The manufacturing sector was referenced a total of 12 times in the 2010 election manifestos of the three main political parties — three times by the Conservatives, four by the Liberal Democrats and five by Labour. A little low, if one considers that all three parties have committed to the need to rebalance the UK economy in favour of a stronger manufacturing sector. Tim Brown investigates the post-election issues that UK manufacturers want addressed.
In the 2000 film What Women Want, Mel Gibson’s cross-dressing character gains the ability to hear what women think after dropping a hairdryer in the bath and being electrocuted.
Perhaps politicians should undergo a similar process to more comprehensively understand the manufacturing sector. The recipe for a clearer insight might involve: dressing as a steel worker, placing a foot in a bath of Blue Keld mineral water, before sipping on a bottle of J&B Scotch and dropping a live Roberts clock radio into the tub.
Far-fetched perhaps, and such action would achieve little other than reducing the budget for MPs.
In the absence of any Mel Gibson-type insight, The Manufacturer canvassed the comments of several manufacturers and industry groups to gain an understanding of the issues facing the sectors and the manufacturing industry as a whole. Participating organisations include Caparo Vehicle Products Group, Bentley, Comau Estil, Cobham, JJ Churchill Engineering, EEF the manufacturers’ organisation, the Chemical Industries Association, Nuclear Industries Association, Food and Drink Federation, Institute of Mechanical Engineers and RenewablesUK.
A competitive tax regime
As certain as death and taxes is that the latter is a frontline issue for industry. With government facing the huge task of reducing the budget deficit, expected to be £167bn for 2009-10, the private sector is naturally concerned that it will be asked to foot a substantial part of the bill. Until full details of how the Government will reduce the deficit are revealed, manufacturers cannot start making investment plans with any solid degree of confidence.
Manufacturers want a tax system that is transparent, internationally competitive and has a clear sense of direction. A lack of understanding about what makes modern manufacturing competitive in the UK has left the corporate tax system tilted against manufacturers, according to EEF. The creation of a tax system that supports investment, innovation and global competitiveness is therefore essential.
Industry suggestions
1. Modernise the capital allowances regime
2. Make the R&D tax credit easier to claim and reflect a wider range of costs
3. Create a more sustainable capital gains tax regime
4. Reduce the headline rate of corporation tax over time
5. Signal that the 50p rate of income tax is a temporary part of the tax system
6. Reduce the number of hard choices on public spending by increasing VAT
7. Improve relations between the Treasury and Revenues and Customs and businesses
8. Prioritise areas for simplification which will genuinely reduce burdens on businesses
This list is taken from EEF’ March report ‘Tax reform for a balanced economy’
“Given that the economic cycle and return on investment periods for manufacturing are generally longer than the length of a parliament, we should have a vision for manufacturing that reflects what, for us, is a reality,” says Andrew Churchill, managing director of JJ Churchill Engineering.
Skills
The UK manufacturing sector has inherent strengths in innovation – the ability to convert ideas to tangible products. These strengths require a sufficient pool of skilled workers, academics, scientists and engineers to be able to conduct quality R&D while continuing to produce products of high quality.
An apparent skills shortage and ageing workforce is an issue which has been highlighted by every manufacturing sector and a definitive strategy is needed to expand the skilled work force.
Industry suggestions
1. The establishment of coherent and consistent work-based learning progression routes
2. Improve access to funding for employers to provide vocational training places
3. Continue developing workforces during the economic downturn and prepare adequately for recovery
4. Rectify a lack of understanding of careers like engineering among parents and educators.
5. Emphasise science in the education sector
6. Demonstrate a higher appreciation of the importance of technical skills
“The availability of highly skilled engineers is a crucial factor in the long-term future of advanced manufacturing in the UK but British companies are becoming increasingly dependant on international recruitment,” says Martin Kinsella, engineering manager at Comau Estil.
Energy
The availability of secure and competitively priced energy is a fundamental requirement for business and society. The combination of this with the requirement for the sector to develop as a part of the low-carbon economy is undoubtedly going to prove challenging. As a typically high user of energy, the manufacturing sector requires commitment from government that the necessary steps will be taken to ensure the energy industry can meet its obligations.
Industry suggestions
1. Provision of support to the nuclear, renewables and fossil fuel industries for the construction of necessary new infrastructure
2. Assistance for the related manufacturing sectors to help build infrastructure
3. Provision of a simplified system of incentives to stimulate business while preserving the competitive position of UK industry
4. Develop competitively priced feed-in tariffs
5. Ensure that the price for carbon becomes strong and stable in order to encourage low carbon generation
The risk to supply and cost of energy is one of many factors hindering investment in manufacturing in the UK,” says Fiona Ferguson, media and government relations manager, Chemical Industries Association. “How will it be ensured that manufacturers will have access to competitively priced, reliable baseload energy supplies, when many proposals for schemes such as feed-in tariffs subsidies to wind power add greatly to energy costs but little to reliability of supply?”
Sector specific issues
Automotive
With the drive to a low carbon economy, continued investment in low carbon vehicles (LCV) and related technology is a vital concern for UK-based car manufacturers. There is a strong industry feeling that more is needed to ensure that the UK stays at the forefront of these emerging technologies. Low carbon technology powered by renewable energy can be implemented to greatly reduce carbon emissions in the transport sector.
Employing 850,000 people, with a turnover of £50bn and producing some 1.5 million cars annually, the UK’s automotive sector has a global reputation for research and development, design engineering and manufacturing. The UK also has a world-class science and research base and a superb reputation for innovation.
The Government has introduced several legally binding targets that aim to reduce the nation’s CO2 emissions by at least 80% of 1990 levels by 2050.
The UK’s transport sector accounts for almost 24% of the nation’s CO2 emissions. Of this total, road vehicles (cars, HGVs and LGVs) account for nearly 80%, so there is an urgent need for alternative methods to power them, a message voiced strongly by the Automotive Council, jointly chaired by Lord Mandelson and ex-Ford boss Richard Parry-Jones.
A range of incentives to encourage the consumer to purchase electric or hybrid vehicles have been announced in the last 12 months. The latest will see the Treasury foot a 25% discount up to a maximum of £5,000 on the cost of a new ultra low carbon vehicle from next year. These, combined with the introduction of a limited electric-car charging network, suggests the ways and means of how to generate power for the nation’s new nonfossil fuel fleet needs urgent attention and joined-up government thinking.
According to Richard Butler, CEO, Caparo Vehicle Products Group: “There is a strong industry feeling that not enough is being done to ensure that the UK stays at the forefront of these emerging technologies, and that ‘investments’ or ‘support’ from the government thus far has been little more than gesture investment.”
Industry suggestions
1. Current EU emissions targets for average emissions (95g/km by 2050) fall short of what is actually required, according to the Institute of Mechanical Engineers (IMechE). IMechE considers that a maximum of 30g/km by 2050 necessary and achievable
2. Government should introduce a policy framework linking the increased use of low carbon vehicle technologies with an increased generation of electricity from renewable sources
3. Continued development of incentives for the consumer to adopt low carbon vehicles in conjunction with a long-term education campaign of LCV technology
4. Set targets and a policy framework, in line with EU regulation, for an electric car charging network throughout the UK, including battery replacement stations. A standardisation of batteries would enable this network to have a viable, long term future
5. Government and councils should adopt a policy of only purchasing low carbon vehicles where there are clear emission gains
Aerospace
The UK supply chain of some 3,000 aerospace companies forms an important part of most of the world’s biggest international aerospace programmes. According to Ian Godden, chairman of ADS, the aerospace, defence and security industry trade body, technology investment and upskilling are the way the industry plans to stay ahead and government investment in early stage research is the lifeblood of the industry. The aerospace industry needs continuous partnership and support from the Government to enable it to compete for work on future programmes estimated to be worth $3.1 trillion globally.
Industry suggestions
1. Investment in collaborative research and development to drive down risk and enable technology transfer
2. Support for an Aeronautics Research Institute to coordinate national research programmes and provide a stronger voice for the industry in Europe
3. Investment in skills and training to provide a workforce that attracts international investors
4. Cabinet level support for big programme campaigns and UK aerospace exports
5. Recognition that aerospace provides ‘green collar’ jobs
Chemicals and pharmaceuticals
The products and services of the chemicals and pharmaceuticals industry deliver clean water, medicines, nutritious food, clothing, housing and transport, modern communications and leisure activities. Raw materials developed by the chemical industry are utilised by the rest of manufacturing including aerospace, automotive, electronics and environmental technologies.
Sector-specific issues Chemical and pharmaceutical businesses comprise a £60bn industry in the UK. Every day for the past decade the sector has improved the UK balance of trade by £20m, according to the Chemical Industries Association.
Industry suggestions
1. Government should promote the value of the chemical industry and include it in the definition of advanced manufacturing
2. Tackle the ever growing burden for businesses of regulation compliance while enabling businesses to predict the cost of compliance
3. Support innovation through investment in an academia sector with strength in key science disciplines both in teaching and research
4. Government should benchmark itself against competitor nations to maximise UK opportunities for business
5. To encourage investment across the UK, planners, regulators and policy-makers need to present a joined-up approach
Defence
An investment of £100 in defence yields a total return of £277 for the economy and one job created in defence delivers 1.6 jobs elsewhere, says ADS.
The sector employs over 300,000 in its extended supply chain with people working in the industry across all regions of the country, generating more than £35bn per year. The industry is concerned by the possibility of government spending cuts in light of the ballooning budget deficit despite its considerably high return on investment and significant export earnings.
Industry suggestions
1. Increased research funding to feed the pipeline of new ideas that makes Britain competitive in defence
2. Integrate an industrial strategy with the strategic defence review
3. Support from the Prime Minister, the Foreign Secretary and the Business Secretary, as well as the Defence Secretary
4. Debate regarding the efficiency of UK MoD procurement in comparison to other countries
5. Increase our bilateral co-operation between trusted nations to be able to afford our full security needs in the future without giving away crucial sovereignty over key technologies
According to Andy Stevens, CEO, Cobham: “The Strategic Defence Review which has held back the long term planning of so many SMEs in A&D at a time when they are working hard to manage the effects of the economic downturn.”
Food and drink
Food and drink production is the UK’s largest manufacturing sector, employing 440,000 people and generating exports of £9.65b in 2009. A common industry perspective is that, despite its massive contribution to the domestic and export market, it is taken for granted by government.
The industry is hoping to not only continue its sustainable development but is also hoping to be placed at the core the government strategy for economic recovery. However the sector is also facing continued pressure to produce more food sustainably to respond to mounting environmental challenges and help provide food for a growing world population.
Industry suggestions
1. Government make a public commitment that a successful food manufacturing sector will become a strategic priority
2. A coherent strategy for food, and an economic and regulatory environment that allows the sector to prosper while ensuring future food security against the combined effects of climate change, higher global demand and increasing pressure on finite resources
3. Protect innovation through investment
4. Assistance for the industry to become more sustainable.
Renewable energy
As one of the most publicised emerging markets in the UK and potentially one of the most important, the renewable energy sector has enjoyed considerable government support.
Approximately 5000 people are currently employed by the wind, wave and tidal energy sector. If capacity is rolled out to satisfy 2020 renewable targets, the number of related jobs are estimated to rise to around 70,000.
The industry boasts a host of prospective future benefits including a comparative decrease in energy bills when balanced against a continuation of oil and gas consumption as well as a strong future export market. However considerable investment will be required to realise the aspirations of the market with Ofgem estimating in its report ‘Project Discovery’ that the industry would require around £200bn worth of investment by 2020.
Industry suggestions
1. Development of a strategic plan for the delivery of key energy infrastructure including super hubs around strategically positioned UK ports.
2. Introduction of a ‘Green Bank’ to encourage investment
3. Reform of the regulatory regime to ensure delivery of low carbon measures and enable investment for a significant expansion of renewable energy by 2020 with a plan for expansion to 2050.
4. Introduction of a streamlined and properly funded accreditation scheme for micro generation and small systems technologies
5. A commitment to the roll out of a smart grid network by 2030
