The week the general election was called seems a good time to take stock of the problems facing UK manufacturing. Although there has been some good news about new investments in the automotive sector, this masks the heavy cost to UK suppliers. Take Nissan’s pledge to build the new Micra in the north-east – it was on condition the plant achieved a 25-30% manufacturing cost reduction. Or take the management of the recently- opened BMW engine plant near Birmingham – BMW has stated that over 90% of bought-out components will not come from UK suppliers but from Germany and Austria, which have strong business links with central Europe.
These are just two examples to show that the UK component supply chain is being severely damaged. Indeed, judging by the article in The Engineer, the DTI seems to want UK companies to relocate production to central Europe. This is quite staggering, given the DTI’s stated commitment to UK manufacturing.
The weakness of the euro has also reduced our competitiveness in Europe, with the result that about 350,000 manufacturing jobs have been lost since 1997. This year the EEF forecasts a further 65,000 job losses in the engineering sector alone – a collapse in manufacturing profitability to a level which is 60% lower than in 1997 and likely to decline further.
Although, in the short-term job losses have a positive effect on productivity, the steady downward trend in investment spending continues.
This is the biggest concern for the long-term future of UK manufacturing. The imbalance between manufacturing and services now threatens the stability of our whole economy which grew a paltry 0.3% in the first quarter this year.
After the election our new government must change the measure of inflation, which, under the RPIX method, is overstated compared to the eurozone. This has made for an overly- aggressive interest rate policy since 1997 and consequently an over-valued pound.
We need 100% first-year capital allowances for new plant and equipment. The government sanctions it for investment in IT equipment, but only allows 40% for new production machinery, which, ironically, has more embedded microprocessors than a PC. The introduction of R&D tax credits is a step forward but the level of bureaucracy will deter firms from applying.
The government and its agencies should recognise the high costs of engineering training and give extra funding support.
And the new administration should delay introducing the climate change levy – another cost the ailing manufacturing sector can ill afford.