EEF blog

Our Director of Policy and Chief Economist Steve Radley was asked by Reuters to write an article on manufacturing and the role of economic policy.

You can read about how the 'Government must act on bold promises to UK manufacturers' here.

Pay settlements in manufacturing continued to trend downwards in the three months to March, according to EEF's latest Pay Bulletin survey. At 1.6%, the three-month average pay settlement hit a new record low, falling from 1.7% in the three months to February.

Only 12% of all pay deals were negotiated above 3.5%, while more than half of deals were settled below 2%. Since many wage contracts are linked to RPI inflation, which turned negative in March, we expect wage growth to slow further this year.

Manufacturers continued to do their utmost to retain skilled workers as the proportion of companies freezing pay rose to 43%. 

David Yeandle, EEF's Head of Employment Policy, said:-

"This continued squeeze on pay demonstrates very starkly not just the severe impact that the economic downturn is having on manufacturers, but the efforts companies, employees and their representatives are making to avoid redundancies."

Here's David talking about the survey and other employment issues tonight on BBC News 24 last night.

It's been a busy couple weeks for us, so we thought we'd give you a quick round up of some of the intersting stories that you might have missed:

Stephen Radley's latest column in The Manufacturer looks at a very Taxing Problem facing manufacturers.

In the FT on Tuesday, Brian Groom wrote up our report on taxation and competitiveness.

And in today's Telegraph, Richard Tyler looks at the political implications of our tax report.

Despite cash constraints and the ongoing recession, manufacturers invest for the long term. So despite cash constraints and the ongoing recession manufacturers are looking to the future, knowing that the investments they make now will determine their competitiveness in the future.

But the corporate tax system needs a strategic overhaul if investment in manufacturing investment is to drive the upturn and help build a better balanced, high value UK economy.

According to the report ‘A Manufacturing Future – Competitiveness and taxation in the UK’, much of the UK’s business tax system remains rooted in the past and is actively constraining manufacturers’ investments, compounding the credit crunch and limiting the extent and benefits of a balanced economy.

Politicians of all stripes must match their commitment to promoting a more balanced economy in which manufacturing plays a greater role by addressing the current failings in our tax system. We need a system which continually evolves to reflect the realities of rapidly changing technologies and global competition. In particular, the government must ensure that the taxation of investment reflects the true costs of high-value manufacturing investment.

NOTE: To help us set out a long-term tax strategy for manufacturing and a better balanced economy, we set up EEF’s Business Tax Panel, a diverse group of our members. Supported by PricewaterhouseCoopers and working with a range of government officials and independent experts, the group believes the UK needs a more coherent tax strategy, one designed to deliver a diverse economy.

Commenting on the report, Andrew Churchill, managing director of JJ Churchill and a member of EEF’s Business Tax Panel, said:

“Running a sub-contract precision engineering business, surviving the recession will be painful.  The much more substantial challenge will be surviving the upturn.  In a high-labour cost economy, the only reason we remain in business is through process innovation that is inseparably hitched to the rapid evolution in machine tool technology. Quite simply, if we fail to aggressively re-invest in capital equipment we are accepting a rapid erosion of our competitive advantage – in essence we increasingly compete on our cost of labour, a battle we know we can’t win.

“Currently, our tax system fails to recognize the importance of capital investment to manufacturing or the advanced technologies and short lives of modern machinery. In buoyant times, this puts a hidden brake on the abilities of companies to re-invest; in recession it positively discourages the one thing the government must catalyse if, in the upturn, we’re to have a balanced economy.”

The news that Toyota is to reduce pay and working hours  at its factories in the UK, is another example of some of the strategies that companies are using to avoid redundancies and hold on to skilled employees.

Earlier this week EEF released figures on this to the FT. Out of the 600 companies we surveyed:

• 36% had frozen pay and 30% were considering it
• 6% had implemented pay cuts
• 23% had introduced short-time working and 19% were considering doing do

Nonetheless, more than a third of manufacturers said that they had made staff redundant, while pay settlements in the sector had fallen to their lowest level for more than a decade.  A large proportion of these redundancies came from the automotive sector; without wishing to make EEF sound like a stuck record...the question remains as to whether the government is willing to step-in to help companies retain skilled workers and minimise potential losses spreading to other sectors. 

 

Our Chief Economist, Stephen Radley, has started writing a monthly column for The Manufacturer magazine, the first of which you can read on their blog.