Collaboration is key to revitalising a modern ‘Industrial Strategy’

Carolyn Fairbairn, Director General, CBI
Carolyn Fairbairn, director-general, CBI.

CBI director-general, Carolyn Fairbairn is expected to state today that government and business must collaborate to revitalise a modern industrial strategy, as UK manufacturing matters for prosperity and makes our economy more balanced, diversified and innovative.

To succeed in reversing the long term decline of the sector, Fairbairn is expected to call on the Government to give its full backing to a modern ‘industrial strategy’.

She will call business to work in partnership with the Government to embrace long term opportunities and trends, particularly in digital; as well as emphasise the need to focus on developing the right skills in the sector, managing energy costs, and encouraging more R&D investment.

Tata Port Talbot works blast furnace.
Fairbairn will contrast the steel industry’s high-profile difficulties with the automotive sector’s record productivity, production and sales.

Speaking to manufacturing firms at University of Warwick, the director-general will outline the importance of the sector to supporting higher-skilled jobs outside London and to diversifying the UK’s economy to make it more resilient to economic shocks.

However, she will describe UK manufacturing as a ‘tale of two sectors’, outlining the contrast between the steel industry’s high-profile difficulties with the automotive sector’s record productivity, production and sales.

What an Industrial Strategy should look like:

“Every manufacturing sector should have a plan for its future and many already do – we would suggest that each plan addresses these three questions.

“First, is the sector strategic for the UK? Second, is the sector currently globally competitive, and if not why not? Does the UK have a competitive advantage? Third, what actions could government and business take to make it more competitive?

“Solutions may be about enhancing competition to encourage new disruptors to enter, further actions on skills, getting the right infrastructure in place, targeted R&D or support with digital transformation.

The Rolls-Royce Trent 900 powers the Airbus A380 (image courtesy of Rolls-Royce).
Rolls Royce’s ‘power by the hour’ engine service offers engine management and maintenance, at a fixed price per hour of flying.

“Of course, because government funding is scarce, all proposals need ruthless prioritisation based on their impact on UK prosperity. That’s the world we live in. And the solutions at the end of the day may well be cross-industry.

“But the building blocks are sector strategies – modern industrial strategies.”

Manufacturing is evolving and the digital challenge:

“Manufacturing is evolving. First is the increasing tendency for manufacturers to develop and sell services. Rolls Royce’s ‘power by the hour’ engine service, for example, offers engine management and maintenance, at a fixed price per hour of flying.

“And in today’s knowledge economy – the line between ‘manufacturing’ and ‘services’ is blurring even further. In the years to come, as digital technologies increasingly define what we make and do, I think we’ll see more creative and technology companies doing things which could be classed as ‘manufacturing’.

“But on digital, less than half of manufacturers agreed that adopting digital technologies would boost job creation. Without vision, British firms risk being behind in the digital revolution.”

Three factors, in particular, holding manufacturing back:

Skills

“Skills can be linked to an outdated perception of what a career in manufacturing is like. I recently asked CEOs from across our manufacturing sector what worries them most about the future of UK manufacturing. It was this problem they raised first – our ability to enthuse and train the next generation.

“When you say ‘manufacturing’ to people today – most people still think of hard labour and oil-stained clothes, not fighter jets, driverless cars or 3D printing.

“We need to offer young people a true picture of 21st Century manufacturing. But we also need to address the chronic shortage of physics teachers. This is holding back an entire generation of STEM skills which manufacturing depends on.”

Energy

“For our largest users, electricity prices are still about 80% higher than the European average – double the cost of the USA. This has caused real headaches for our foundation industries.

“Last year, the CBI proposed that foundation industries receive appropriate support for the costs of energy and policies that are making them uncompetitive globally.

“We achieved this. But in the longer term, we need a clear plan from government to help develop new energy sources while keeping industry’s costs under control.”

R&D

“In 2014, the Government’s contribution to the UK’s total R&D spend was the lowest of the G7 economies – just 0.49% of GDP. In 2013/14 Innovate UK’s budget was just 0.03% of GDP.  Is that really the best we can do? Numbers so small they round down to zero?  This investment matters.

“Our Catapult network – including the High Value Manufacturing Catapult at Warwick Manufacturing Group – is funded one third by government, one third by universities and one third by business. We’ve already seen how the Catapults have helped firms make the leap from ideas to invoices.

“And raising Government investment will help achieve our long term target of a combined government-business R&D spend of 3% by 2020.”

Government must commit to an Industrial Strategy:

“The automotive industry provides the evidence that a clear, collaborative approach works. The industry came together, identified barriers holding back its productivity and put its top three proposals to Government.

“Government acted and deserves great credit for doing so. And the results have been astounding. Productivity in this sector is now twice the national average. Last year, UK new car sales hit a 10-year high.

Jaguar Land Rover JLR
Jaguar Land Rover saw its production rise by 9% in 2015.

“Jaguar Land Rover – a real presence here in the West Midlands – saw its production rise by 9%. It just goes to show that where there is a clear and proven case of market failure – government intervention is both legitimate and crucially important. It sends a signal to global investors that the UK is committed for the long term.

“This Government has shown welcome commitment to lifting productivity and protected R&D spending on aerospace, aviation and automotive in the Autumn Spending round. But what about other manufacturing sectors?

“Industrial strategy needs to be by sector because that is how the world thinks and acts. And that is how our competitors are thinking and acting. It’s about co-funding from government and business in a partnership of equals.

“The economic rationale is sound. Markets are not perfect – they fail in known and identified ways, particularly in the areas of skills, infrastructure and R&D investment.

“Modern Industrial Strategy isn’t about ‘handouts’ for business. It’s an investment in our future competitiveness which will pay dividends in sales, exports, jobs and livelihoods.

“Let’s help other sectors to do what we’ve already seen in automotive and aerospace. Let’s scale-up this approach. And deliver long term results by 2030.

“The Business Secretary’s talked about an “open door” policy on government and industry working together. I’m sure firms – including our great manufacturers – will be queuing round the block.”