Treasury tries US industrial recipe

The UK Treasury is turning to the US ‘manufacturing miracle’ for inspiration on government policy for UK industry.

A detailed report by the Engineering Employers’ Federation, comparing the productivity performance in the US and the UK, will be put to a group of influential Treasury advisors within the next three weeks. The aim is to show that what has worked in the US could also work here.

The move follows harsh criticism by the Commons Trade and Industry Select Committee of the government’s failure to prove it has helped boost industrial productivity.

‘We cannot tell whether some of the department’s crucial objectives over the past three years — such as the promotion of enterprise, innovation and increased productivity — have been achieved,’ said committee chairman Martin O’Neill.

The EEF’s report, prepared last autumn, will show that in the US, companies have thrived on encouragement from government and financial institutions to invest and back their judgement.

Between 1990 and 2000, manufacturing output grew seven times faster in the US than here.

And in the US, some of the highest productivity growth has been in sectors which in the UK would be regarded as in long-term decline, such as textiles and shipbuilding.The Treasury is likely to consider US-style policies such as more generous tax incentives for R&D across all companies, and more lenient tax treatment of employees’ share options. Bigger tax allowances for capital investment are also likely to be examined, but this proposal has been turned down in the past.

The EEF’s report also says ‘corporate culture’ has played a crucial part in US companies’ success, giving them a head start on overseas rivals by fostering innovation and commitment from their workforces. But this is an area the Treasury has little control over.

The EEF stepped back from identifying any ‘British disease’ among UK engineering management. The research found that British managers working for US engineering companies were able to inspire the same high levels of workforce performance as their US counterparts.

Meanwhile, groups working to help industry gave a cautious reaction to last week’s announcement by Trade and Industry Secretary Stephen Byers of a £54m fund to promote innovation in the regions.

A spokesman for Advantage West Midlands, one of the four regional development agencies to take the lion’s share of the fund, said: ‘This fund is small beer. Our entire budget is a drop in the ocean in comparison with what is required to realise the change we need to see.’

Shadow secretary of state for trade and industry David Heathcoat-Amory said the innovation fund had already been announced in last year’s expenditure plans.’Most of business has never heard of it,’ he said. ‘What business really wants is fewer regulations and lower taxes. We would abolish the regional development agencies and use the money to reduce taxes.’