As the economy slowly rebuilds, Vince Cable’s Industrial Strategy will play a key role in whether we will manufacture more in Britain. The challenge is to replace imports, export more and to be at the cutting edge of new technologies.
The case for government nurturing and supporting long term manufacturing growth in the UK is a compelling one. The challenge is to make this intervention work. This article is the first of four articles – brought together by the Lib Dem Campaign for Manufacturing – from around the country and from different industrial perspectives to inform this debate.
Government should have a different agenda from business. This needs to be said, because too often business’s agenda is self-serving. Shareholders want more profit and lower corporation tax, big business interests want favourable government legislation and employers want to lower the cost of employment. But nearly all these issues are valid for large numbers of businesses whether successful or struggling, whether exporting or not, whether investing or not.
In contrast, the Industrial Strategy is about manufacturing more in the UK, and exporting more. These are different priorities.
How do we manufacture more?
1. We invest in production machinery in new or extended factories that mean we can make product in the UK either currently imported, or in new technologies.
2. We organise our industries so that businesses talk to each other and work through effective new product development, by recognising industry clusters.
3. We back manufacturers wanting to export into new countries, and manufacturers (usually SMEs) who want to start to export.
Government priorities should be:
1. Growth in manufacturing capacity and incentives for investment.
The Lib Dem Campaign for Manufacturing campaigns for 100% capital allowances for a fixed 2 year period to provide a 2 year incentive for capacity building across UK manufacturing.
2. Local and national clusters, with government helping to bring clusters together.
Whether it’s the new Local Enterprise Partnerships, or the Department for Business, Innovation and Skills working directly with trade bodies like the Automotive Council, it is clusters of excellence that need to be nurtured. Examples are aerospace businesses in Derby and Burnley, or chemicals on Teeside and Widnes. It is by no means clear that the new LEPs will demonstrate focused leadership to help to deliver the Industrial Strategy.
3. UK Trade and Investment (UKTI) should provide as much support as possible to businesses wanting to export, and to bring companies together so that they get good long term advice. The UKTI effort should be judged on results over 3 – 5 years.
With Vince Cable’s Industrial Strategy and Michael Heseltine’s Growth Review into our ability to create wealth, the argument for government action is persuasive. This article sets out how government – which is generally very ignorant of manufacturing – can deliver results.
* William Hobhouse lives in Bath and is co-founder of the Lib Dem Campaign for Manufacturing.
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6 Comments
Sorry William, but this article does jar rather a little. You say:
“Government should have a different agenda from business. This needs to be said, because too often business’s agenda is self-serving. ”
But are you not yourself a manufacturer? Do you not have rather a sizeable vested interested in the ‘Industrial Strategy’, and is this not rather a good example of rent-seeking? Which are the businesses and industries that BIS is not going to pay attention to because they’re not in fashion in BIS at the moment?
That’s not to mention that it doesn’t really seem to be where the profitability is (from the ONS Q2 2012 Bulletin):
“Manufacturing companies
The estimated net rate of return for manufacturing companies in quarter two 2012 is 4.9 per cent, unchanged from the estimated rate of return for the previous quarter. The annual net rate of return in 2011 was estimated at 5.4 per cent, lower than the estimate of 8.3 per cent in 2010.
Service companies
The estimated net rate of return for service companies in quarter two 2012 is 15.8 per cent, higher than the estimate of 15.7 per cent in the previous quarter. The annual net rate of return in 2011 was estimated at 15.9 per cent, higher than the estimate of 14.7 per cent in 2010.”
A company with which I have done business designs products which are manufactured in the UK. It then sells them all over the world. The advice, support in finding contacts overseas, setting up sales meetings in new countries, and much else from UKTI has been invaluable in their success.
In general ensuring the UK has a consistently competitive operating environment for investment and running businesses is the most important driver of sustainable growth.
In respect of that – Energy costs are a major element in manufacturing – particularly towards the base of most supply chains (chemicals, metals, ceramics, plastics etc.). Vince Cable’s Department BIS issued a report in July that suggested by 2020, UK energy costs for manufacturers, principally as a result of energy policy would be a third higher than Germany and three times higher than the US. The US differential is already apparent today as a result of their rapid exploitation of shale gas.
If correct it is hard to see this not having a major impact on investment . For example it will mean many of the products that go into wind-turbines, solar panels, nuclear plant, and energy efficiency solutions will be made elsewhere.
Unilaterally forcing up the price of British energy faster than near competitors creates a green growth paradox. It also means automotive, aerospace, and pharma companies (also target growth sectors) will be spending money on energy they could be spending on investment in R&D and skills.
BIS recognise this and is currently consulting on a small (£105m per annum) rebate to energy intensive industry for the costs of the EU ETS and Carbon Price Floor . But it is small and if Greg Barker is right that the current German equivalent rebate is £4bn (i.e. 40 times as large) it is unlikely to have any impact at all on investment signals.
What is the LD Campaign for Manufacturing doing about this issue?
@ Andy
Some issues never really go away! I remember back in 1992 raising the problem of electricity privatisation and prices for major industrial users – for example for Chlorine manufacture.
It always surprises me that Germany, as a richer country than the UK, often turns out to be more industrially competitive than other economies. The reason for this is the way the German state consistently places industrial support and development at the heart of economic policy. You have given the example of electricity prices, and there is the powerful example of the Kreditanstalt fuer Wiederaufbau – the German business development bank.
I would say that the response to this German example is to win the argument for the importance of manufacturing to the UK economy, and to make the Industrial Strategy work.
@ coldcomfort
UKTI had a fantastic afternoon session for exporters at the Midland Hotel in Manchester some months ago. They got in the UKTI officers from most of the European countries, the businessmen chose what countries they were interested in, and there were 30 minute sessions in many different rooms where the UKTI officer explained what it took to export into their country. Invaluable.
@Mike
Personally I don’t have an conflicting interest – but I am passionate that manufacturing is the route to growth for many areas of the UK – for example the north side of Manchester, or Runcorn/Widnes, or from the Tees to the Tyne.
You quote figures that seem to show that service companies are 3 times as profitable as manufacturing companies. With figures like that, Britain’s service sector must be booming. What I would say is that manufacturing is stable, long term and wealth-creating. It is not sustainable for UK plc to be closing factories and buying in product from abroad – that results in short term profit for a few, and long term loss for the many.
“It is not sustainable for UK plc to be closing factories and buying in product from abroad – that results in short term profit for a few, and long term loss for the many.”
So should we still be making cheap plastic toys ? or clothes ? Are you unaware of the basic principles of free trade and the theory of comparative advantage?
And you haven’t actually answered Andy’s point about electricity prices.
The UK coalition government’s thinking on devolving power to the provinces is fine in theory but based upon similar experiences in the past, is bad in practice. Putting billions of pounds in the hands of Local Enterprise Partnerships (LEPs) is acceptable as long as these funds are entirely strategically used and not provided for pet subjects or diverted to other ways and means by our Councils. The, ‘we know best brigade’ who never really know best as our stagnant economy shows clearly. In this respect the former Regional Development Agencies (RDAs) when analysed in-depth were pronounced a non-productive entity when it came to overall economic benefits and most of what happened would have happened organically according to independent reports. We do not want more of the same, but real change for new jobs and wealth creation. Indeed, as the primary mover of all new wealth is the commercial exploitation of ‘innovation’, LEPs have to concentrate on building the creative infrastructure first where all the creative thinking of local people can be brought to bear on the problem, not just academia and business whose combination has not faired that good economically over the past quarter of a century. In this respect also things will have to be much better than the NESTA which was supposingly to provide the UK with an independent avenue in providing the nation’s creative excellence. Indeed, the nation’s NESTA (set up by the last Labour Government and retained by the coalition government), the so-called national driver for economics excellence when it comes to innovation and where even after billions have been pumped into it over the last 15 years has created very little in the way of economic benefits, if any meaningful payback at all. In this respect the taxpayer’s money has been spent and little return in terms of jobs and new wealth creation has been the outcome. The identical case I consider will be the same old story with the LEPs. The reason in the case of the NESTA was that out of the seventeen trustees that were appointed only one was an engineer. The rest were celebrities and people who had not a clue how to create new technological industries (the things that we all need the most to change our economic and social fortunes around in the future). Even the NESTA’s chief executive was not an applied engineer or scientist but a linguist. How a linguist was appointed and understood what innovation was about is still a mystery to me. Here again like the old RDAs, the NESTA has failed and where no significant economic benefit has been forthcoming from the billions invested. Therefore the LEPs (which will have an equivalent NESTA agenda at their core) have to be different and where establishment people, pure academics, innovative illiterate businessmen, celebrities and political figures have not to be appointed to manage, set strategic targets (where they have no idea how the end game will pan out) and produce/implement bureaucratically controlled innovation system (the death knell for all creative thought and where Whitehall in particular is a past master of killing off the goose that laid the golden egg). If this happens again with the LEPs they will be another disastrous failure but where time again will have ticked-on and the UK will be even deeper in the economic mire than it is today. It is therefore imperative that we have ‘applied’ creative thinkers in the driving seat this time around and not non-performing minds that have not a clue what economic regeneration is all about anyway.
Dr David Hill
Chief Executive
World Innovation Foundation
Huddersfield, United Kingdom – Bern, Switzerland – Arlington, United States of
America