Back to Scuoler – Manufacturers need a clear plan for growth

EEF chief executive, Terry Scuoler says manufacturers still need a clear plan for growth from government but are not idling away the waiting time.

Terry Scuoler, EEF Chief Executive

As we pursue economic recovery rebalancing has become a watch word. Politicians increasingly talk about this end, and the Chancellor has expressed a vision for a new economic model which will expand exports to £1trillion per year by 2020.

Rebalancing means different things but, a key element is raising the contribution to growth that comes from investment, innovation and trade. Manufacturing can’t drive this growth solely but recent evidence suggests it has a major role to play. Since 2009, manufacturing has contributed around a quarter of growth, investment has grown faster than in any previous recovery and exports to emerging economies have expanded by almost 200% over the past five years.

But, the question remains as to what government can do to sustain progress. There are three key challenges – cost, capacity and convincing manufacturers that Britain is the right place to invest.

Labour costs remain important, but the trickle of manufacturing companies bringing activity back from low cost countries such as China is increasing. For some, anticipated advantages in these low cost economies have not been discovered. In the mean time energy costs are becoming increasingly important, so it is critical Government convinces manufacturers that they are committed to delivering competitive energy prices in the UK.

Capacity is also key with manufacturers increasingly reporting that suppliers are struggling to keep up with demand. In the longer term, we risk manufacturers committing their next major investment overseas where supply chains are stronger.

We therefore need to support smaller manufacturers in building their capacity by ensuring they have access to finance on the right terms, ensuring it is straightforward to invest in the skills they need, and that they are not held back by complex and burdensome regulation. Government has started to address these issues but there is still much to do.

Government also needs to do more to convince manufacturers that Britain is a good place in which to invest and grow their businesses. Again, increasing the rate of the R&D tax credit for smaller firms and looking to provide more cost relief for larger companies are good starts. Our tax treatment however, of capital investment remains out of line with competitors who are able to write off their investment against tax more quickly. Commitments to speed up the planning system also need to be fulfilled.

To convince manufacturers that Britain is still the right place to invest, the government needs to put the same focus on creating the right environment for growth, and on communicating the progress it is making, as it does on efforts to reduce the fiscal deficit. A clear and measurable growth plan is still awaited.