EEF blog

Tonight we'll see the first live, televised debate of the election campaign.  Alistair Darling, George Osborne and Vince Cable will square up to discuss the big economic concerns of voters.  As we have seen already this year the economy and repairing the public finances are a central battleground for the parties.  All three prospective Chancellors should remember that businesses are taxpayers and everyone from the CEO down has a vote.  Not only that, but businesses will become even more important in generating wealth and creating job as the squeeze in the public sector kicks in over the next parliament. 

While we're starting to hear much more about the importance of rebalancing our economy - focusing more on innovative and productive companies, and those with strong exporting potential, such as manufacturing, there is considerably less said about the role of tax in supporting this process.  Earlier this month EEF published its manifesto in advance of the election - calling for the next government to think and act differently.  Today EEF is publishing a manifesto for tax - again asking the next government to think and act differently when it comes to tax reform.

Manufacturers want a tax system that is internationally competitive and has a clear sense of direction.  A myriad of changes, not always with sufficient consultation, and a lack of understanding about what makes modern manufacturing competitive in the UK has left the corporate tax system tilted against manufacturers.  EEF's package of proposals seeks to address that imbalance and create a tax system that supports investment and innovation, is internationally competitive and reduces the unpredictable legislative churn that adds to the burden on companies.  

Some issues the next government should tackle immediately - both to send a strong signal to companies that the UK should be the location for their next investment and also to tackle the deficit.  Other measures, however, will need a more considered approach. Some of our recommendations include:

• Modernising the capital allowances regime.
• Making the R&D tax credit easier to claim and reflect a wider range of costs. 
• Creating a more sustainable CGT regime.
• Reducing the headline rate of corporation tax over time.
• Signalling that the 50p rate of income tax is a temporary part of the tax system.
• Reducing the number of hard choices on public spending by increasing VAT. 
• Improving relations between HMT and HMRC and businesses.
• Prioritising areas for simplification which will genuinely reduce burdens on businesses.

You can read see our full package of proposals here.  We will, of course, be watching tonight's debate with interest to see which of the parties is ready and able to tackle the weaknesses in the tax system and do what is needed to kick-start long term investment and growth. 

The Chancellor's Budget statement contained few surprises - as you might be able to tell from our ealier predictions. But the lack of surprises will come as a relief to both manufacturers and the market. Tax receipts from the first few months of the year were better than expected as were labour market conditions - both pointed to an undershoot in borrowing this year. And the Chancellor confirmed that public sector net borrowing (PSNB) would be £11bn lower in 2009/10 and follow that trend in subsequent years.

Six weeks ahead of an election there was always going to be the temptation to spend, but even though the deficit is lower than expected there is still a significant hole to fill. A detailed plan on tax and spending was unlikely this close to an election. Aside from some detail on departmental efficiency savings businesses will face no more and no less uncertainty about fiscal consolidation than before the statement.

The other downward revision announced by the Chancellor was for GDP growth next year. HM Treasury still expects the economy to grow by 1.25% this year - in line with our forecasts. But the forecast for 2011 was cut from 3.5% to 3.25%. This still looks optimistic against a consensus view of 2.1%. Expectations on household spending and business investment growth next year have moderated. Nevertheless forecasts point to a fairly strong bounce back next year. Given uncertainty about lending and moderate disposable income growth, there are some risks to these forecasts.

In terms of the measures announced, the overall package was broadly neutral this year. And the funding for new policies will come from a combination of asset sales, reprioritisation of existing budgets or the private sector. Some announcements were inevitably politically driven, and some may well be short lived.Overall there was little that will substantially change the short outlook for the economy.

Given that this statement is unlikely to rouse much excitement, perhaps we should have another in about 100 days?  You can read our full briefing here.

In a few hours the Chancellor will deliver his final Budget statement before the election.  As ever, there has been days of rumour and speculation about the measures that will be announced.  Here's our predictions:

1. Growth and the public finances
   Higher than expected tax receipts from the bonus tax and lower than forecast unemployment should mean the deficit comes in at least £10 billion lower that forecast at the time of the Pre-Budget report.  This may be better news but the Chancellor shouldn't be relying on this trend to continue over the next year.  He is also likely to leave his forecast of 1.3% growth in 2010 unchanged, but predictions of 3.5% growth in 2011 look optimistic compared with the consensus and could be revised down.
    
2. Efficiency savings rather than spending cuts
   In an attempt to signal that the government can take the necessary steps to tackle the deficit, but without going so far as to indicate which spending departments will bear the brunt of fiscal consolidation, more efficiency gains with current budgets are likely to be identified.  The question is whether these savings will translate into a reduction in Departmental Expenditure Limits.
   
   
3. Tackling unemployment
   Rising long term unemployment and growing numbers of young people not in employment, education or training (NEET) are likely to be a priority if any additional revenues are to be recycled into extra spending.  This could take the form of extending the current subsidy to employers taking on apprentices.
   
   
4. Improving access to finance for growing companies
   The Enterprise Finance Guarantee Scheme will continue to run until the end of the year, put the Chancellor could put more pressure on Banks to ensure they meet growing demand for new finance as the recovery gains pace.  We are also likely to get more detail on progress with the Growth Capital Fund and how the National Investment Corporation will bring coherence to the disparate finance initiatives for small companies.
   
   
5. Decarbonising energy supply
   An energy market assessment will be published alongside the Budget.  It will look at whether current mechanisms will deliver a secure energy supply in future.  If the report picks up the baton from OFGEM - acknowledging the need for reform and a clear plan of action, that would be a big step forward.

We'll be blogging on the statement later and providing a full briefing on what it means for manufacturers.

 

UK manufacturers will have read with some concerns the suggestion from the Prime Minister that your forthcoming Budget might reallocate savings from lower than expected social security payments and debt interest to additional public spending. 

This would surely see a return to form by HM Treasury in assuming the best possible outcome for the labour market and the public finances and spending accordingly.  Indeed, many companies may also wish to highlight that the lower levels of unemployment seen during this recession, compared with others, was in large part a consequence of companies and employees working together to minimise job cuts and retain skills. 

If this Budget does extend the Treasury's generosity to increase spending companies will rightly feel perplexed that their efforts to keep jobs have been rewarded with higher taxes to fund new spending commitments rather than to reduce the deficit.

Reducing the deficit, after all, must be the focal point of your statement. 

Manufacturers will be hoping for your statement to put an end to the current debate on the timing and pace of fiscal consolidation. 

This is missing the point. 

Some companies will start to feel the effects of fiscal tightening in the next financial year.  And the stimulus measures - which did help to limit the economic damage of the recession - have all but run out. 

You have an opportunity to outline HOW companies will be impacted by decisions on tax rises and spending cuts in the coming years and how these will relate to the government's priorities for the economy. 

Not to do so would be a huge missed opportunity.  The Budget needs to spell this out.  Otherwise the sectors of the economy that hold the best hope for recovery will face further uncertainty and decisions about investing in the UK will remain on hold.

You can read our full submission to the Treasury in advance of the Budget on 24th March here. 

Assembling a bearing, British Timken Works, Daventry, Northamptonshire 1957. Photograph by Maurice Broomfield, courtasy HOST Gallery.

The BBC has some beautiful pictures by Maurice Broomfield of factories across the UK in the 1950s. They are definitely worth a look.

But worringly - and in keeping with how the BBC portrays manufacturing - the piece leads off suggesting the 1950s and 60s was "an age in which Britain's industry was at its zenith".

Well, the sector is now bigger, leaner and more innovative as well as greener, safer and more efficient than it was in the 1950s and 60s. Yet the BBC insists on showing clips of industry rooted in dated myths of dirt and decline.

Maybe the BBC should commission another set - or better yet, hold a photographic competition to celebrate British industry, rather than constantly relying on stock footage.

As part of a three-part series, Stephen Radley, EEF's Director of Policy and External Affairs, is assessing the future for UK manufacturing. The first installment looked at how UK manufacturers weathered the recession, the second piece looked at the prospects for growth and this third - which coincides with the launch of EEF's Manifesto for Manufacturing - sets out what the next government should do to rebalance the economy.

 
Steve Radley lobbying Teresa May MP at the recent Conservative Party Spring Forum

Earlier this week, we've looked at how the resilience of UK manufacturing should help it tackle the challenges and opportunities of the next ten years. But the shift to a better balanced economy will happen in fits and starts - and it's up to government to set out and implement a clear, coherent strategy for facilitating that shift.

Whoever forms the next government faces a daunting task. The decisions made in the first 100 days will have long-term implications: they will determine our ability to generate the growth and prosperity, to fund much needed infrastructure improvements and to create job opportunities across our society.

The next government must, therefore, put in place a strategy that ensures that we can pay our way in the world. 

And a diverse and dynamic manufacturing base must be a part of that strategy. 

It is clear the next government needs to develop a credible plan for reducing the large fiscal deficit it inherits.  But how it goes about this will be critical.  Its plan must be centred on reductions in public spending, driven by significant improvements in the effectiveness of the public sector, strict control over costs and a fundamental rethink of what government does.

The alternative approach of saddling Britain with significant tax rises, particularly on business, would be highly damaging. It would weaken our competitiveness, undermine businesses’ ability to invest in growth and jobs, and send out the wrong signal to international companies looking at where to put their next investment.  

But the choice for the next government cannot be just a negative one - we will only overcome our problems if we know where we want to go.

In our Manifesto for Manufacturing we set out how the next government should refresh itself to become more focused and effective. We suggest reforms that will create an internationally competitive business environment that sends the right signals to would-be investors. And we set out a proactive agenda for growth.

It must send clear signals about its long-term priorities and the importance it attaches to specific technologies or markets and work more closely with business to identify and overcome the obstacles to growth in these markets. It also needs to engage much better with industry in conveying its long-term needs when it is buying goods and services from it. Finally, at a time when finances are extremely tight, a new government must prioritise spending in areas that will deliver sustainable economic growth.

We also need a business environment that encourages manufacturers to make their next investment here.  For example, the tax system must reflect the true cost of modern machinery, while we need to maintain the advantages of a flexible labour market and address longstanding concerns over regulation by developing a new approach that costs and limits the amount of new and existing regulations and by strengthening the assessment it makes of the impact of new regulations. 

More positively, the government can help manufacturers to take advantage of growing world markets by creating a single source of finance to support ambitious, growing companies that are making long-term and risky investments and by ensuring we have the world class export support that UK Trade that helps these companies to develop new markets abroad.

It must also ensure that the education system delivers the science, technology and engineering skills industry needs and that it is straightforward for companies to access the training that they need. Manufacturers must also feel confident that they won’t be facing an energy crunch, five years ahead. 

It is vital that the government delivers on these priorities but ultimately it is down to manufacturers to take advantage of the opportunities that are out there.

In that respect we can take a lot of confidence that UK manufacturing is a very different animal from what it was even ten years ago - because the path to a more prosperous Britian will be built by a stronger manufacturing base.

Phil Kite, MD Astrum (UK) with Lord Bates, Shadow Cabinet minister and Deputy Chairman of the Conservative Party, at EEF's North East Regional Council.

I am the Managing Director of Astrum (UK) Limited, based in Stanhope, County Durham. We are an engineering business with a workforce of ~250 and operate in the Defence, Earth Moving, Intermodal and General Engineering business sectors.

In the Defence market we are a world leading designer and manufacturer of track systems and running gear for Armoured Fighting Vehicles (AFVs). We also supply structural steel castings used in the manufacture of AFVs. For the Commercial sector we manufacture high integrity cast steel products and assemblies for the earthmoving, intermodal and general engineering market sectors.

My background was originally in finance, qualifying as a Chartered Accountant with Ernst & Young and I joined Astrum as Financial Accountant, becoming Managing Director in 1995. In 2006 I led a Management Buy Out of the business.

Everyone in manufacturing or business in general will say it’s challenging. Over the last two years we have seen each of the business sectors in which we operate effected by the recession. The challenge is to weather the effects of the downturn and make our business fit for the future, so we can immediately benefit when there is an upturn, i.e. plan for growth. 

The UK needs manufacturing but not everyone understands why.

To me it is the foundations on which almost every other business is based! Unfortunately we have lost a lot of manufacturing offshore and it is no good relying on financial / legal businesses to prop up the economy as they will follow the same path. We need to encourage government to take action to retain and develop manufacturing in the UK.

For those businesses that adopt continuous improvement at their heart, who provide exceptional quality, service and delivery and have a competitive product or service, their future prospects are good. For industry as a whole confidence needs to return to the market place before things improve. That is why government could do more to encourage investment through improved capital allowances.

And as one of the largest employer in Weardale with over 250 employees drawn from the surrounding area, Astrum is also critical to the future of the local economy. The next government could make it clear manufacturing is key to the UK economy, including heavy engineering, and encourage schools to recommend manufacturing as a career!

Phil Kite
Managing Director
Astrum (UK) Ltd

I am the managing director of a Welsh-based precision engineering company, that will soon celebrate 50 years in the industry.  Employing 80 people, we are design and manufacture toolmakers at the service end of manufacturing, supplying other manufacturers with the moulds, press tools and machining services they need to make their own individual products.

As a result, there is a small amount of our technical expertise in most food, drink, cosmetic packaging, cars and medical devices around Europe, and in some cases the world.

Over the years making things has become ‘unfashionable’, but the UK has just had a hard lesson in the folly of an unbalanced economy. Balance is important in everything we do from economics, to our business and personal lives. Unbalanced things can collapse unexpectedly!

Whilst the UK is part of Europe, we also need to remember that we are a small island with a developed appetite as consumers.  Sustainable indigenous manufacturing is important in supplying some of this demand.  The recession has also taught us the national value of exports and the potential downsides of imports.

Looking ahead, UK manufacturing has a significant challenge.  In the global market place, many of our competitors have the advantage of very low labour rates. China is a classic example where people earn a fraction of what is paid in the UK. Any product with a high labour content is at risk of moving out to the Far East as the transport and import duty do not erode this off shore advantage.

Therefore the future of manufacturing in the UK is all about high added value, high quality, innovative products and local supply chains. For this to happen, we need to be serious as a nation about making things, and the Government needs a clear industrial strategy that supports manufacturing business.  Higher levels of employment for our people is likely to result.

Quite clearly to replace what we have lost over the years, there is going to be a need for significant investment in new products, processes and facilities to fulfil this strategy.

The Government needs to ensure that there is effective support for business, including the need to be a business friendly taxes regime, direct support for the development of our people’s skills and a reduction in red tape on employment. We have to make the UK an easy place to do business and make things.

As somebody once said - give us the tools and we will do the job.

Gareth Jenkins
Managing Director
FSG Tool & Die Ltd

NOTE: As part of a three-part series, Stephen Radley, EEF's Director of Policy and External Affairs, is assessing the future for UK manufacturing. The first installment looked at how UK manufacturers weathered the recession, this second piece looks at the prospects for growth and the third - which will coincide with the launch of EEF's Manifesto for Manufacturing - will set out what the next government can do to rebalance the economy.

In my initial piece, I set out how UK manufacturing changed itself to remain successful - and survived the recession - despite facing competition from low-cost economies, a strong pound and rising costs.

Having weathered the worst of the last ten years, UK manufacturing is already preparing for the challenges and opportunities of this decade. At the end of the coming decade, manufacturers in the UK will need to have changed yet again.

In our vision for UK manufacturers, they will be large and global or small and capable and ambitious enough to grow into the multinationals of tomorrow. Their close relationships with customers and suppliers, investors and innovators will allow them to respond flexibly and quickly to market demands. And their innovative outlook will give them a sustainable competitive advantage and make them an attractive career option for engineers and entrepreneurs alike. In sum, they will need to become more diverse, agile and innovative.

The opportunities for generating growth will depend upon our openness to global markets, our focus on knowledge plus high value products and services, and our exploitation of fast growing markets. But given the challanges facing the sector, it will undoubtedly evolve in fits and starts, matching the disruptive tendencies inherent in global, open and flexible markets. Only a stronger, globally-focused manufacturing sector will help generate the wealth needed to correct our economic imbalances and contribute to broader national prosperity.

Indeed, the challenges facing our society - dramatic demographic shifts, strategic security challenges and serious environmental concerns - are also the potential markets for manufacturers. At the same time, we can’t be complacent that we can sit back and let these markets come to us. Manufacturers will need to be alert, agile and ambitious.

UK manufacturing is extremely well placed to take advantage of the markets created by the major challenges facing the world. 

In the low carbon economy, we have significant strengths in areas such as low carbon vehicles, engine technology, nuclear power and renewable energy such as offshore wind and marine.  But in other areas such as global security, we have significant strengths in aerospace and defence and electronics, as we do in healthcare technology and pharmaceuticals to meet the challenges presented by an ageing population.  

The UK needs an economy that is diverse enough to prevent the future build up of economic imbalances, robust enough to face its long term challenges and dynamic enough to turn those challenges into opportunities. 

In short, we need an economy that draws more heavily on productive, high value sectors with greater export potential.

While it may seem a daunting challenge, manufacturers are well placed to put themselves at the heart of healthy economy.

EEF's 'Manufacturing Week' is making waves in the US.

At their request, I've been talking about Manufacturing Week on the manufacturing social network MfGCrunch. Here's an exerpt from my post:

"With an election looming and our economy crawling out of recession, the simple objective of 'Manufacturing Week' is to put manufacturing at the heart of the debate on the future of the UK economy.

In the UK, the manufacturing sector is plagued by persistent myths - that manufacturing is in decline, that we don't make anything anymore, that industry is dirty and dangerous, that successful kids go to college while the slow ones work in manufacturing, and - even more dangerous - that we can keep the clever stuff in the UK and send the production abroad.

These myths are rooted in dated images of industry and sit awkwardly with the widely accepted need to 'rebalance' the economy by growing manufacturing.

But what to do about it?

Well, the answer was simple - start standing up and shouting about what makes modern manufacturing so great - and so competitive - in the UK.

See, for the past 20 years, we've had bankers and lawyers pushing politicians to support a 'post-industrialist' society. They got what they wanted because they made politicians take notice.

But instead of griping about the recession they caused, we decided to take a page from the bankers' playbook and start 're-educating' the public and our politicians about modern manufacturing and why the sector is so important to the future of our economy.

As part of this campaign, we launched 'Manufacturing Week' to allow UK manufacturers to stand up for themselves, to be heard and to get in politicians' ears.

We've had special reports in the Telegraph, the Financial Times and The Times - all showing modern manufacturing as the diverse and dynamic industry it is.

And manufacturers are hosting events all around the country and blogging on why manufacturing matters.

Sure, it's been a struggle. UK manufacturers are modest by nature - they just like to get on with being a successful business.

But get them going and their passion is contagious."