EEF insight: Yes Minister

Posted on 7 May 2013 by The Manufacturer

Tom Lawton, head of manufacturing at accountancy firm BDO, with which EEF conducts a quarterly Manufacturing Outlook survey, defines the necessary cornerstones of Britain’s elusive industrial strategy and calls for the appointment of a Minister for Manufacturing.

Tom Lawton, head of manufacturing at accountancy firm BDO
Tom Lawton, head of manufacturing at accountancy firm BDO

From a global perspective the future for manufacturing looks extremely positive. The growth of China, India and other developing economies continues to create huge numbers of new consumers demanding more manufactured goods.

Opportunities in these rapid growth economies should more than compensate for weaker markets closer to home. Furthermore, while competition for market share in rising international markets is, and will become more fierce, UK manufacturing holds a highly regarded global reputation for its quality, innovation, service and legacy history which should offer competitive edge.

Defying past failures

The decline of UK manufacturing has been significant. In 1980 the UK was the fourth largest manufacturing nation in terms of share of global value added. We since dropped to ninth place in 2010 and will likely slide further in the short term as a chasing pack of developing economies use manufacturing as their key driver for economic growth.

In developed countries such as the UK, it is to be expected that manufacturing’s share of GDP and employment will decline over time, as the growing wealth of the country switches demand from goods towards services. But this does not mean that manufacturing isn’t an integral part of the economy or that its continued decline as a proportion of GDP is inevitable or, indeed, irreversible.

The decline of manufacturing in the UK has, however, been more pronounced than in most other established manufacturing economies. Perhaps the single greatest factor in this has been the failure of successive governments’ to recognise the importance of the manufacturing sector’s contribution to the UK economy. Its historical ‘hands off’, market driven approach means that today the UK is not playing on a level playing field with economies which identified the importance of the sector early on and established cultures of structured intervention and support to protect competitiveness in innovation, research, design and productivity.

Creating a long term sustainable framework

Establishing an industrial policy in a developed economy within a rapidly changing global environment is a complex task. But to stall ongoing decline in the UK’s industrial economy, more radical and robust long term ideas need to be implemented and quickly.

The cornerstones for any policy or framework from government need to include:

  1. Development of clear and sustainable objectives for UK manufacturing aligned to current strengths and opportunities for growth. Britain is not a low cost manufacturing location. It must grow and compete in the global market based on its key strengths of design, innovation, service and productivity.
  2. Establishment of policies that will help support the factors above over the long term. For example, UK investment in automation has been weak compared to most of our global competitors. This damages the sector’s productivity and innovation. Tax policies that really support significant capital investment would give a clear signal to the sector.
  3. Setting targets that measure and help rapid response to the factors in both of the above. The most powerful might be share of GDP or share in value added over the next 5, 10 and 20 years. Manufacturing’s share of UK GDP is currently around 12% – would it be too ambitious for government to set a target of 15% by 2020? In the absence of hard targets, there can be no accountability for developing and implementing initiatives that work in the long-term. Many initiatives have recently been introduced to ‘help’ manufacturing but too many have simply not delivered.

Be bold

A decisive first step in establishing and gaining traction for a long-term, cross-party industrial policy with manufacturing at its core would be to appoint a Minister for Manufacturing, ideally as a Cabinet post. Such a move would give government industrial policy real edge and the ability to cut across various inter-government departments.