We’re at a crossroads

Mar 3 2010 by Karen Wilson, The Journal

Alan Hall

THIS week is EEF’s manufacturing week, where EEF and manufacturers across the region are showcasing why manufacturing needs to be at the heart of the UK economy. At the start of the last decade EEF warned that the UK’s economy was at a crossroads: either we grew our manufacturing base or the UK economy would suffer the consequences. Today as we approach the next election we are back at that crossroads.

Manufacturers are slowly recovering from a serious recession and starting to see improvement in their order books. But they face a huge amount of uncertainty in terms of the likely strength of recovery, of whether credit will be available and affordable to finance the upturn and of the health of their supply chain. The coming election and how the next government addresses the fiscal deficit are further clouds on the horizon.

The next government therefore needs to send out clear signals to business about its priorities for the economy and set out a framework for how it will achieve them. This is vital because we need a diverse and dynamic manufacturing base to pay our way in the world.

This will put us in a much stronger position to meet the challenges facing Britain, such as addressing climate change, meeting our strategic security needs and adapting to an ageing population, ourselves rather than importing the solution.

The starting point must be a credible plan for reducing the fiscal deficit, centred on reductions in public spending, driven by significant improvements in the effectiveness of the public sector, strict control over costs and a fundamental rethink of what government does.

The alternative of significant tax rises, would weaken our competitiveness, undermine businesses’ ability to invest in growth and jobs, and send out the wrong signal to international companies looking at where to invest next.

But government needs to go further than this. A strategy to diversify our economy must be embedded across government, with all levels of it focused on the future and pulling in the same direction. We need greater coordination across government to ensure consistency of strategy and delivery. Cabinet Committees, for example, should be given a greater role in the delivery of specific, cross-departmental priorities.

The next government must also be clear about how it uses its influence to rebuild our economy. It must send clear signals about its long-term priorities and the importance it attaches to specific technologies or markets and work more closely with business to identify and overcome the obstacles to growth in these markets.

It also needs to engage much better with industry in conveying its long-term needs when it is buying goods and services from the private sector. Finally, at a time when finances are extremely tight, a new government must prioritise spending in areas that will deliver sustainable economic growth.

The government also needs to deliver a business environment that encourages manufacturers to make their next investment here. Rather than provide a long shopping list, we highlight a few priorities.

We need a tax system that provides certainty, is internationally competitive and reflects the true cost of modern machinery. We need to maintain and enhance the advantages of a flexible labour market and back this up ensuring that manufacturers can access the skills they need to compete. To achieve this, the education system, including the engineering diploma and apprenticeships, must deliver the science, technology and engineering skills industry needs and the skills system must be simple, responsive and set up to collaborate with businesses on skills development.

Manufacturers and government alike will need to work ever harder to take advantage of growing world markets in areas like the low carbon economy. The government can make a major contribution by creating a single source of finance to support ambitious, growing companies that are making long-term and risky investments. And it needs to ensure that UK Trade and Investment is equipped to support these companies in developing markets abroad for their new products. In the low carbon area, it must also take care not to sign up to targets to reduce carbon emissions that are out of step with the rest of the world and would place industry at a competitive disadvantage.

Manufacturers also need to feel confident that they can access a secure, reliable and competitive energy supply. Britain faces major challenges in this area and we cannot afford to repeat the delays and cost overruns of the past. To prevent this, the government needs to speed up planning decisions on the strategic investments in our infrastructure.

The next government must also change the way it regulates. It can make a good start by introducing regulatory budgets that cost and limit the amount of new and existing regulations and by strengthening the assessment it makes of the impact of new regulations at the UK and the EU level.

This is a lot for any government to achieve and it can’t be done overnight. But in the coming months, manufacturers will be listening very closely to what the major parties have to say and to the signals that a new government sends out in its early days.

Alan Hall is regional director at EEF.

It can’t be done overnight. Manufacturers will be listening very closely to what the major parties have to say and to the signals that a new government sends out in its early days