Getting investment going

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Last week we had the good news that GDP didn't contract, and in fact actually grew 0.3%, in the first quarter of 2013. While these numbers are positive, we can't get away from the fact that there remains little underlying expansion and a lack of demand in the economy as a whole at this time. While this is expected to pick up over the course of the next couple of years, we can't help thinking what more can be done to get the economy growing and rebalancing now.

In a survey we ran last year we asked manufacturers about their investment over the past few years and their investment plans going forward, and the barriers they face when investing. We also asked manufacturers the very question posed above. Specifically we asked manufacturers – what policy change would lead the company to increase the level of investment in the UK?

An Industrial strategy would have the biggest impact on investment in the UK

Perhaps not surprisingly, greater certainty in the policy environment would have the biggest impact on manufacturers' investment in the UK. The investment cycles generally spans multiple political cycles so greater confidence over aspects of the business environment will lower the risks of an investment being unprofitable.

  • 19% of manufacturers said a long-term strategy for manufacturing would have the biggest positive impact on investment in the UK.
  • 53% said it was among the top three changes that would positively impact investment in the UK.

An industrial strategy needs to be based on a wide range of policies that matter for business

An industrial strategy needs to be informed by businesses priorities and needs to focus on getting the policies that affect investment incentives right for the broadest possible base of businesses. The chart below shows the top five policy changes that would have a significant impact on investment in the UK.

  • The tax system is both an enabler and a barrier to investment. Making sure the country's taxes work, as much as possible, to promote investment means the government has many tax levers available to encourage greater investment, including, but not limited to, capital allowances, the R&D tax credit and the overall burden of tax.
  • The finance environment has been changing since the financial crisis and is restricting the ability of firms to finance investments. Over a third of companies report they have viable investment going unfunded because of difficult credit conditions associated with external finance. The government could do more to encourage greater competition in the banking sector to improve credit conditions for businesses.
  • The government has an important role in ensuring the economy has, and will continue to have, the right mix and supply of skills to support a growing and rebalanced economy. Four in five manufacturers report having problems with recruitment.
  • UK companies face higher energy costs than most of our key competitors, putting us at a disadvantage. Government policy has had a greater impact on energy costs in the UK than elsewhere.
  • The UK does not tend to innovate quite as successfully as other countries despite a strong science and research base and many highly innovative individual companies. The balance of government support is weighted towards early-stage research and the government could do more to help companies convert basic research into products and services that will make a profit.

As you can see, the policies that are important for manufacturers are broad and are not specific to the manufacturing sector. There is no single action or lever that will deliver the large shift in investment that our economy needs. Rather the government has a role in providing clarity and certainty about its priorities along with concerted activity to reform the policies that will support the widest group of companies to invest.

More information and research can be found in EEF's report Invest for Growth, encouraging more globally focused companies to expand in the UK.


This person has now left EEF. Please contact us on 0808 168 1874 or email us at if you have any questions.

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