The key foundations for a balanced economy

Posted on 12 May 2016 by The Manufacturer

Tom Lawton, Business Assurance Partner and National Head of Manufacturing at BDO LLP, discusses how creating a manufacturing powerhouse is vital to driving a well-balanced economy for the UK.

In the 2011 Budget, the Chancellor George Osborne announced the ‘march of the makers’ and that manufacturing would have a key role to play in rebalancing the UK economy.

Tom Lawton, head of manufacturing, BDO LLP
Tom Lawton, Business Assurance Partner and National Head of Manufacturing, BDO LLP.

However, the reality has been very different. BDO’s own recent economic data shows that as of February 2016, manufacturing output was flat lining at 95, the point between growth and contraction, while services output was above the long term trend at 103.0.

In terms of optimism, manufacturing is at a low ebb of 90, well below the long-term trend of 100, and services optimism is slightly above the long-term trend at 101.7.

At BDO, we agree with the Chancellor’s overall aims for the UK economy, and believe that an essential question Osborne must get right is how can you create a ‘new economy’ that is sustainable, balanced and makes the most of the skills and talents of the UK population?

To create a truly sustainable ‘new economy’, we believe that the Chancellor must focus on three key areas:

  1. Make the most of the UK mid-market (firms with a revenue of between £10m and £300m that are overlooked and undervalued in the UK);
  1. Encourage exports and internationalisation of our firms – especially as our exports lag behind that of Germany;
  1. Fuel the growth of not just regional powerhouses, but also sector powerhouses like manufacturing and technology.

Our New Economy report suggests detailed policies under each of the three areas with a particular focus on helping manufacturing sector growth.

Manufacturing is a long-term game – most businesses in the sector rely on large capital investments, which pay off over years or even decades.

The Government should, therefore, match manufacturers’ long-term outlook by looking 15-20 years ahead to plan an industrial policy, avoiding the disruptions of the political cycle.

This should include setting a formal target for manufacturing growth over the next five, 10 and 20 years to provide the background to a sustainable industrial policy. The programme must be steered by a dedicated manufacturing minister, able to focus on firms’ needs in a way that will benefit us all.

Employers’ NI is also a barrier to businesses taking on new workers. To back up the Government’s rhetoric on targeting a doubling in exports, a bold step is required.

A temporary reduction in Employers’ NI, for UK businesses that take on all new employees involved in manufacturing production processes, would be a targeted relief aimed at those businesses that are most likely to be exporters or that supply exporters.

BDO LLP New Economy Report Link - May 2016Productive manufacturing needs investment and the Government must encourage this in every way possible. Government should take the leap and increase the annual investment allowance for expenditure on plant and machinery to £5m for five years.

This increase would provide a significant incentive for mid-market businesses to invest in the capital assets that will drive future growth, and give businesses the confidence to plan ahead.

With Britain’s historic strengths in manufacturing, innovation, design and service, as well as the significant potential the move to more automated manufacturing offers, should be supported and developed as key foundations for a successful and well balanced UK economy.