By Claire West
British manufacturing is poised to fill the growth gap as the public sector plays a smaller role in the economy.
It is well placed to respond to the Prime Minister's call to 'create and innovate; invest and grow' according to a major report and survey of 300 companies published today.
However, the sector would benefit from a government strategy which helps to overcome the growth barriers that companies face and to grow the next generation of large global players.
The report contains new analysis by EEF of the disparity in numbers of larger UK companies compared to those in Germany and the US.
‘The Shape of British Industry’ published by EEF, the manufacturers’ organisation in partnership with The Royal Bank of Scotland (RBS) comes ahead of the government's forthcoming Growth White Paper and its Manufacturing Framework.
The report paints a picture of a sophisticated, successful sector which is currently growing at the fastest rate since 1994 and whose growth strategies are centred on innovation and investment. Some 76% of companies state that their growth strategies will be achieved by increasing innovation in the UK and 69% by increasing capital investment.
It is also highly export driven, with exports accounting for more than half of turnover in 40% of companies and one third having production facilities outside the UK.
EEF believes these figures demonstrate the potential of manufacturing to lead private sector growth and rebalance the UK economy. While the government’s recent focus on measures to open up opportunities for smaller firms and reduce the regulatory burden they face is welcome, it is vital that its growth strategy seek to break down the barriers to growth for all sizes of companies at and at all stages of their growth.
Commenting, EEF Chief Executive, Terry Scuoler, said:
“Manufacturing is well placed to fill the growth gap as the public sector plays a smaller role in our economy and make the investments in innovation and skills that will drive our economy forward and create new jobs.
But this will only happen if there is a genuine partnership with government that helps companies of all sizes and growth stages to overcome the barriers that they currently face to growth.
“Whilst the current attention on young businesses and start ups is helpful we must not ignore the wider benefits to the economy that larger companies bring. The UK doesn’t just need a handful of larger companies over the next decade; we need hundreds of them with the scale and muscle to tackle our economic challenges. Otherwise we risk placing a speed limit on our growth potential.”
Peter Russell, Head of Manufacturing Sector, RBS Corporate and Institutional Banking, said:
“This report touches on a number of important issues that are shaping the UK’s manufacturing sector — both challenges and opportunities. What is clear is that manufacturing continues to make a significant contribution to the UK economy and is well placed to play an even greater role in a sustained economic recovery. We are committed to the sector and to providing finance in support of viable manufacturing companies that are looking to achieve the growth that will help the sector continue to thrive.”
In particular, the report shows large companies are at the heart of collaboration up and down the supply chain and driving new product development. They also make wider investments in areas such as skills that benefit the economy as whole. However, new analysis shows the UK has fewer numbers than its competitors which puts the UK economy at risk of missing out on the wide benefits they bring.
Germany has more than twice as many manufacturers with 250 or more employees. The proportion of companies with more than 250 employees is also significantly lower in the UK than in Germany — 1.2% compared to 2.1%. The disparity with the USA is even greater with firms employing 500 or more people accounting for 0.6% of manufacturing companies in the UK compared with 2.9% in the USA.
According to the survey growth-oriented companies are more likely to see finding employees with the right skills, their ability to innovate and management capability as the key barriers to growth. Those that are currently looking to maintain their current position are more likely to be held back by the availability of affordable finance and government regulation.
In addition, while many aspects of the business are viewed favourably by UK manufacturers, two fifths of companies rated the UK tax system as quite or very bad with just 18% rating it as good. More than half of companies cited regulation as an obstacle to growth. Most crucially, nearly 60% of mid size firms rated it as a barrier to growth and, a significant majority rated the UK business environment as poor in this area.
To help break down these barriers to growth, EEF has recommended a three pillar approach.
Firstly manufacturers themselves need to promote themselves and their sector at every opportunity to customers and help address skills shortages. EEF will front an industry- led campaign designed to bolster the image of manufacturing in the run up to the 2012 Olympics.
Secondly, EEF recommends government should provide an internationally competitive and stable framework on tax, regulation and skills which includes the following:
- Deliver on its commitment to reduce red tape. In addition to its ‘one in one out’ policy it should introduce seven year sun-setting reviews with business on regulatory burdens
- Provide clarity on which environmental, business and personal tax reforms it will seek over the next five years
- Improving access to finance through greater competition between banks, alternatives to equity finance and a restructuring of government backed scheme
- Ensure that any changes to the takeover rules strike a balance between minimising barriers to investment which is the lifeblood of the sector and ensuring M&A activity works in the best interests of the UK economy
- Continue in the encouraging direction it is currently heading to implement a simpler and demand-led skills training system
Finally, it should target and co-ordinate support to catalyse growth:
- Ensure that the new powers that Local Enterprise Partnerships have to borrow against future revenues (Tax Increment Finance) are used to grow and attract to compete for businesses in their area.
- Target support at high growth sectors and to build on industry strengths.
- The recent investment in port infrastructure was a good example which produced resulting private sector investment in low carbon technologies. New nuclear, electric cars and high speed rail are other examples of where support should be targeted.
- Scrap the target for 25% of public sector contracts to go to SMEs procurement and focus on making these contracts more accessible by improving the skills of government procurers.
- Ensure that the proposed Growth Hubs provide a single source of access to support that helps high growth companies realise their potential