Terry Scuoler, chief executive of EEF pinpoints the underlying flaws which could still nobble industry in the UK’s improving rebalancing act.
In September 2012, EEF published The Route to Growth – An Industrial Strategy for a Better Balanced Economy.
This report called on government to develop an industrial strategy that would get every department behind the measures that could develop a stronger and better balanced UK economy. A year later we published our assessment of the progress that government has made.
And, perhaps astoundingly to sceptics, progress has been made.
The economic news has certainly been better in recent months and from last year’s Autumn Statement through to the Budget and up to this year’s Spending Review, we can trace step-ups in the pace of government action to support investment, exports and economic growth.
So is it a case of job done or job at least half way done?
A closer look at the growth figures and EEF’s Four Growth Ambitions suggests not. There is still a long way to go to create a sustainable, balanced growth profile which will bring improvements in employment levels and living standards.
Although the government has done a lot to encourage investment in new equipment, skills and new products and services, it has still not done enough to spell out its economic priorities and ensure that every part of its machinery is getting behind delivering them.
There are four reasons why this is critical.
Firstly, though our economy looks a bit stronger, it still faces significant risks. These range from the deep-rooted problems with which many eurozone economies are grappling, the growing headwinds buffeting some emerging economies and closer to home the danger that any improvement in credit conditions won’t be sufficient to ensure that stronger investment intentions get over the starting line.
Secondly, for too long, we have relied on consumer spending and public spending to drive growth. Turning this round is not easy. In the last three years, business investment has contributed an annual average of just 0.06 percentage points. Despite a favourable exchange rate, our closest competitors – France, Italy and Spain- have all seen trade make a stronger contribution to growth.
Thirdly, on all four of EEF’’s growth ambitions, we can point to government action to help achieve them. But in only one are are we on track to actually achieve.
With regards to innovation and getting more companies to bring new products and services to market we have seen a consistent focus from government. There has been cross-party agreement on what needs to be done and stability of policy to gives it a chance to work.
But our other growth ambitions – more globally focused companies expanding in the UK, a lower cost of doing business and a more productive and flexible labour force – have been undermined either by other measures that have pulled in opposite directions or which have simply not received enough support.
Finally, rebalancing is difficult and requires focus. The general election is getting closer politics will inevitably get even more complex. But remaining focused on rebalancing is vital to nurturing business confidence and providing a foundation for lasting economic growth, productivity and better living standards.