future spending. Turning to the overall state of the UK economy, key metrics such as Gross Domestic Product (GDP), employment rates, and the trade balance provide a comprehensive picture. Data from the ONS underscores the impact of global events, from geopolitical tensions to international trade dynamics, on the UK’s economic performance. GDP, a measure of the total value of goods and services produced in the UK, provides a snapshot of the economy’s overall health. Employment rates, reflecting the strength of the labour market, and the trade balance, indicating the difference between exports and imports, offer further insights into the UK’s economic performance. For example, a decline in exports can indicate weakening global demand. It’s crucial to remember that this report provides a factual overview of these developments and does not constitute financial advice. Readers are encouraged to consult official sources, such as the ONS, HM Treasury, and the Bank of England, for in-depth analysis and to make informed decisions. One of the most popular investment choices within a Small Self- Administered Pension Scheme (SSAS) is commercial property. Many business owners use their SSAS to purchase trading premises, then lease them back to the business—providing a tax- efficient way to grow their pension. Any rental income received is tax-free in the SSAS, and there is no capital gains tax when the property is sold, meaning that there is an opportunity to grow your pension in a tax advantageous environment. A SSAS can also be used to develop or refurbish commercial property, offering flexibility for businesses needing additional space. Generally, the development should offer a clear benefit to the SSAS, and where the improvements enhance the capital value, the SSAS should be able to fund them. Fixtures and fittings, however, must be paid for by the tenant. Borrowing (to fund the works) is possible up to the limits allowable in a SSAS. We always recommend professional advice is taken particularly regarding value enhancement and VAT. While residential development isn’t allowed within a SSAS, the scheme can obtain residential planning permission and sell the land at an increased value before construction begins. However, "flipping" commercial properties for profit isn’t permitted, as a SSAS is designed for long-term investment, not short-term trading. Property development within a SSAS is another example of how this flexible pension structure can support both your business and your retirement planning, offering tax advantages and strategic growth opportunities. For further information call 0333 320 9230 or visit wbrgroup.co.uk Caitlin Southall, Head of SSAS Proposition WBR Group 28 East Midlands Business Link www.eastmidlandsbusinesslink.co.uk TAX Upcoming changes to UK audit thresholds - what businesses need to know Robert Anderson, audit partner at Streets Chartered Accountants, helps businesses plan for upcoming changes to UK audit thresholds. F rom 6 April 2025, the thresholds determining whether a company requires a statutory audit in the UK are set to increase. This change, introduced by the Government, is aimed at reducing regulatory burdens on small and medium- sized businesses. While this will exempt more companies from mandatory audits, it is essential for business owners and finance leads to understand the implications and plan accordingly. Why are the changes being introduced? The Government has decided to increase the audit thresholds as part of broader efforts to support business growth and ease financial and administrative obligations. By raising the thresholds, the government aims to reduce costs for SMEs, allowing them to focus on expansion and investment. What are the new audit thresholds? Currently, companies must undergo a statutory audit if they meet two of the following three criteria: * Annual turnover of more than £10.2 million * Gross assets exceeding £5.1 million * More than 50 employees From 6 April 2025, these thresholds will increase to: * Annual turnover of £15 million * Gross assets exceeding £7.5 million * More than 50 employees Companies exceeding two of these new criteria will still require an audit, but many that previously needed one will no longer be obligated. Who will be affected? The new thresholds will impact businesses that are currently just above the existing audit criteria. Those that now fall below the new limits may no longer need an audit. However, some businesses, including regulated entities such as those authorised by the Financial Conduct Authority (FCA), will not be affected by the changes and must still comply with existing audit requirements. This includes insurance brokers, which may require a client money audit rather than a full statutory audit. Additionally, charities have separate audit thresholds, and these changes do not apply to them. Trustees and finance teams in charities should ensure they continue to meet their specific audit requirements. What do businesses and their auditors need to consider? For businesses close to the current thresholds, it is possible that an audit may be required for just one year www.eastmidlandsbusinesslink.co.uk East Midlands Business Link 29 TAX before falling below the new limits. This is because the changes apply to accounting periods starting on or after 6 April 2025. If a company is growing and expects to exceed the current limits before the new ones take effect, they may need to consider whether changing their financial year-end could help them manage this transition. Furthermore, businesses below the new thresholds should still assess whether an audit is beneficial. Many lenders, investors, and stakeholders require audited financial statements, even when not legally mandated. External assurance can enhance credibility, strengthen governance, and improve financial oversight. Alternatives to a full audit If a company is no longer required to have a statutory audit, other financial assurance options can provide value, such as: * Assurance reviews – A lighter-touch review that offers a level of credibility without the full scope of an audit. * Agreed-upon procedures – Specific financial checks tailored to stakeholder requirements. * Internal audits – Providing governance and operational insights beyond financial reporting. Planning ahead With the threshold increase approaching, business owners and finance leaders should review their audit obligations now. Engaging with an auditor early will help assess whether an audit is still needed, what alternative services may be beneficial, and how to manage the transition. Next >