EEF's weekly briefing on the issues affecting manufacturers including our regular round up of how we are representing manufacturers and the latest economic indicators.
Priorities discussed with Exchequer Secretary
As part of EEF’s campaign ahead of the June emergency Budget, EEF’s Chief Executive Terry Scuoler met with the Exchequer Secretary, David Gauke to discuss manufacturers’ priorities for deficit reduction and tax reform. Given the government’s commitment to rebalancing the economy, the EEF team stressed the need for the Budget to encourage investment. Specifically, EEF argued that the balance of the tax burden should shift more towards consumption through a VAT rise and off of investment, by modernising capital allowance. And as the government decides how to cut public sector spending, EEF stressed the importance of capital and infrastructure spending to manufacturers’ orders books and to long-term economic growth. We did urge caution, however, when the discussion shifted to the coalition’s plans to reform capital gains tax, suggesting the government should consult on reforms that encourage long-term investments by entrepreneurs, investors and employees.
Briefing key economic policy makers on state of manufacturing
Ahead of publishing our quarterly Manufacturing Outlook report, EEF’s economists met with the Deputy Governor of the Bank of England, Paul Tucker, to discuss the improving trends across industry, credit conditions and some of the potential risks to the recovery. Separately we also briefed officials from the Business Department on our latest survey results and issues currently facing manufacturers.
For further information contact Lee Hopley, Chief Economist
Pressure kept up on employment red-tape
We have also met with officials at the Department of Business to discuss potential changes to the Working Time Regulations which we believe must follow two ECJ judgments last year (known as Stringer and Pereda) that have profoundly challenged the way UK employers manage the interaction between sickness absence and holiday entitlement. Members can read more about this issue here, while there is publically available information on the BIS website. In our meeting we argued for a revision to the regulations and guidance to clarify these issues for employers.
For further information contact David Yeandle, Head of Employment Policy
Vince Cable’s first major speech: ‘I am a liberal. I am a free trader. I believe in open markets.’
The Business Secretary this week made his first major speech outlining his priorities for his Department.
Setting out his vision for BIS, he said the Department’s central task would be to make sure ‘that Britain is a place where enterprise and innovation are made easier and can succeed’. He also highlighted the difficult task of balancing the need to reduce the deficit with the need to promote growth, arguing that he was now convinced of the need for earlier action on the deficit.
Dr Cable was outspoken on the banks before and during the general election and he confirmed the government’s intention to look into splitting retail and investment banking, introduce a banking levy and, crucially for business, ensure that banks that are largely owned by the taxpayer are not depriving credit to viable businesses. This will be welcome news to EEF members, many of whom are yet to see any significant improvement in credit conditions, according to our most recent survey on this subject.
Turning to the important debate on rebalancing the economy, Dr Cable seemed to reject aspects of his predecessors' more active approach to industrial policy. Instead he took a similar line to that set out in EEF’s Manufacturing. Our future., namely that government should make strategic decisions about what Britain is going to be good at in the future and then direct scare resources and take action to develop capabilities in those areas. He described his approach as ‘supporting enterprise, but rarely selecting individual enterprises for support.’ He also rejected the idea of protecting industries from international competition.
The speech also touched on a new government action plan to tackle red-tape. Here the government has some good ideas including the idea of a so-called ‘one-in, one-out’ approach to new regulations, which means that new legislation can only be introduced if existing legislation of equal cost is removed. The government has also announced a review of all pending legislation, including the Agency Workers Directive. While we have welcomed this review, somewhat counter-intuitively we have urged caution on Agency Workers. This is not because we support the legislation – we do not – but because it was agreed after a series of compromises and any blunt attempt to revisit the legislation could simply see that compromise fall apart and the trade unions once again push for a tougher proposal. We are also concerned that despite the good words here, the government appears determined to push on with plans to scrap the Default Retirement Age and extend the right to request flexible working to all employees.
Other areas covered in the speech included skills and takeovers, where Dr Cable is pushing for a review to ensure that the Takeover Panel looks at long-term shareholder value when assessing potential mergers or acquisitions.
EEF was one of the first business organisations to meet with the Secretary of State and we hope to work closely with him and his team on all these issues over the weeks and months ahead.
In the News
We commented on a broad range of topics in the news this week. During the course of the week we to a number of announcements including the Business Secretary's plans to cut red tape which was covered in the FT and Daily Telegraph, and his speech outlined above in the FT again and the Guardian. Earlier in the week we also published our quarterly survey on access to finance. We commented in the trade magazines on a wide range of issues including pensions and sickness absence in Professional Pensions and Personnel Today, whilst companies in the North West may be interested in seeing this report on the seminars we are running in the region in the Liverpool Daily Post.
Week in Review
The manufacturing PMI remained at 58.0 in May, still at its highest level since September 1994. Whilst output, orders and employment balances all fell slightly, each remains in positive territory. Price pressures were evident in the survey: May’s balance for input prices was up 1.7 points to 75.4 and the output price balance was up 2.4 points to 61.1.
The construction PMI rose to 58.5 in May – its highest level since September 2007 – this indicator has now returned positive balances for three months. All three construction sub-sectors – housing, commercial and civil – had positive balances. The construction employment balance improved by 3.9 points to 50.8 the first time this indicator has been above 50 (which indicates a positive balance) since May 2008.
BoE Lending to Individuals
Bank of England data shows that total net lending rose by £0.4bn in April. This was composed of a £0.5bn rise in net mortgage lending and a fall in consumer credit of £0.1bn. The annual growth rate for consumer credit has now fallen to -0.1%.
The PMI for services rose slightly, by 0.1 points in May, to 55.4. This follows two monthly falls. However, the balance remains above 50 and close to the long run average. With a balance of 58.2 input prices are still rising, though at a slower rate than last month. The employment balance for services dropped below 50 to 49.7 showing some weakness in the labour market.
The week ahead
Tue 8th: BRC/KPMG Retail Monitor
Wed 9th: UK Trade
Thu 10th: MPC Announcement
Fri 11th: Index of Production
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