It claims that UK firms are mainly too small to export their goods, lack the structural position and capabilities to build capacity and are vulnerable to investment decisions taken overseas.
The study challenges the City view that ownership does not matter, because the pattern of ownership has created a ‘new British disease’ of broken supply chains.
Large technology-based, civil-market-dominating and British-headquartered manufacturing firms, such as BAE, pharmacology companies and Rolls-Royce, are an exception to the rule.
‘If we look more broadly across engineering, half of intermediate purchases are imported by UK manufacturers, compared with one-third in Germany,’ said co-author Sukhdev Johal, Royal Holloway University of London.
‘Unless we fix this problem, the benefits of any renaissance of British manufacturing will leak abroad to mainly west European suppliers.’
The report found that British manufacturing is increasingly dominated by small workshops; the number of factories employing more than 200 people has halved to 2,000 since 1979.
Three-quarters of manufacturing employment is now in workshops employing 10 or less workers and the number of such workshops has doubled in the past 25 years.
The report authors propose a new policy approach of sector-wide tax incentives for manufacturing firms to increase output, invest in capacity and up-skill their workforce.
CRESC director Prof Karel Williams added: ’The problem with cutting corporation tax for all firms, as the chancellor proposes, is that you give away money to lots of firms who do what they were going to do anyway.
‘Much better to target the financial assistance on changing the behaviour of small and medium manufacturers.’