Enticing manufacturers could be best bet

Sep 8 2009 by Neil Warwick, The Journal

TALK of green shoots of recovery has now been replaced by the current phrase of the minute “rebalancing of the economy” which will apparently take place when the recession ends.

This new catchphrase is meant to indicate the post-recession period where the UK will begin to focus on manufacturing and place less emphasis on financial services.

In theory this would be a good idea as we are in danger as a nation of becoming a net importer rather than bolstering the economy through exports. However, as with many theories there needs to be a dose of reality to ensure that we do not compound mistakes made going into this recession. Undoubtedly some of the key manufacturing industries in the UK have been lacking in the infrastructure investment that our global competitors have made over recent years. However a huge amount of public money has been ploughed into the banking system meaning that for the foreseeable future, there is little left to assist either the manufacturing sector or the public sector. Equally, notwithstanding some spectacular mistakes in the financial services sector, the sector cannot be written off or ignored because of the impact of this recession.

The General Election, which we know will happen by May next year at the latest, will lead to a period of uncertainty for the first half of 2010. There will be cutbacks in public spending and much rhetoric about regaining our position as a manufacturing power globally. Until we have paid the price for the rescue package for the economy, there is a risk that there will be little real action.

When there is a shortage of funds it is important to look to creative and innovative ways to improve the economy, ie ways that do not require huge expenditure. Short term it is important to address the drivers for doing business in the UK. Currently we tend towards a ‘one size fits all’ mentality which results in a bureaucratic system and a planning environment which makes it difficult to start a business in the UK. Ironically however, it leads to a social/legal environment which makes closing a manufacturing business far easier here than in most other European countries. This imbalance leads to an environment which encourages short-term investors seeking a quick profit to invest in our economy but discourages long-term strategic investors. Rather than look at the concept of rebalancing the economy as being a way of diverting resources from financial services to manufacturing, it would be easier and potentially cheaper to look at providing major international manufacturers with the same sort of light touch tax incentives that we have applied to major international bankers over the past decade.

Encouraging people that the UK, particularly the North East, is a good place to live and work as One North East has done so well through its Passionate People Passionate Places campaign, is as good a way of highlighting the merits of investing in UK plc, as any.

For information about how Dickinson Dees can help your business, contact Neil Warwick, partner, on (0191) 279-9375.