The great rebalancing act to restore British manufacturing back to its former glory is failing, with stakeholders on all sides calling for an interventionist government. Tom Moore blogs.
“We have a reminder today that Britain faces a very difficult economic situation. We face problems at home.”
That was the ominous response from the Chancellor George Osborne after figures from the Office for National Statistics (ONS) showed that the economy has shrunk… again.
But why? What are the problems we face at home while he dines in Davos with Prime Minister David Cameron and London Mayor Boris Johnson?
With the ONS reporting a 0.3% slide in the UK economy during the last three months of 2012, the largest contribution to that decrease came from the manufacturing sector, which contracted by 1.5%.
“Manufacturing weakness in Q4 was widespread with the majority of industries showing a decline in comparison with 2012 Q3,” said an economist at the ONS.
Shadow Business Secretary Chuka Umunna told his 44,000 Twitter followers that “Despite the poor performance of the pound, manufacturing is still struggling – again, worrying as we seek to diversify the economy.”
From David Cameron to Michael Fallon in the Department for Business, Innovation and Skills, almost every ministerial speech on the economy mentions ‘rebalancing the economy.’
Deterioration
Actually, the opposite seems to be taking place. Manufacturing fell by 1.5% in the final three months of 2012 while the services sector was largely flat and construction made a small rebound.
This is not a one-off. In the 10 quarters since the 2010 election the economy has grown by 1% but manufacturing is down 0.4% despite a raft of government initiatives designed to stimulate growth. Politicians are asking for patience but companies continue go bust. Accountancy firm PwC reports that there have been over 4,000 manufacturing insolvencies since the summer of 2010.
David Cameron has said that rebalancing the UK economy is ‘slow and difficult,’ but the continuing decline suggests that the rot needs stopping and quick.
He has a point. As those in industry know, these funds and grants take longer to take effect than in other sectors. Investments are long-term but the political pressure is on and it could curtail the great rebalancing act.
Iain Wright, Labour MP for Hartlepool and Shadow Minister for Competitiveness and Enterprise, said that today’s figures “make a mockery of the Government’s claim it is helping the march of the makers,” and urged a “strong and active Government on the side of UK manufacturing.”
The UK’s automotive industry is the only manufacturing sector experiencing sustained growth. Why is it the only one?
Building blocks for growth
It has a strong relationship with the Government and Business Minister Vince Cable sits on the board of the UK Automotive Council, a body that has silently transformed the sector since its establishment in December 2009.
The UK Automotive Council covers all the bases for growth. It includes a bank (RBS), the UK’s largest workers union (Unite), influential members of the Government and CEOs from all of the leading companies operating and supplying Britain’s vehicle makers, from the chief executive at GKN Automotive to the CEO of Jaguar Land Rover.
This creates one voice for the whole sector on credit, skills and government support. It shows industry how to leverage these core business mechanisms.
It is a top-down approach to get big manufacturers growing, with grants from the Regional Growth Fund (RGF) successfully won by Lotus, JLR, Bentley Motor Cars and Honda.
Despite this, even small companies in the automotive sector feel that opportunities are being missed, calling for further intervention from the Government and better use of existing funds.
“The Government has to guide investment and make business development projects easy, rapid and helpful so that small companies such as mine can grow,” says Tony Sartorius, managing director of metals company Alucast. “Even RGF funding is sometimes stalled because of bureaucracy.”
Rowan Crozier of Brandauer, a 150 year-old manufacturer of metals components, says that “Government business support needs to be more accessible to allow small companies win business against worldwide companies.”
At a high level, bodies such as UK Automotive Council can guide the sector for the benefit of all and ensure Government funds are funnelled into the right areas to stimulate growth.
Similar councils would boost business so that the Government doesn’t chuck its money away if it takes a Keynesian approach to boost the flagging economy.
However, in-fighting, lack of collaboration at the top and poor communication between manufacturing and Government has hindered other sectors from creating such councils. The chemicals sector which directly employs 214,000 people creating £60 billion worth of wealth, 70% of which come from exports, is well down on the UK government’s list of priorities and does not have a council.
The automotive sector is glamorous, making sexy products that the public sees and uses every day. It is a political goal scorer in the vein of Robin van Persie so the Government was willing to back it.
Making bucks bang
Keynesian economics is in demand from companies of all sizes, Juergen Maier, managing director of Siemens Industry UK and Ireland, hoping that the Government and industry perseveres with “a more activist Industrial Strategy and increases capital spend on infrastructure as well as investing in science and technology and skills”.
To get the economy fit the Government has to get active and companies team up to win the global race.
Politicians are for turning. Even Deputy Prime Minister Nick Clegg has become anti-austerity.
