Manufacturers react to the Spending Review

Posted on 21 Oct 2010 by The Manufacturer

Manufacturers and support organisations react to yesterday's Comprehensive Spending Review

Andrew Churchill, managing director of precision components manufacturer JJ Churchill Engineering:

“It was quite an adroit statement. The cuts weren’t quite as bad as some of us were expected, but I am cynical enough to suggest that it was deliberately built up to be something worse than it turned out to be.
There were some quite clever positive announcements, from the pensioners’ perspective, for example, but also for manufacturers – the education budget has been protected.

“What is clear is that the private sector is going to have to play a much more prominent role going forward. What is less clear at this stage is how that is going to happen. There’s a lot more still to come there, particularly on skills funding. There’s a lot going into apprenticeships and higher level skills and I definitely applaud that. It is very important. if we can catch Germany in terms of how they view vocational training and how it is weighted down, we as a country need to put a lot more into it. Also positive was the measures towards the green economy because there is an industry waiting to get out.

“What is still not clear to me – and this going to have to come out of the manufacturing framework strategy that is due out this side of Christmas – is how industry is going to be delivering the increased growth which manufacturing is expected to provide in our newly balanced economy. How this combines with the CSR and the defence spending review, once the true implications of those are known, to deliver that increased proportion of GDP – I am still not clear on that. There’s a lot of vison lacking.

“Whatever aspect government interacts with us on, whether that be taxation, investment, education, innovation or anything else, we’re looking for a level of stability. Our industry, unlike the service industry or banking or retail is a long term game, it takes a long term to get the payback on the high capital intensive investments we make. So planning against certainty and stability is very important. Understanding which programmes and policies are going to receive support is key.

Juergen Maier, managing director, Siemens Industry UK:

“Siemens is encouraged by the chancellor’s focus on investment in the low carbon economy through the allocation of £200 million for high growth sectors, providing a boost to the offshore wind industry. Nevertheless, we still have a number of concerns about how the private sector and the wider manufacturing and engineering industries in particular will plug the gaps. There is still far too little support for the important areas of manufacturing, R&D and skills in the Coalition’s financial and strategic plans. We need for example to be thinking about how we can reskill many of the 500,000 public sector workers likely to loose their jobs to take up jobs in the engineering sector.

“The plans announced for adult apprenticeships are encouraging but these measures alone will not be sufficient. In addition, availability of finance remains vital for the ongoing recovery but finance for manufacturing investments still remains difficult to obtain. The current level of finance for the Green Investment bank will not be sufficient.

“We noticed with interest the end to “revenue recycling” within the CRC Energy Efficiency Scheme which applies to about 5,000 heavy users of energy. At the moment, those who cut their carbon use receive net payments out of the programme paid for by those who are penalised for their heavy use. This is now going to end which means that the urgency to reduce energy consumption will become even more intense – which could be a good thing but only if these changes are properly communicated to industry.”

Phil Kite, managing director of defence manufacturer Astrum, on the Defence and Security Spending Review:

“I remain concerned that too much focus has been on cost-cutting rather than strategy. We need to ensure we plan for the future, not just for today and this means keeping a range of military capabilities. The army will always play a major role in the future and we need to ensure they are properly resourced.”

Martin Wood, managing director Kostal UK, supplier of switches and actuators to automotive OEMs:

The size of the cuts targeted at the public sector could have a slow down effect on the UK car market which would affect our business. I must say however that this is likely to be small, as the vast majority of our products find their way into vehicles in export markets. A personal view is that higher taxation should have been considered in particular with spending reductions to soften the blow somewhat. I await with interest on the proactive policies to stimulate the growth which is essential if yesterday’s spending review is to be successful!

Tom Lawton, head of manufacturing, business advisors and tax consultants BDO LLP

The manufacturing sector benefited more than most by yesterday’s announcements: the protection for the science budget is excellent news for hi-tech manufacturers, the £1bn commitment to carbon-capture projects and a further £200m for offshore wind energy and ports is a boost for cleantech industries and the extra £250m a year ringfenced for apprenticeships will help to encourage workers to the sector.

However, the review largely contains disjointed, tactical measures to help tide the sector over in the short- to medium-term. There is a distinct absence of measures outlined to help ensure future growth and create an export-led recovery as a whole. Further clarity is urgently needed on the Government’s strategy for growth, with particular attention paid to how it plans to work with the private sector to leverage investment. Further announcements due over the next few weeks will now be of critical importance.

Julie Hughes, finance director, Dawson Precision Components:

The Comprehensive Spending Review was inevitably going to be tough for everyone, but there are some positives for UK manufacturing.

With less money in the public sector, this will inevitably affect its suppliers in the private sector, from the people who make aircraft to the people who make the screws that hold aircraft together. Whilst budgets will be tighter for everyone, projects are still out there for those with the right capabilities. The key is going to be in the quality that companies can provide. We can’t compete with cheaper countries on cost, but we can compete on quality and ingenuity and there are plenty of companies out there who still have live projects, who need high quality manufacturing and high quality materials which can be done by UK Companies.

The second point, particularly for smaller businesses, is being able to offer a broad service. If skills are transferable, companies need to look at what else they can offer. If money is dropping out of defence, companies can transfer their capabilities to private aerospace or further afield to areas where there is expected growth, such as low carbon technology and green energy.

For those with exciting profitable ideas this is a real opportunity to develop them. As money is drained from the public sector, there will be an increasing expectation on the private sector to spot opportunities, develop profitable new products and recruit people into their industry. For those with the ideas and the drive to do this, there is a real chance to help lead the country back to financial stability.


Chief executive Maria McCaffery MBE:

“Retaining the ports fund will give the industry a huge boost and establish the UK as a major force in renewable energy manufacturing. Signals from Government are positive that the £60 million will be retained as part of the ‘£200 million for the development of low carbon technologies including offshore wind technology and manufacturing at ports sites’ in part 1.4 of the Spending Review.”

Director of policy, Gordon Edge:

“The announcement of the Green Investment Bank is an important signal of the Government’s commitment to developing a low-carbon economy. However, it’s important to recognise that at the proposed level of capitalisation the GIB will not have sufficient funding to support the hundreds of billions of pounds of investment necessary to construct the energy infrastructure the UK will require over the next two decades. It’s crucial that a stable policy framework is put in place to secure that investment from the private sector.”

Graham Payne, managing director of Darchem Engineering:

Darchem Engineering manufactures both defence and nuclear industry products, including air intake and exhaust systems and folding fire barrier doors for the aircraft carriers. It has orders for the carrier programme (where both ships have been retained) worth about £11m.
“We’re delighted,” says managing director Graham Payne.

“We supply products to both carriers. The business employs about 20 people in design, engineering and quality – the news that both carriers are retained is a big win. The total contract for both projects will probably last us until about 2014. Work can now start in earnest on Boat 2.”

Rumours rose in the run up to the Spending Review that the second carrier would be shelved. “The biggest threat was taking away what we currently had. Then looking ahead, taking away what we thought we might have got from the programme. In both cases it enables us to retain what is termed our [industry’s] sovereign capability and equally we’re trying to leverage those skills into new markets like the nuclear market in the future.”

Payne adds there is strong transferability of fabrication skills between the naval and nuclear industry, so at the end of the carrier project new nuclear work can take over. Darchem is already bidding on build contracts at two nuclear power stations in

“On retention of manufacturing capability, the bigger issue for me is more about drumbeat manufacture through the defence side, rather than a more lumpy pattern of one aircraft carrier followed by a 15 year gap then a frigate. It’s better for maintaining skills to make two aircraft carriers last 10-15 years and build a frigate after that.”

Graeme Allinson, head of manufacturing, transport and logistics, Barclays Corporate:

“With 490,000 public sector job cuts over four years there will now be huge pressure on the private sector to absorb these job losses, with manufacturing certainlyexpected to play its part. A significant pick up in manufacturing investment would be a clear indicator of private sector job creation, but one we have by and large not yet witnessed.

“Some large scale infrastructure and defence cuts have now been confirmed, which is set to impact various manufacturing businesses within the supply chain, but on the positive side there has also been a clear commitment to several major infrastructure projects such as Crossrail and widening of the M25, which will give some comfort to the sector.”

Stephen Reeson, head of climate change & energy policy at FDF:

“In terms of the impact this CSR will have on food businesses, there’s still a great deal of detail to be ironed out. However, we do have areas of concern around changes at DECC (Department for Energy and Climate Change), one definitely being the decision not to recycle revenues for the Carbon Reduction Commitment (CRC).

This is a disappointing move by government and is very significant for businesses impacted by the scheme. Given the size of the sum of money involved it is surprising that it was not mentioned in more detail in the Chancellor’s speech. This decision essentially turns the CRC into a stealth carbon tax, which is a complete turnaround for the government who had intended the scheme as a cash-back incentive to encourage businesses to go green. How this decision ties in with planned Climate Change Levy (CCL) reform is not at all clear at present, nor what the ongoing implications for Climate Change Agreements will be.”

EEF, the manufacturers’ organisation

Chief executive, Terry Scuoler:

“There will be some relief for manufacturers that the cuts were not as bad as feared with some positive announcements in the protection of the science and education budgets and support for low carbon technologies. The private sector will have to play a much bigger role in the future of the economy. Today’s statement showed The Chancellor understands the areas on which to focus, we now need the detail of how we are going to get there.

“However, for companies the suspense is not yet over and they need clarity on the government’s strategy for growth and, in particular how it will work with the private sector to leverage investment. Industry has already started to increase its investment but this will only be sustained if the government sets out a clear framework for the longer-term. Further announcements in the next few weeks now assume a critical importance.”

On Skills funding, Chief Economist, Lee Hopley:

“The coalition made a good start by building on its earlier announcement to reprioritise a proportion of the skills budget towards apprenticeships and high level skills training. But, as with many areas of government spending, this needs to be matched with reform to deliver a responsive skills system that is built to last.”

On Lord Hutton’s report, EEF Director of Policy, Steve Radley:

“EEF welcomes the Government’s positive response to Lord Hutton’s report, which set out some important principles and initial steps to reforming public sector pensions and make them more affordable. It is important that public sector pensions do not get in the way of employees moving between the public and private sector.”

On support for Low Carbon Technology investment, EEF Director of Policy, Steve Radley:

“Industry will welcome critical government investments in port infrastructure and carbon capture and storage that will enable the development of low carbon industries in the UK. However, the current level of funding for the Green Investment Bank will not deliver the private investment necessary and we still need greater clarity on the Bank’s remit.”

On the Regional Growth Fund, EEF Director of Policy, Steve Radley:

“The extra money for the Regional Growth Fund will also be critical in funding important investments in our infrastructure but Industry will need clear guidelines as to how it will operate and how funds will be accessed.”

David Raistrick, UK manufacturing leader at Deloitte:

“The manufacturing sector has not been hit as hard as anticipated with some sensible measures introduced for the industry. It is pleasing to see that the Government recognises that in making public sector cuts they need to grow the private sector, which manufacturing plays a major part in. The real issue will be in ensuring support is properly focused to achieve maximum benefit for the economy as a whole.

“For UK industry the announcement of additional funding to support manufacturing and business development is a welcome measure of support. The UK’s manufacturing future lies in the high technology areas and it is right that the Government has focused on this.

“The fact that science and education budgets have not been slashed is positive for the manufacturing industry, as is the support for low carbon technologies.”

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