EEF blog

So the Labour Party has today been the first Party to launch its election manifesto.  As far as business issues are concerned, there were no great surprises and even some of the new ideas were heavily trailed in the press over the weekend.

One such proposal is a plan to extend Paternity Leave from its current two weeks paid leave, to four weeks leave (with the option for this to be used flexibly).  Labour also wants to legislate to extend the right to request flexible working to older workers.

Over the course of the election we are likely to see all of the political parties engaged in a race to the top on family-friendly and flexible working policies.
It is very difficult for business to raise concerns about the pace of change in this area, without being tagged as dinosaurs. And many employers do recognise the business benefits of these policies.  At the same time, however, it is the employer that usually has to cope with the corresponding costs and administrative burdens. 

Instead of always hitting business therefore, what we would really need is a wider debate about how society addresses work/life balance issues – perhaps through the tax system or care provision.   Whether or not this is recognised during this campaign remains to be seen.

Following the record falls in manufacturing business investment in the second quarter, today's data for q3 failed to bring much good news.  Investment levels in manufacturing fell another 10% in the three months to September - which leaves quarterly levels of investment more than £1 billion lower than pre-recession levels.

With the Pre-Budget just around the corner, this further fall makes the case for current support for investment - in the shape of increased capital allowances - to be extended for a further 12 months to April 2011.  Even for companies planning to invest in some brand spankin, productivity beating new equipment today the lead times involved could mean that companies might miss the cut off for the 40% rate - a point that EEF has been raising with Ministers and officials in the Treasury.

It's hard to ignore the lessons from previous recessions - once investment starts to fall it takes a long time for things to turnaround.  Global competitive pressures will undoubtedly intensify as the economic recovery gathers some momentum - the UK can't afford to wait years for investment to return to growth.

Lee Hopley, EEF's Head of Economic Policy, gives an overview of the Budget and what it means for members.

The anticipation is over. After months of debate the Chancellor announced in today's budget plans to introduce a car scrapping scheme - which could be in place by as early as next month.

£300m has been allocated to the scheme, which offers £2,000 for motorists replacing a vehicle at least ten years old for a new one.

The funding will be shared by the car industry - with £1,000 to come from the taxpayer and the car manufacturers that sign up paying the other £1,000. The scheme will run until March 2010 - or until the funding runs out.

Unlike the European schemes, there are no restrictions on the new car being bought - it does not have to be a low-emission car. This is to help sales of luxury cars including Jaguar Land Rover and Aston Martin which are produced here in the UK.

This is welcome news for manufacturers - not just those in the automotive industry - but for the thousands of companies down the supply chain who rely on orders from the sector. And, as EEF research shows, there is pent-up demand in the UK and, with current exchange rates making UK cars cheaper, we may see an increase in UK-produced car sales.

But a lot will depend on how many car manufacturers sign up to the scheme.

This is our initial response to the Budget, more to follow...

Yet more public information about credit insurance package to be announced in tomorrow's budget.

From today's FT:

"The state will provide guarantees worth up to £5bn, backed by an equal figure from the industry...companies will have to pay a levy of 2 per cent on the assets they want to insure for six months, which could cover most of the losses made on the programme.

The scheme will come into effect on May 1 and will take applications until December 31. It will only be available for companies which have seen their cover cut after April 1 this year. Those whose cover has been withdrawn entirely will be ineligible because they are seen as too much of a risk. “This is a case of topping up credit insurance where it has been reduced, not covering total losses,” said one government source.

Officials estimate that the scheme will provide cover for up to £8.3bn of trade. The maximum cover offered by each insurer will be £1m between a single buyer and supplier."

Like we've said previously, this will not be a panacea for all credit insurance problems.

Because the scheme is temporary, many contracts will not be covered - but that's okay because credit insurance is a only problem because of the credit crisis and the weak economy. Once the economy revives, credit insurance will be less of an issue.

Because it is targeted at reduced coverage, any company that has cover completely withdrawn will not benefit - but, agian, that's okay, because its simply too much to ask taxpayers to cover contracts with customers that, in all liklihood, aren't going to honor their contracts.

The one problem is the timliness of the scheme. We're happy that the money will be in place quickly, but credit insurance has been a problem since last Autumn. The real damage has already been done. The French put in place a scheme last November and have been running it for months.

Manufacturers are asking themselves why has it taken so long to get a very similar scheme up and running in the UK...and at what cost?

Today saw the government take the next step in its more active approach to supporting the development of new technologies and markets, publishing more details in its ‘New Industry, New Jobs’ report.

This has little in the way of new policy announcements save for a few consultations and the promise of more detail to come soon. But importantly, it contains a number of admissions that the past over-reliance on the market has failed and left the UK behind its competitors.   For example it states that the government‘s role ‘needs to change to deliver a more coherent and effective approach… through more policy consistency across departments, greater regulatory certainty, smarter public procurement and a readiness to intervene where necessary.’ It also admits that countries like Germany and Denmark have forged ahead of us in the field of renewable energy because of their clear incentives to produce and use renewable energy and action to support research and development. There is also recognition that the government invests less in R&D than our competitors.      
 
What does this mean in practice? 

A number of areas for action and reform are identified, including innovation, skills, finance and infrastructure. In particular, the government will look at how best to meet the long-term capital needs of SMEs. There is also much talk of using the government’s £175bn annual procurement spending to foster innovation and support the creation of new markets.  In addition, the paper contains a commitment to identify the role that the government should play in a number of growing manufacturing industries. These include low carbon aircraft engines and wings, the shift from metals to composites, the growing role of renewable and biological substances in chemical manufacture and developing plastic electronics technology. Alongside this, the government will develop an action plan to take advantage of the opportunities presented an ageing society.    
 
The key question is whether the government will be able to deliver on these promises. Our history in this area and the timing of this new approach suggest that this will be an immense challenge.  Though the new approach appears more sophisticated than industrial policies from past decades, it will be important to learn the lessons from failed attempts to ‘pick winners’. Our lack of recent experience in this area compared with our partners in Europe is also concerning. But perhaps the biggest worry centres on whether the UK can really get the machinery of government working in a new way. This will involve getting an inherently cautious public sector to take a new approach to risk. Achieving such a culture change at a time when economic uncertainty is more likely to be pushing civil servants towards the cautious corner will not be easy. It is vital that the government recognises the size of this challenge and makes sure that it draws on the experience of the private sector.       
 
The dire state of the public finances will also inevitably constrain the government’s ability to provide more active support for industry. Though the government can achieve a good deal can by being more strategic and joined up, it cannot escape the fact that supporting the growth of new technologies is expensive. In addition, the government could easily undermine any improvements in Britain’s standing as a place to do business if it pushes through large rise in business taxation to claw back public borrowing or if it bows to public pressure for tighter regulation of employers.  The government must therefore match its new more active approach to working with industry by a renewed effort to make the public sector more efficient.   
 
Despite these concerns, the government’s admission that its current approach is not working is welcome and the idea it sets out are promising.  Let’s hope that we can spend the next few months discussing how to put more flesh on these bones rather than fretting about the economy sinking back into recession.  

Rather than wait for the government, Citroen has launched its own car scrappage scheme giving up to £2,000 to customers who buy certain new Citroen models.

It will be interesting to see if this has any impact on the Chancellor's decision in next week's budget...

After falling by almost 1% in the three months to January, EEF's latest pay figures show that although pay growth in manufacturing continued to slow in the three months to February, the pace of decline eased. 

The three-month average pay settlement slowed to 1.7% from 1.8%. More than half of pay deals were negotiated below 2%, partly reflecting the sharp decline in RPI inflation which is linked to many wage contracts. 

The survey showed a higher proportion of companies froze or deferred wage contracts indicating manufacturers continue to do their utmost to retain skilled workers. We have been stressing for some time that the government must also provide support to help firms hang on to workers, one solution being aid for short-time working.

These calls were echoed by JCB's Chairman who said wage subsidies for workers on short-time working would be "a better way of doing things".

The FT has an interesting report today on the use of short-time working practices on the Continent. Apparently more than 1million people in the EU are in short-time working schemes which are partly supported by government funding, but there's still no news of whether the UK is going to follow suit...