Government must act on bold promises to UK manufacturers

August 5, 2009

radley1- Steve Radley is Director of Policy at EEF, Britain’s manufacturers’ organisation. The views expressed are his own.

This week the index of manufacturing activity in the UK moved into growth territory for the first time in more than a year. While that does not necessarily mean that the recession is over, it does suggest that we should be thinking a bit more about what sort of recovery we are likely to see and how well placed the UK is to meet it.

A common assumption is that a UK recovery will be export-led, taking advantage of a cheaper pound and the large stimulus packages which are likely to lift overseas markets such as China and United States out of the global recession faster than in this country. Looking longer-term, shared global challenges such as security, ageing populations and slowing climate change and adapting to it will create major opportunities for UK companies, particularly in manufacturing.

This raises questions as to how well equipped we are to take advantage of these opportunities. On the positive side, UK manufacturing has become much competitive in recent years with productivity gains outstripping most of our major competitors. A greater focus on innovation, design, niche products and service offerings has helped UK firms shift away from competing on price terns with lower wage cost countries. At the same time, though, we have been slow to take advantage of growth opportunities. Other European countries have made faster inroads into rapidly expanding Asian markets, while nations such as Germany, Denmark and Spain have stolen a march on us in the onshore wind industry, despite the substantial advantages our physical geography provides us.

There are some important lessons from this for manufacturers themselves and some steps that they will need to take. Companies will need to be more ambitious in exploiting the opportunities from a world economy set to double in size in the next 20 years and to develop a long-term strategy to achieve this. They will need to increase their focus on investing in the areas where they can best add value, whether this is in new equipment, research and development, skills or more likely a combination of them. And they need to be much more vocal in selling themselves to the highly skilled people they need to work for them and the government that they need to support them.

The government has signalled that it will be a more active player in this area. This is welcome news for business. It is not looking for government subsidies, for it to be protectionist or seek to create national champions. What it wants is a clear framework from government on where it sees the UK economy going, what are the major opportunities for this country and what it will do to help business realise them. The “New Industry, New Jobs” report launched in April was a good start in this respect and since then we have had a plethora of announcements, among others on Digital Britain, a Low Carbon Industrial Strategy and Advanced Manufacturing.

This evidence of a more active approach is welcome but what business needs now is more clarity on how the government will be taking things forward. To send clear signals to companies considering making long-term investments here, the government needs to spell out the criteria for making its own strategic investments. It also needs to be convinced that the government will work with it to clear away the obstacles to making and capitalising on these investments, be they skills, planning concerns, regulation or licensing issues or weaknesses in the supply chains. Business also needs to hear more about how government will use its vast procurement budget to stimulate innovation, particularly in growing markets. It has talked for some time about doing this but delivering on it will not be easy, particularly at a time when a recession, a looming spending squeeze and a pending election might encourage civil servants to baton down the hatches.

Getting this right is not easy and it would be naïve to think that there is a blueprint from another country that we could simply import and follow slavishly. But it is now vital that the government now delivers on the bold promises that it has made.

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