Terry Scuoler CBE has been a leading light in British manufacturing for decades. Following long and successful stints at BAE Systems and Ferranti Technologies, he was Chief Executive of EEF from 2010 until last year, and is currently Chairman of the Institute of Export & International Trade.
Since the start of 2018, Scuoler has also been working with Santander as Manufacturing Sector Policy Advisor. He spoke recently with Paul Brooks, Santander’s UK Head of Manufacturing, about the opportunities and challenges British manufacturers face, and how businesses should prepare for the UK’s departure from the European Union.
Paul Brooks: In August, EEF reported that the size of Britain’s manufacturing industry had fallen from eighth to ninth place globally, behind France. What is your reaction to those figures?
Terry Scuoler: I’m in no way complacent about the current state of UK manufacturing, but those figures do not really trouble me. They are based on 2016 statistics and are calculated using the US dollar. Over the years, the UK has been above or below France and Italy in the league table depending on the exchange rates.
A more pressing concern and measure is how the UK is performing on absolute measures of growth in output, percentage share of GDP and export performance. I am pleased to report that on these measures, the UK continues to perform well.
What do you see as the key challenges and opportunities that UK manufacturers face at the moment?
If we look at the ongoing challenges of investment, productivity and overall competitiveness, the picture continues to be encouraging.
The dire economic predictions that were made when Article 50 was triggered in March 2017 have thankfully not materialised. On the contrary, UK manufacturing enjoyed a very positive second half of 2017 and the PMI (Purchasing Managers’ Index) remains very positive, although it dipped slightly in August.
We are, however, experiencing a more subdued 2018 and I am particularly concerned at the apparent drop-off in investment intentions. It is difficult to avoid the conclusion that Brexit uncertainty is causing businesses to adopt a wait-and-see policy.
I think this is the case with larger companies, which have a wider range of investment options. We are still, however, looking at a 2% growth in manufacturing output this year, which is respectable to say the least.
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You mentioned productivity and competitiveness, two issues that have always been high on the agenda for the industry. Where does the UK stand currently and how can we move forward?
Unfortunately, we still seem to be debating the productivity conundrum rather than solving it. I do struggle with the view that the French do in four days, what we Brits do in five, and the UK manufacturing sector compares well internationally with competitor nations.
Denial can be dangerous and as a nation and sector we do have challenges to overcome.
A key issue is the need to increase investment in R&D and capital equipment – at 1.7% of GDP, the statistics I’m afraid speak for themselves.
Other challenges include the need to upscale. We do not yet have enough global multi-billion-pound companies – and their respective supply chains – to fully deliver the growth we need.
Other challenges include the need to further invest and embed training and upskilling at all career stages. We need to improve the performance of British management and reduce the number of under-performing businesses in the UK.
In August, International Trade Secretary Liam Fox launched the government’s Export Strategy. How do you see this helping manufacturers?
Business leaders strongly welcomed the government’s Export Strategy. It is the output of months of consultation with the industry that focuses on supporting SMEs on their first and subsequent export journeys.
It has set a realistic target of increasing UK exports from 30% to 35% of GDP, which translates into an increase of £100bn, sensibly with no specific timeframe attached.
It is also pleasing to note that the financial support available to exporters through UK Export Finance (UKEF) will be increased, providing access to £50bn of capital. The Secretary of State’s commitment that no viable export opportunity will go unfunded is welcome and I hope stands up to scrutiny. Time will tell.
What is your best guess as to the likely outcome of the Brexit negotiations?
Nothing has happened in recent months to cause me to change my view that some form of deal will be done with the EU. I doubt that any deal will fully replicate the free market for goods and services that we currently enjoy.
It is in the interest of the EU to ensure a reasonably free flow of goods, but I am sceptical about the prospects for a deal for the service sector, which is such a vital part of the UK economy. Some compromise needs to be found to protect our vital financial services sector.
We may end up with some form of Canada-EU type agreement, with an extension to the transition period. This enables the implementation of a digital monitoring system to manage the issue of the Northern Ireland border with the Republic. With goodwill, I believe that can be achieved.
It is also clear that the October deadline for an agreement will not be met, negotiations will continue almost until the EU Council meeting in December.
What should British manufacturers be planning for?
It is important that we do not let a sense of panic set in; that would only strengthen the hand of the EU negotiators. Manufacturers can take sensible precautions. These could include increasing stocks of critical EU-sourced sub-assemblies and components, or identifying alternative sources of supply.
Another precaution could be to strengthen export/import administration resources to cope with additional paperwork – handling documentation surrounding items such as customs clearance.
In extreme circumstances, companies may have to consider relocating part of their manufacturing to EU countries, but I do not wish to see this happen and as I say, I am confident of a deal being done.
What are the opportunities for British manufacturers?
They have never been greater. The global economy and world trade continue to grow strongly and 90% of that growth is coming from non-continental Europe.
The challenges of managing our environment and energy resources, an ageing population, combating disease and the digital revolution will continue. Great Britain and its companies will be at the forefront of providing the solutions, with strong public and private leadership.
It is interesting to note that on the Prime Minister’s recent trip to South Africa, Nigeria and Kenya, she sought to link the UK’s rightly generous development aid to trade. She signed a trade deal with South Africa, and let us hope there are many more in the pipeline.