Manufacturing: the debate

Despite recent signs of a mini revival – output rose unexpectedly in June – UK manufacturing remains in a fragile condition. However, its fortunes can still be turned around longer term, with the industry defiantly remaining a world leader – and world beater –in many sectors, such as high-tech and advanced engineering, where exciting new opportunities are breaking through. Image: Click here for additional image That was the general consensus of MPs taking part in a Commons debate on the industry, where its current state of health came under close scrutiny. And while their generally cautious optimism would seem to be shored up by the reported increase of 0.4 per cent in manufacturing output in June this year, production in the previous three months was still a massive 42.8 per cent lower than for the same period a year ago. Nor were all MPs optimistic for manufacturing's future. Indeed, the long cherished image of the UK as a renowned manufacturing nation no long holds true, MP Kelvin Hopkins (Luton North, Labour) told the House as the debate got into its stride. "We have a gigantic trade deficit in manufacture, contributing to a very substantial balance of trade deficit, which is ongoing," he said. That was in stark contrast to countries such as Germany, for instance, "which has a massive surplus, as it has looked after its manufacturing better than us". John Penrose (Shadow Minister, Business, Enterprise and Regulatory Reform; Weston-Super-Mare, Conservative) saw much of the UK's manufacturing woes as a consequence of globalisation. "Many countries have become part of the global economy," he said, "and, because they have a particular advantage in low wage rates, have made huge strides in trading their way upwards and out of poverty… the unfortunate and painful downside for the UK has been long-term pressure on internationally traded goods, particularly those that are manufactured in this country. That has been a major factor in the erosion of Britain's relative competitive position in manufacturing." Image: Pat McFadden: others have fared worse Pat McFadden, Minister for Business, Innovation and Skills (Wolverhampton South East, Labour), conceded that the recession had had a serious impact in the UK – especially on the people who had lost their jobs and the companies that had gone to the wall. "We no longer have as many large manufacturing plants with thousands of employees as we did some decades ago. However, in that story of change, we must not be too quick to ascribe a story of failure and decline," he cautioned. "We do acknowledge that [impact], but I wish to say something about the scale of the impact. In the year to April, manufacturing output in the UK declined by 13 per cent, which compares with 14.6 per cent in the United States, 19.9 per cent in France, 24.3 per cent in Germany and more than 30 per cent in Japan. There has been an effect and companies have gone to the wall, but the United Kingdom has not been hit disproportionately hard, compared with other countries – some countries have done worse." Irrespective of the performance of other nations, though, and the recent signs of a possible improvement in UK fortunes – albeit from a low base – how is UK manufacturing's overall decline to be reversed? According to Adrian Bailey (West Bromwich West, Labour), the first thing that managers of small and medium-sized manufacturing companies in his constituency tell him is the importance of sustaining demand. "Without that demand for the goods and products that they produce, all the [Government] schemes are not worth much. The Government's commitment to bringing forward public spending and to sustaining demand is therefore crucial, in terms of the thrust of the policies that are necessary to sustain manufacturing and make for a recovery. "These people are not instinctively supportive of Government intervention and Government spending, but they argue, time and again, that if we do not have the general policies in place to sustain our manufacturing base, when the tide turns and the economy grows, we will not have the industrial capacity to secure the jobs and the profits to pay into taxes to pay off the public spending that we are incurring now." The overarching Government policy was right, Mr Bailey felt. But, while some pillars were working well, others were not. He did, however, single out the enterprise finance guarantee scheme – after a slow start – as playing an important part in ensuring the survival of manufacturing SMEs (small to medium enterprises). John Thurso (Caithness, Sutherland and Easter Ross, Liberal Democrat) was swift to defend UK manufacturing from accusations of having somehow fallen from its once elevated status to become somewhat obsolete and redundant: "It would be wrong to fall into the trap that many people fall into of regarding British manufacturing as somehow old-fashioned, outdated, ineffective, rooted in the past and of no consequence to the future," he warned. "Far from it; in manufacturing, the high-tech and advanced engineering sectors, in particular, and many others, are world-leading and world-beating. We should not only support them now, but nurture them into the future," he told fellow MPs. IMPORTANT, BY ANY RECKONING "We still have the sixth largest manufacturing industry in the world, comprising 12.6 per cent of the economy, by the gross value added – GVA - measure and three million employees. That is important, by anybody's reckoning. Certain sectors, including the steel and automotive industries, have suffered grievously, but the quality and strength of many others remain a success story that we must support." On which note, several MPs felt the demise or decline of certain manufacturing sectors should not cloud the outstanding opportunities to be had in emerging areas of technology – ones that could take the industry to new levels of accomplishment and global competitiveness. Mr McFadden fully supported this argument, saying that, since the time of the industrial revolution – "when we were dubbed 'the workshop of the world' – manufacturing has helped the UK to punch above its weight. And one of my principal points today is to counter the impression that we are not still a country that excels at making things; we most certainly are, but where once we led the way as producers of iron, coal and cotton, we are now blazing a trail in new areas such as robotics, software, new technology and advanced manufacturing. Image: Click here for additional image And he rejected the assertion that the UK was no longer a manufacturing nation. "I see the pride, passion and commitment of UK manufacturing in my own constituency, week in, week out." He cited as shining examples of continuing manufacturing prowess local manufacturers such as Goodrich in aerospace and Nuclear Engineering Services, which had built up excellent manufacturing industries, employing hundreds of other people and making excellent products. "Manufacturing is still a critically important part of our economy, employing 3 million people directly, with more in supplies and associated services, and contributing £150 billion to the UK economy." He also pointed to the UK's excellence and world leadership in some manufacturing sectors – for example, aerospace. "We have the second biggest aerospace industry in the world, with more than 100,000 people directly employed in the manufacture of aircraft systems, engines and equipment. We are fortunate to have world-class companies, such as Rolls-Royce, based here in the UK. It is a world leader in the production of aero engines, and provides a prime example of the kind of innovative and forward-looking manufacturing that is certainly part of our economic future." The role of the UK's manufacturing base in helping to attract significant inward investment was also singled out. "The UK is the world's second most popular destination for foreign inward investment," added Mr McFadden. "Investment projects in advanced manufacturing have increased this year by 18 per cent. So, even in the midst of a downturn, inward investment in manufacturing is a UK success story and we must not forget it." That success could still also be found in traditional areas of UK manufacturing, argued Michael Weir (Angus, Scottish National Party), who pointed to exciting new opportunities for many industries - shipbuilding and metal beating, for example – "in that their products could be used for the new green industries, particularly for offshore wind, for instance" – while Robert Smith (Aberdeenshire West & Kincardine, Liberal Democrat) stressed "what a world leader this country is in subsea engineering… that has come on the back of the oil and gas industry in the North sea". THE BIG SUPPORT THE SMALL Nigel Evans (Ribble Valley, Conservative) supported those views. "BAE Systems operates in my constituency where we have a superb plant… it employs 4,500 in the Samlesbury plant and 7,000 in the Warton plant, not far away. Thanks to the company's putting so much investment into the two plants in the north-west, many other jobs have been created in small enterprises. Frankly, many people could not name those small companies, some of them based in lock-ups, and would not even know what they were doing, but the existence of BAE means their existence. It would therefore be short-termist of any political party that takes over in 2010 or earlier, and is trying to save public funds, to cut defence expenditure and procurement." Nicholas Winterton (Macclesfield, Conservative) was particularly concerned that the Government did not place additional burdens – such as an increase in national insurance, Government-generated energy price rises, fuel tax and regulation – on manufacturing industry. "These are all important factors," he told the House. "When will he [Mr McFadden] reverse the crippling £16 billion cost – that is an official estimate – of constantly changing regulations and the £7 billion of new taxes introduced a year by his Government? When will he recognise that manufacturing industry is one of the only sources of sustainable, non-inflationary economic growth – a phrase that I have used over many years – and the key to getting out of this damaging recession? I put this to the Minister as a challenge: if the future of this country is to be built on modern manufacturing strength, when will the present Government start to encourage, and not de-incentivise, our industry and manufacturing?" Mr McFadden acknowledged the damage that had been done to UK manufacturing in general and stressed the Government's resolve to revitalise the industry. During the past year, he pointed out, the Manufacturing Advisory Service had helped nearly 8,000 manufacturing companies to improve their efficiency and effectiveness, boosting gross value added by some £120 million and, in many cases, helping to generate new sales. "We also have a £50,000 investment allowance, meaning that the 95 per cent of businesses that invest less than that sum a year are able to write those investments off, giving them the confidence to make the investment that our manufacturing industry needs." The need to support manufacturing through its current tribulations was paramount, he concluded. "Manufacturing gives shape and identity to our constituencies, and what goes for our constituencies also goes for our country. That is why manufacturing is such a crucial part of our economic future." First published in Machinery September 2009