Steve Radley of the EEF on why state investment in engineering will ultimately aid the public purse
This month has brought better news — activity on the high street and in the housing market has picked up, and surveys of businesses and consumers point to increased confidence about the future. While we are not out of the woods, we can start looking planning ahead for the future with a bit more confidence.
More attention is therefore likely to turn to reducing the share of government borrowing from its potential peak of 12% of GDP. A stronger than expected recovery would help the government to make faster inroads into the deficit but this will not allow it to put off making difficult decisions on tax and spending. Nor would financial markets allow this. Given growing business concerns over the competitiveness of our tax regime, the bulk of the adjustment will need to fall on public spending. We could well be looking at a sustained reduction in the share of public spending as a share of the economy.
In many ways business would welcome this, particularly if it led to a renewed drive to improve public sector efficiency and action to tackle the disparity between public and private sector pension entitlements. At the same time though, it would raise questions over the future of a new industrial policy. Inevitably, budgets for investment in research and development, new technologies, higher education and skills will be under severe pressure. And the Government will find it more difficult to invest in our infrastructure, delaying much needed improvements and reducing the flow of orders to the private sector.
Does this mean that the desire for a more active approach to industrial policy is unlikely to survive much beyond the end of this year? We believe that such a pessimistic conclusion is far from inevitable. Indeed if the government can deliver on the promises in the New Industry New Jobs plan, it will actually help to make the public sector efficient and to reduce the scale of its borrowing. But this will not be easy and it will require a substantial change in the culture of government and in how it works with business.
The activism that business is seeking from government isn’t about spending large additional amounts of money. It’s about using it more intelligently and with greater transparency. A key part of this is making sure that the different arms of government work together more effectively. This is much easier to say than deliver but it is essential and one thing that would help would be to put an end to the frequent mergers and carve ups of different government departments. However, the progress that has been made with nuclear power shows what is possible. Different parts of government have come together to address issues such as planning, licensing, decommissioning and waste disposal and the Office for Nuclear Development has been set up to take forward concerns such as skills and supply chains.
Equally critical is the way that the government procures goods and services from the private sector. Businesses working in industries such as defence, security and the health service need much greater clarity about what the needs and the budget of government (often their major customer) are likely to be. This can help them to plan ahead and commit the investments needed to make the next generation of equipment. At the simplest level, smoothing the flow of orders would avoid the repeated episodes of feast and famine that killed off much of our railway equipment industry. Greater transparency would help to prevent cost overruns, to reduce costs and to deliver more innovative solutions.
Two recent issues illustrate how progress is being made in some areas but also how much more there is to be done. On the credit side, the Home Office’s new science and technology strategy for counter-terrorism set out a clear statement of the government’s needs and the technologies in which industry should be investing. This will give companies the confidence to invest in research and development and the stability to start planning sorties into export markets. On the debit side, the Gray report on defence procurement points to deep-rooted failings such as ‘sclerotic acquisition systems’ that contribute to major delays and expenditure running ahead of budget. Looking ahead Britain cannot afford to miss out on the business opportunities presented by the challenges of a fast changing society.
By Steve Radley, senior policy director, EEF, the manufacturers’ organisation