A manifesto for manufacturing

Posted on 5 Mar 2010 by The Manufacturer

A modern tax system, diverse energy mix, regulation for growth and a single source of finance for growth companies are some key points in EEF’s pre-election Manufacturing Manifesto.

To mark the end of Manufacturing Week, EEF, the manufacturer’s organisation, has released its Manufacturing Manifesto, an appeal to the next government to create a world-class business environment for business in the UK.

The paper calls for the next government to apply themselves to creating a world-class business environment based around several pillars, including flexible labour markets, a modern tax system that does not burden productive companies with the cost fiscal consolidation, a simplification of the skills system and prioritising resources for Science, Technology, Engineering and Maths (STEM) in schools, investing in innovation – partly by establishing a single source of finance (an industrial bank) to support growth companies, a better energy mix and long term energy price stability, more efficient business support and lighter regulation.

On labour markets, EEF has called for the next government to retain a default retirement age linked to the state pension age, and to resist attempts to abolish the opt-out from the Working Time Directive.Phil Kite, managing director of Durham-based steel components maker Astrum, approves. “Certain businesses operate in a very tough international environment. You have to keep staff on top of their game to because it is a metric for competitiveness. You cannot keep working forever.”

Mr Kite supports the ambition to create world-class business environment, adding that the next government needs a more co-ordinated approach. “Lord Mandelson has been very active for our sector in the past 12 months which we support, but there needs to be a coordinated approach in government. The Treasury, Energy department etc must ask “where does manufacturing fit within our own department?””.

Manufacturers have been calling for a tax system that better supports the investment needs of business for years. EEF’s manifesto asks that capital allowances are amended to reflect the true cost of modern machinery, which means increasing the allowances particularly for purchases in the higher cost bands. The Conservatives have side-stepped calls from industry leaders and EEF board members like Andrew Churchill to increase capital allowances, favouring a flat reduction of corporation tax to 28%. Such a tax change does not encourage investment or growth, which both the Labour Party and Conservatives are keen to be seen encouraging.

Unsurprisingly, the manifesto’s skills pledge focuses on prioritising STEM education, including the engineering diploma and apprenticeships. It also asks to ‘de-clutter’ the number of organisations involved in planning and funding for training, and focusing on a sector-led – rather than regional – approach. Peter Duncan, managing director of Cressall, Leicester-based makers of power resistors to clients such as the National Grid, Scottish Hydro, says the government needs to look at what a basic education is providing business. “We take on about three people per year in manufacturing. We expect to do all the specialist engineering training ourselves, and don’t need help with that, but we also find we have to help some trainees with basic maths and English. This needs to change.”

The manifesto claims the UK’s finance and skills systems have failed to adapt to the demands of modern manufacturing and calls for a single source of finance to support ambitious, growing companies. An ‘industrial bank’ has been advocated by EEF and the Manufacturing Technologies Association (MTA) in recent years – it remains to be seen if the idea gets the support of any major political party at a time when the role of the banking system is, for some, in need of review. “Once upon a time banks focused on real transactions between borrower and lender.
Now they seem more concerned with trading products and leveraging up,” said Mr Duncan. An industrial bank offering low interest rates fixed for three or more years would be a welcome option for many companies.

Energy and infrastructure is a key pillar of the document, which calls to urgently diversify the UK’s energy mix through both new nuclear development and infrastructure investment. This includes securing energy supplies such as building gas storage facilities. “All businesses would benefit from more stable energy prices,” says Astrum’s Phil Kite, a chartered accountant and EEF’s regional chair in the North East. “It makes a difference if I can put in place a three year plan for energy costs. At the moment we forward purchase a lot of energy and with such volatility, you ask is it best to buy in the summer of winter. It’s gambling.”

Ian Plunkett, Manufacturing Partner at BDO LLP, agrees that the energy sector is of high importance. “We have a once in a generation opportunity to create a new industrial base in this country not seen since we built ships, made steel and mined coal in more quantities that most other industrialised nations. It may look a little different than back then, but it has the potential to be as significant. Government does have a major role, in creating a de-politicised planning system…The incoming government, of whatever persuasion, should consider setting milestone targets for UK industrial development, and specify the fiscal, skills and (de) regulatory blueprint for getting us there.”

The document says the decision making powers of the Infrastructure Planning Commission should be maintained to speed up and depoliticise crucial decisions. And support for renewable technologies should be targeted only at the most cost-effective types, with support for feed-in tariffs as a means to assess developing renewable. “EEF is absolutely right that government has to remember the infrastructure that supports manufacturing, and being consistent with e.g. funding projects, is important,” says Cressall’s Duncan. Waste infrastructure must be improved, says EEF, to increase resource efficiency. Evidence of this exists in the growing numbers of waste incinerators plugged into National Grid, such as the new one at Tilbury, London.

The manifesto advocates better, more focused business support by, for example, providing guidance and brokerage through Business Link to all SMEs, and helping companies raise productivity with tailored interventions through the Manufacturing Advisory Service. It also says the next government must change the way it regulates to make sure regulation supports, not obfuscates, growth. Here it suggests introducing regulatory budgets to limit the amount of new and existing regulations, and be an early and proactive participant in the EU legislative process, among other points.

In one or two places, the document refers to the need to focus on areas where there is growth potential, where the UK shows promise and names low carbon vehicles, aerospace and defence and healthcare among others. “I support focusing on areas of potential, but we can’t just jump on somebody else’s bandwagon in a big, established global market,” says Phil Kite. “Let’s look for areas to make things where we can develop real specialism, a number one position. Low carbon vehicles could be one.”

Business Minister Pat McFadden says the values in the paper resonate with the current government’s. “The EEF is absolutely right that we need to focus on investment and growth in the UK economy,” he said. “This is precisely why Labour is going for growth by investing in the key sectors to enable UK manufacturing to remain competitive.

He maintained that the same cannot be said of the opposition. “At a time when we need businesses to invest, (the Conservative party is) intent on scrapping capital allowances which would cripple the chances of advanced manufacturing developing here in Britain,” he added. “No wonder the EEF have said that this move would be “a disaster” and today warned this would mean businesses having “to think twice about investing in the UK”.”

Kite, whose company makes special steel structures for armoured vehicles and construction machinery and turns over about £35m, adds the government should think strategically about the items in the manifesto if it wants to avoid more offshoring of production sites. He adds: “It’s a good idea that EEF is putting forward a manifesto now, in Manufacturing Week, and two or three months before an election. It’s “We Love Manufacturing” campaign has a wry truth to it, as we spend more time manufacturing than with our wives so I suppose we must love it.”

Will Stirling

EEF’s Manufacturing Manifesto can be accessed by clicking here