The economic value of the UK’s manufacturing sector is placed at just below 10% of GDP, but this figure is based on outdated counting methods and underestimates manufacturing's worth by potentially half, claims a new Cambridge University report.
Manufacturing’s relatively small contribution to GDP is misleading, according to a new report, with the sector’s share of the economy much higher than the 9% labelled as ‘manufacturing’. In fact, it could be as much as 20%.
“It is essential that policymakers have accurate information on the size of manufacturing sectors in order to develop internationally competitive industrial strategy,” said Dr Eoin O’Sullivan, from Cambridge University’s Institute for Manufacturing, and joint author of the report.
A spokesperson for the Manufacturing Technologies Association (MTA) told The Manufacturer: “When people are looking at statistics it’s only production in factories that is considered as manufacturing. There is a huge amount of activity that gets missed out.
“We need to make sure the numbers add up and take into account all of that extra activity that is dependent on manufacturing and wouldn’t take place otherwise,” they said.
O’Sullivan added that “policymakers need to be able to measure manufacturing in a way that better reflects how firms actually organise themselves into value networks.”
More than making stuff
The report reinforces the findings of the MTA report last year. The True Impact of Manufacturing found that the industrial sector is responsible for 23% of UK GDP, well over double the current single figure quote.
“This report, and our work last year, suggested the total employment contribution of manufacturing was as many as 7.4 million jobs, demonstrating that manufacturing is more important to our economy than understood,” added the Manufacturing Technologies Association. According to official figures, manufacturing currently provides over 2.7 million jobs in the UK and makes up 49% of Britain’s exports.
“Modern manufacturing adds value through more than production in factories: R&D, product service, supplier management, marketing and ultimately reuse, recycling and disposal, are all big parts of the picture,” they said.
The IfM’s report has two pages of definitions for what is considered as ‘manufacturing’. This shows that it cannot be defined so easily as just ‘making products’. R&D and industrial design are not counted as manufacturing in terms of GDP but are referenced in these definitions, as they are services that add significant value to a product value chain.
Understanding Brexit’s impact
As for Brexit, the Cambridge report authors say it is vital that UK negotiators seeking new trade agreements are equipped with a solid understanding of manufacturing’s importance to the economy.
“It’s critical that post-Brexit international trade negotiators are equipped with a more accurate understanding of the value of these industries, and in particular the potential economic impact of companies moving manufacturing operations away from the UK,” said Dr Jostein Hauge, co-author of the report.
Seamus Nevin, Chief Economist, of Make UK, said: “This report is a clarion call for politicians of all parties to update their understanding and recognise the central importance of manufacturing. Policymakers have neglected the sector in the misguided belief that services, not manufacturing, is where the future potential for innovation and productivity growth lies.”
“It is now essential that there is cross-party support to deliver on this to ensure we meet the new technological challenges of digitisation, as well as the societal challenges to which manufacturing, science and engineering will be at the heart of solving,” said Nevin.
The report, ‘Inside the Black Box of Manufacturing’, was created for the Department for Business, Energy and Industrial Strategy (BEIS).
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