EEF blog

Insights into UK manufacturing

The pressing need for an independent infrastructure body is clear

Chris Richards July 20, 2014 08:45

In a letter and article published in today's Sunday Telegraph, EEF spearheads the urgent call for the UK to establish an independent infrastructure body. This body would identify and kick start the debate on our long term infrastructure requirements as a country.

A full copy of the letter can be found here with a list of the organisations who backed us in making this call. Alongside EEF this included:

There were also a number of organisations who expressed support but were unable to sign a letter within the timescales. 

We argued that any established organisation should be based on five key principles:

  • Accountability to Parliament not Government – giving it independence
  • Rest on strong engagement and consultation with the public, businesses, government, political and other stakeholders
  • Look ahead at the UK’s need for infrastructure, set these out in detail and kick start the process to find potential solutions
  • Have ownership of the methodology to appraise suggested projects in each sector in a uniform way
  • Leave final decisions on which projects to take ahead with Government and Parliament

In recent years, to speed up the delivery of projects, governments have sought to streamline the process introducing reforms such as changes to the way strategic roads are managed, smoothing the planning process for nationally significant projects and setting up the Airports Commission to provide a recommendation on maintaining Britain’s aviation hub status.

This is a good start; however the time has come for the UK to start identifying the challenges and potential solutions of tomorrow not simply tackling yesterday’s long delayed projects.

This is important as business investment, sustainable high skilled jobs and economic growth are all linked to the provision and maintenance of key infrastructure, not to mention ensuring we can successfully meet our environmental targets. Current infrastructure plans barely stretch beyond the next Parliament.

The letter today, signed by a broad range of business organisations, the TUC, airports and other companies, seeks to:

  • establish the lack of a long term infrastructure plan as a clear issue and something which is not limited to just one political party
  • put a line in the sand on some basic principles that any proposals in this space should have if it is to prove successful
  • amplify this issue as an important one that all parties need to have a solution to come the next election

EEF felt now was the right time to make these points clear as we are fast approaching the next  General election; all political parties need to show leadership on this issue, as we said in the letter:

We all want a more productive, competitive and environmentally sustainable economy. This demands a new way of thinking about how we develop and design the world class infrastructure needed to support it.

Pressing need for an independent infrastructure body - final letter-1.pdf (79.62 kb)

Pay Bulletin in July

Joey Lee July 18, 2014 10:06

Our Pay Bulletin for July was published yesterday.  It is a monthly comprehensive survey of pay settlements, deferments and pay freezes in over 400 of our member companies. It consists of two main parts: pay trends and inflation trends.


How is pay trending?

The three-month average pay settlement rose 0.1% to 2.6% year-on-year in June.  Our data is consistent with the average level of settlements we have seen since the beginning of 2011.

Source: EEF Pay Bulletin

The Labour Statistics published by ONS continue to show that pay growth in manufacturing outpaces the trend in the broader economy. In the three months to May, pay rose by 1.7% year on year in manufacturing; whereas in the whole economy, pay rose by just 0.3%, a slowdown of 0.5 percentage points from the revised figure of previous month. For a more in depth view of the Labour Statistics, please read Lee's blog from yesterday.


And what about inflation?

The annual CPI inflation rate was 1.9% in June, accelerating from 1.5% in May, in line with our forecast from last month.  This latest figure continues the trend of below 2.0% inflation during 2014. The rise was mainly a result of unusual seasonal patterns in air transport and clothing prices, women’s outerwear in particular, which combined to create unfavourable base effects. There were no large downward contributions in June, but a minor downward effect from miscellaneous goods and services.

Below is an interactive graph which illustrates the contributions to the change(in %) in the CPI 12-month rate in June and May:

Our inflation forecasts are similar to last month. The base effects mentioned above should soon diminish and press the CPI inflation down to 1.5% in July. Moving forward, inflation should remain below the 2% target for the rest of the year. After the Iraq-related rally, oil prices have dropped significantly over the past week. And with Libya now restoring oil production, oil prices are expected to drop further, whilst the pound is likely to stay strong. Inflationary pressure along the supply chain from manufacturers will remain subdued, as previously reported, with spare capacity continuing to bear down on margins and wages.


Labour market still on a roll

Lee Hopley July 16, 2014 12:41

The UK's labour market data has ceased to surprise. Employment has been steadily climbing for the past year and was up 108,000 on the month. The latest statistics also show the unemployment rate hit 6.5% in May - down from 7.8% a year ago and the lowest since the beginning of 2009.

Unemployment rate
Source: National Statistics

Employment growth was seen across all age groups and in both full-time and part-time employment - although the former was stronger and average hours worked nudged a bit higher too. With the more up-to-date figures on the numbers claiming unemployment-related benefits dropping by a further 36,000 in June and the number of vacancies continuing to rise, for the next few months at least we should expect the employment data to be showing more of the same. 

Not so fast...

While the employment data is roaring ahead, pay across the economy is showing relatively little movement.... still. Weekly pay (excluding bonuses) rose by 0.7% in the past three months compared with a year ago and factoring in bonus pay brings that rate of increase down to a meagre 0.3% - either way, running a far bit below the rate of CPI, which measured 1.9% in June.

There are inevitable sector differences, with manufacturing continue to be one part of the economy with faster growth in earnings.

Average earnings growth
% change past three months on a year ago
Source: National Statistics
* Public sector exc financial services

Looking ahead on the pay front the data on overall earnings growth could look substantially worse next month due to significant growth in bonus payments 12 months ago, but these effects will drop out the following month, when earnings growth should come back to current levels.

Does this change anything?

From the MPC's perspective probably not. The employment data say raise rates, the wage numbers say hold off for now. It seems as though the Committee will need to see some concrete signs of productivity picking up and that feeding through to higher pay before they'll make their first move. And whether that comes before the year is out is yet to be seen.


EEF will be blogging on our own Pay Survey later this week   


What's happening with prices?

Felicity Burch July 15, 2014 10:05

CPI data released this morning shows that consumer prices rose by 1.9% in the twelve months to June, up from 1.5% in May. 

The biggest contribution to this was clothing and footwear prices, which normally fall between May and June as the summer sales begin, but this year average prices actually rose, particularly when it came to women’s outerwear.

Other upwards contributions came from:

  • Food & non-alcoholic beverages, as a result of base effects:  on average prices rose between May and June this year but fell between the same two months a year ago.
  • Transport prices also rose, by 0.6% between May and June 2014, compared with a rise of 0.1% between the same two months a year earlier. The largest upward contribution came from air transport, though this was partially offset by a small downward contribution from motor fuels prices which rose by less this year than they did last year.
  • Furniture, household equipment & maintenance: prices, overall, rose by 0.2% between May and June this year but fell by 0.5% a year ago. The main upward effect came from furniture & furnishings where prices rose by more than a year ago.

There were no large downward contributions to the change in the CPI 12-month rate between May and June 2014.

Although CPI inflation increased, it is the sixth consecutive month in which the CPI rate has been below the Bank of England’s target rate of 2.0%. A range of factors should continue to keep inflation subdued, including the stronger pound; limited inflationary pressure from commodities; and spare capacity, which is likely to continue to bear down on margins and wages.


Today’s Producer Prices Index highlights the limited impact from commodities, with manufacturers’ input prices falling by 0.8% between May and June, input prices are now down 4.4% over the year.

The largest contributions to the fall were:

  • Home-produced food prices which fell by 11.9% in the year to June. This is the biggest annual fall since June 2009. The decrease was a result of a reduction in the price of home-produced root crops, such as potatoes.
  • Imported chemical prices fell 4.5% in the year to June. The decrease was caused by the fall in imported other organic basic chemicals.

As a result output price rises have remained low, prices increased by 0.2% over the year and the annual rate of output price inflation has remained below 1% for all of 2014 to date.



All data is from ONS.


Germany vs. Argentina - the trade showdown

Madeleine Scott July 11, 2014 14:00

Sunday sees the culmination of the World Cup , with the final being played between Germany and Argentina. Here's a look at the manufactured goods trade relationship between the UK and the two finalists.

All data from uktradeinfo, SITC codes 5,6,7,8

UK manufactured goods exports, 2013

Germany knock Argentina sideways with their importance as a UK export destination - the £24.8bn worth of manufactured goods exported to our European neighbours dwarves the £300.7m worth sent to Argentina in 2013.

UK manufactured goods imports, 2013

Once again there's no contest, with imports from Germany worth £50.5bn compared with just £38bn of manufactured goods received into the UK from Argentina in 2013.

But this does mean the UK has an overall trade deficit of £25.7bn with Germany, in contrast to a surplus of £262.6m with Argentina.


Top five manufactured goods sub-sectors* exported from UK, 2013

Road vehicles, pharmaceutical products and power generation equipment appear in the top five subsectors list for both countries. UK manufactured goods exports to Germany show their broad based nature with the top four all worth more than £2bn.

*2 digit SITC codes from SITC 5,6,7,8

Top five manufactured goods sub-sectors* imported to UK, 2013

What we send to Germany, we get back and even more some... Several chemicals sub-sectors do well for Argentina.

*2 digit SITC codes from SITC 5,6,7,8

Number of manufactured goods sub-sectors* where the UK has a positive trade balance, 2013

In six subsectors the UK has a surplus with Germany including other transport equipment (also in the top five export table); power generating machinery and equipment and articles of apparel and clothing accessories.

The UK has a deficit with Argentina in just eight subsectors including their top import of essential oils and perfume materials, as well as leather goods and iron and steel.

*Out of 35, 2 digit SITC codes from SITC 5,6,7,8


With manufactured goods exports from the UK to Germany over 80 times that of exports to Argentina, there's no real question in the result. With the UK and Germany part of the EU, the trading relationship is just too strong for Argentina to even make a dent. Final score? (Obviously from my own complicated matrix of factors... definitely not a wild guess) 3-1 to our European neighbours.


Holiday pay - what’s all the fuss about?

tthomas July 11, 2014 10:42

Many manufacturers have heard something about holiday pay being a problem, but might not know what the problem is.

If you currently pay overtime, commission, bonuses or anything other than just basic pay, read on.

Ignoring the technical legal detail, here’s a run-down of the basic issue – but please note that not everything is covered.

First of all, could this cost my business anything?

Yes. There are very, very few businesses we have spoken to, (and we have spoken with many), who don’t have some financial liability as a result of this issue.

Typically, the liabilities amount to 3-4% of current payroll, but there are also likely to be some significant past liabilities – for many SMEs easily over £1m. For some, much more.

What’s the problem?

This is all tied into the Working Time Directive, or the WTD – it’s no news that this gives every worker a right to 4 weeks paid leave a year. But, the directive doesn’t tell us what the “paid” element of this is.

How is pay for a worker on leave to be calculated?  UK law has a way of calculating this, which is generally, quite narrow. But, given this is EU law, the UK doesn’t have the final say – that rests with the Court of Justice.

And the Court has a different view, which is that anything that is intrinsically linked to the job should be included. They have already decided that some allowances should be included and also that commission should.

They are likely to say that other than small amounts, irregularly paid to employees (which will account for almost nothing) almost everything else should be included in the holiday pay pot.

So, what’s the impact of all this?

The bill for holiday pay will go up, unless you are an employer who already calculates holiday pay to include everything/almost everything which an employee earns over a year – we have found very few.

Our members are telling us that for a typical manufacturing company this will add 3-4% to payroll.

Does this affect only hourly paid staff then?

No – it does affect many hourly paid staff who, for example, work overtime, but also salaried staff who might be paid allowances or commission.

What did you say at the start about “significant past liabilities”?

So far, this is only half the story. Let’s assume that you’re reading this and that your business has never included all the “add-ons” to holiday pay that the Court of Justice has added in. Well, this means that you are underpaying your employees for their holiday.

In the UK, if an employee is underpaid, or something is taken out of their pay unlawfully, they can bring a claim. No real surprise there. But, if there are a series of similar deductions from pay, then the employee can connect them together, in a single claim.

What this means then is that an employee can claim “back-pay” – the pay that they would have received in the past, on the basis of the Court of Justices’ new calculation.

So how far back can an employee claim?

1998, or the start of employment, whichever is the later date. Employers with long service employees therefore face the greatest exposure.

Can we change the law?

Unfortunately not as it's European Law. The only thing we have some control over (but not total) is the back-pay issue, which we can do something about. EEF has proposed changes to government, who are acutely aware of the issue.

But I’ve always complied with UK law

To the huge frustration of many UK employers, this is true – they have been paying their workers for their holiday quite correctly according to UK law. The problem is that the Court of Justice have moved the goal posts and widened them, hugely.

What about overtime?

Currently, today, it has not been finally decided if overtime should be included in holiday pay – but, many experts are expecting that it will be.

Is that it - what do I do now?

Unfortunately, that’s not it – technically the problem only extends to 4 weeks of annual leave, not all of it, further complicating matters, and it’s possible that there may be past liabilities for tax, NI and pensions.

EEF is running seminars for employers, both members and non-members – check out the EEF website

The good news amongst all the bad is that there are things that employers can do now to reduce the impact of this. It’s not a cure, but acting early is likely to help.

Subdued trade picture

Neil Prothero July 10, 2014 12:33

The latest trade figures for May were published this morning and they continue to show a fairly subdued trend in external demand. Here are the main points from the ONS release:

  • The deficit on trade in goods widened by £0.4bn to £26.3bn in the three months ending May 2014, compared with the previous three-month period.
  • Goods imports rose faster than exports - goods exports increased by £0.1bn (0.1%) to £72.6bn, while goods imports rose by £0.5bn (0.5%) to £98.9bn.
  • Exports of cars and of other consumer goods rose over the three-month period, but exports of all other major categories recorded declines.

Goods trade deficit
(£ bn)


Source: Office for National Statistics

  • Over same three-month period, the deficit on trade in goods with EU countries narrowed by £1.7bn to £15.1bn.
  • Exports to the EU increased by £0.6bn (1.7%) to £36.6bn (mainly oil) and imports from the EU fell by £1.0bn (2%) to £51.7bn.
  • Deficit on trade in goods with non-EU countries widened by £2bn to £11.3bn.
  • Exports to the EU increased by £0.6bn (1.7%) to £36.6bn (mainly oil) and imports from the EU fell by £1.0bn (2%) to £51.7bn.
  • Exports to non-EU countries decreased by £0.5bn (1.5%) to £35.9bn and imports from non-EU countries increased by £1.5bn (3.3%) to £47.2bn.
  • As things stand, net trade likely to act as drag on Q2 UK GDP. In Q2 so far, total imports up 0.3% on Q1, while total exports down 0.7%.
  • The coalition government has set a target for the total value of UK exports of goods and services to rise to £1 trillion by 2020. As the chart below shows, the recent trend is not especially encouraging.

Total value of goods and services exports
(£ bn)

Source; Office for National Statistics

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Employer-routed funding: PAYE or....PayPal?

Verity O'Keefe July 09, 2014 08:30

We have blogged previously on the benefits of giving employers control of apprenticeship funding. Government has firmly acknowledged this and has committed to shifting the flow of funding away from the provider and towards the employer. The question now is what mechanism should be used to direct funding through employers?

The government’s Technical Apprenticeship Funding consultation was published in March and offered up two models. Now for a Technical consultation it lacked any real….technicalities. Instead, it offered up two rather brief descriptions of two possible models to pursue. The first was a PAYE model, building on the government’s earlier consultation. The second was an 'Apprenticeship Credit Model' - a model that we hadn’t seen in the earlier call for evidence but had heard rumours off given the De-Regulation Bill including a provision of the use of 'vouchers'.

Changing the way we fund apprenticeships is a fundamental reform so we consulted widely with members, and continue to do so after the consultation had closed. Employers have long waited for government to commit to changing the apprenticeship system so that it is responsive to business needs and increases the number of high quality apprenticeships – getting the funding framework right is critical.

So what did we find?

Firstly, manufacturers can clearly see the benefits of having control of funding – which would go some way to creating the responsive training market employers have been looking for.

We also found some companies that had built up strong relationships with providers - both public and private – and who were already able to demand the provision they need. In particular, those smaller firms who rely on Group Training Associations (GTA) wanted to maintain the flexibility to delegate some funding responsibilities to their chosen provider.

Nonetheless, we found the majority of companies said they would want to take direct of funding as they were finding it extremely difficult to both access pots of funding for skills and local, high quality provision. Many said they were simply training their apprentices in-house as a result of not finding the provision they need.

Two in five EEF members said they would offer Higher Apprenticeships if funding was routed through the employer.


Apprenticeship Credit Model

We have, perhaps cheekily dubbed this model the PayPal model as we found it was the only way we could describe it. The model doesn’t currently exist, and whilst it could be argued by some that it will replicate the Child Tax Credit model – this is skills – nothing is ever simple! It consists of employer payments in, government top-ups, payments out, possible withdrawals (you can begin to see why we call it the 'PayPal' model!)

The process

What was our conclusion?

We could not see how this model would work in practice. Setting up the system and the proposed ‘online account’ would we imagine require substantial public funding to build and sustain. Moreover, EEF members had a number of questions around the Apprenticeship Credit Model that were not answered in the consultation:

  • Who owns the account?
  • What about interest on payments?
  • Would there be a sub-account for each learner?
  • How would the account operate?
  • How would the account track payment?

All in all, more questions than answers – and for the government’s second consultation on this, we were hoping for a little more (to say the least)

We also found companies who had Head Offices (and central bank accounts) in other countries would be denied authorisation to put money into a new online account that was separate from the business’ central bank. This, the companies said, would immediately rule them out of offering apprenticeships (a strong statement from EEF members, two-thirds of which currently offer apprenticeships).

So that’s the Credit Model out, what about PAYE?

This model was included in the previous consultation and has been floated by UKCES for far longer. In short, employers would balance their liabilities (NI, PAYE, student loans) with government payments (SMP, SSP and now Apprenticeship Funding) and deduct from their Employer Payment Summary.

The process

Initial concerns with this model were cash flow, and possible penalties form HMRC. On cash flow, to some extent this could be mitigated with careful timing of when the employer pays out to their chosen provider and then deducted from their next return. The HMRC penalties issue still remains and as such we would want to see a significant amount of tolerance from HMRC, particularly in the early stages of transition

What was our conclusion?

Well, for starters PAYE is already hardwired into a business and this is what made it more attractive to manufacturers – using existing machinery was clearly seen as being beneficial and something employers had familiarised themselves with. It also made it a lot of easier to explain to companies as the model is already in existence.

We also found that companies saw it as less susceptible to change, because it would be another element hardwired into the system (like when student loan repayments were introduced). An online system/bank account, which the Credit Model is based on, could easier be tweaked, or even dramatically overhauled by any incoming government. What we like about PAYE is that it has a far greater degree of sustainability.

What do we want to see happen now?

The timeline for change is pretty ambitious.  Government would benefit from slowing down the reforms and better engaging with industry. – presenting the detail of the models, including the processes and systems that would be required. Those leading in the Trailblazers would be a good starting point for government to determine exactly what a new system should look like.

After full and careful consideration we have concluded the Apprenticeship Credit Model is unworkable and would like to see this model as it is taken off the table. Going forward the only credible model proposed is one that uses the HMRC platform. Even then we believe there is still much more work to do.

We expect the government to announce their chosen mechanism in autumn – until then we will continue to raise our concerns, and suggestions to policy-makers to ensure we adopt a model that will allow manufacturers to continue to offer high quality apprenticeships.

Read our full response.

Fall in manufacturing output

Neil Prothero July 08, 2014 12:16

After a very strong run of monthly manufacturing data, index of production figures for May out this morning surprised significantly on the downside, indicating the sharpest fall in 16 months.

Manufacturing production fell by 1.3% over the month, the first decline since November 2013. According to the data, in May the sector erased almost all of its gains recorded over the preceding three months. Despite this reverse, manufacturing is still on track to expand for a fifth consecutive quarter in Q2 (output is currently 0.3% above its Q1 average), while production remains a solid 3.7% above its year-earlier level.

Although serving as a reminder that manufacturing (and indeed the wider economy) continues to face a number of headwinds, the scale of the decline in May is sharply at odds with still strong survey readings and positive anecdotal evidence across the sector. The official monthly data from the Office for National Statistics can be quite volatile, and we believe that the underlying level of manufacturing activity remains fairly robust. A bounceback in next month’s output data is quite possible.

Industrial production and manufacturing
(2010=100; seasonally adjusted)

Source: Office for National Statistics

Broad adjustment

On a monthly basis, output declined in 10 of the 13 manufacturing sub-sectors in May. The largest contributor to the overall decline was a 2.3% drop in the production of basic metals and metal products, which has shown a more volatile pattern of output than most other sub-sectors over recent years. The other main downward contributions came from the manufacture of pharmaceuticals and of computer, electronic and optical products. For all three of these sub-sectors, imports account for an above-average share of their total supply, possibly suggesting some impact from a modest pick-up in commodity input costs.

There was better news in the textiles and wood, paper and printing sub-sectors, both of which recorded moderate growth in May. Output of chemicals was unchanged over the month.

When viewed over a 12-month horizon, however, output trends across manufacturing continue to show a brighter picture, with production increasing between May 2013 and May 2014 in nine of the 13 sub-sectors. The main drivers of growth over the past year have been the manufacture of rubber and plastics products, machinery and equipment not elsewhere classified and transport equipment.

Growth in nine of thirteen subsectors
% change, year on year

Source: Office for National Statistics


Local Growth Deals - the figures #GrowthDeal

Chris Richards July 07, 2014 13:28

Following our earlier blog post, we've now had a chance to analyse the data contained in each Growth Deal announcement and have summarised these below. EEF operates across 5 broad regions in England.

Across all Local Growth Deals the following has been announced:

  • £11.859bn in total new investment from 2015/16 to 2020/21 (£6.33bn from the Local Growth Fund*, £5.529bn from local and private sector partners)
  • £1.673bn in provisional funding for projects starting from 2016 onwards
  • 288,000 jobs to be created or safeguarded
  • 158,900 new homes to be built**

The charts below show how the figures above are broken down



Top 3 LEP allocations from the Local Growth Fund*

  1. Leeds City Region
  2. Greater Manchester
  3. South East

Top 3 LEP allocations for 2016/17 onwards provisional funding

  1. Greater Birmingham and Solihull
  2. Greater Manchester
  3. South East

Top 3 LEPs for estimated new/safeguarded jobs

  1. South East
  2. Dorset
  3. Derby, Derbyshire, Nottingham and Nottinghamshire

Top 3 LEPs for local/private partner match funding

  1. Dorset
  2. Sheffield City Region
  3. Derby, Derbyshire, Nottingham and Nottinghamshire

Top 3 LEPs for just 2015/16 allocations from the Local Growth Fund

  1. London
  2. West of England
  3. Greater Manchester

*includes a 2015/16 Local Growth Fund award, previously committed funding and provisional allocations for projects starting from 2016 onwards
**4 Local Growth Deals did not include a figure for new homes to be built

This is an informal blog about manufacturing and the economy written by EEF's policy and representation staff. While it is written from an EEF perspective, contributions should not be taken as formal statements of EEF policy, unless stated otherwise. Nor does it cover all the issues on which we campaign - you can check these out in more detail at our main site.

We welcome and encourage comments, but we reserve the right to remove any that are offensive or irrelevant. We are not responsible for the content of external internet sites.

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