The government’s industry policy was attacked from two sides this week as the Engineering Employers’ Federation and backbench MPs drew attention to the effects of the strong pound and employment regulations on manufacturing.
Speaking at the EEF’s annual dinner, Bruce Ralph, the EEF president, said the Bank of England’s monetary policy committee was making the investment climate harder.
`There have been 16 changes to UK rates since June 1997, compared to just six in the US in the same period. As a result, there must be a danger this will begin to damage the confidence that the process was set up to promote,’ said Ralph, former managing director of engineering group Glynwed.
`The upshot is extreme pressure on export margins, pressure towards short-term management and a reluctance to invest,’ he added.
He called for tax measures to dampen the housing market and make investment easier. In its joint budget submission, to be published later this month, the EEF is expected to recommend a rise in stamp duty and 100% first-year capital allowances.
Exchange rate problems were being compounded by too many new regulations, Ralph said. These include forthcoming codes on part-time workers and the right to be accompanied at grievance and disciplinary hearings. `The collective impact on a small business, let alone a large one, is substantial,’ he said.
Higher unemployment could result, he added. `There is always a trade-off between well intentioned and sometimes necessary social legislation, competitiveness and jobs. While there may not be a problem at the moment, eventually there will be.’
Earlier this week, Labour members of the Trade and Industry Select Committee questioned trade and industry secretary Stephen Byers on the damage caused to manufacturing by the level of the pound.
Byers said the government would work with industries like textiles which had been hit particularly hard by the value of sterling against the euro. But the government would not try to influence the exchange rate itself, he said: `Our policy is not to take short-term measures which will cause problems in the medium and long term.’
Replying to criticism from Conservative members of the committee over excessive red tape, he said the DTI was trying to reduce new regulation. `I would like to think people are noticing a difference,’ he said.
* The national minimum wage will rise by 10p to £3.70 per hour for over-21s from October and by 20p to £3.20 for 18-21-year-olds, Byers announced on Tuesday. `We do not intend to let the minimum wage wither on the vine,’ he said.