Putting your money where your ideas are

Investment is the key to economic health. The government is offering incentives for R&D, says Fiona Harvey. Why isn’t industry spending?

Gordon Brown’s seventh budget had its pluses and minuses. A plus was the government’s continued backing of industrial growth in the form of an extension of the R&D tax credits he introduced in 2000. This recognition that research is the lifeblood of the country’s economic future is to be applauded.

True, many heads of industry would argue the tax credits are a drop in the ocean. But they are a positive step for science, and one that engineers should make the most of. Now is the time for the industry to do its bit and show faith in its own future by investing in research – a time for the UK’s firms to do and dare.

Gordon Brown likes science. At the opening of the National E-Science Centre in Scotland last year he emphasised that the future economic health of this country relies to a great extent on our prowess in science, research and engineering. And he has been putting his money where his mouth is. However much Labour MPs insist that the ‘softer’ service sector should become the engine of growth, we cannot ignore the ‘harder’ industries, to which engineering is key.

There is no denying that it is not an easy time for engineering. Vulnerable to severe competitive pressures, companies are looking to areas with lower labour costs, such as the Far East, or to the Eurozone to reap currency efficiencies.

But other industries are equally vulnerable. Telephone call centres, which once provided employment to depressed areas of the UK, have been re-sited to the cheaper labour markets of India and China. Software development is also moving to ‘factories’ in the Far East, India and eastern Europe.

The manufacturing sector, which much of the engineering world services, is buckling under competitive pressure, a worldwide drop in demand and stubbornly high costs. Even Blair’s new best friends in the US are adding their bit to the problem, with punitive steel tariffs to protect their domestic market.

We must accept these realities, however. The only way forward for industry is to invest in the ideas for which this country is renowned. We must reinforce Britain’s traditional engineering strengths, in areas such as innovative design, leading-edge research, precision engineering and scientific creativity.

For all Mr Brown’s enthusiasm about our scientific prowess, industry must put its money where its mouth is too. The sharp decline in investment in the UK is one of the most dangerous problems for the economy today. Investment levels have fallen off a cliff, in the steepest drop since World War II.

The Confederation of British Industry has recorded the plunge with some disbelief, and has been exhorting industry to reverse it. The rest of us can only look on in despair. Yes, the international economy is undergoing a difficult slowdown. Yes, the uncertainties of war and terrorism have played a part. Yes, globalisation, competitive pressures and a strong pound have not helped.

But even taking all those factors into account the extraordinarily low levels of investment show a very bleak outlook. It speaks of a terrible lack of faith in the future. What will our future be if we do not invest for it?

If we can suffer such a devastating lack of investment while interest rates remain at a 40-year low, will we ever manage to reinstate the levels needed to modernise our engineering base? Without such investment the UK economy will stagnate, bleeding jobs to Europe and the Far East, losing expertise to the US, chipping away at a worldwide respect and reputation for engineering excellence built up over centuries.

It won’t end with a bang, but with a whimper. And once it’s gone there will be no hope of getting it back.

Now is an ideal time to invest. The low interest rates make investment attractive. The uncertainty of war has disappeared. The upturn may still not be in sight but investment now will enable companies to be ready and in good shape for that upturn when it does arrive. Investment in R&D is vital for the long-term health of this country. Mr Brown has done some and should do more to encourage it, but the real will, determination and faith must come from within industry.

Fiona Harvey is technology writer for the Financial Times