A brief update on recent developments, with commentary. As always, it does not aim to be comprehensive, rather to highlight important points.
On manufacturing and advanced engineering, I suspect the government is facing growing frustration from outside and internal tensions:
- In The Times yesterday (February 17th), Dr Clive Hickman, in effect calls for a national manufacturing strategy. Hickman is CEO at the MTC, part of the government-funded High Value Manufacturing Catapult. There have been rumours that such a strategy might be developed but there is no evidence of one, nor is one promised.
- Notably, there was little about manufacturing in the Levelling Up White Paper this month – even though the paper appeared to take a step forward in policy, declaring that “we must… reverse the decline in manufacturing in the UK”. But that was a lonely statement, with little or no substance to support it as to how this would, or even might, be done.
- The HVMC has a vision of doubling the contribution of UK manufacturing to the UK economy to 20% by 2030. But that vision has not been agreed with the business department, BEIS, which appears reluctant to express a view.
- Cabinet-level differences are apparent in public comments from those who want to roll back the role and size of the state and those who feel the state has been too arm’s length. The first camp appears to include Steve Barclay, whose appointment as No 10’s new chief of staff was part of a plan, the PM said, to accelerate the levelling up of the country; and in the second camp is Michael Gove, the Levelling Up secretary of state who argues that traditional free market economics has failed outside London and that only greater state intervention can level up the country.
- HM Treasury’s position is characterised as “there is no money”. Low levels of financial support was the biggest criticism of the Levelling up White Paper.
- There is a fault line in government policy. Ministers appear to equate investment in R&D and innovation, for example through UK Research & Innovation (UKRI) and the HVMC, too closely with investment in manufacturing. The two are quite separate.
- More investment may be needed in R&D; more investment is certainly needed in manufacturing – process improvement and technology adoption. This is urgently needed in a time of supply chain re-alignment and rapidly changing technology.
- The Levelling Up White Paper references the examples of South Korea and Israel as places where innovation has boosted manufacturing. Both those countries have substantial investment support schemes and South Korea has a specific tax regime for firms bringing manufacturing back to the country.
- The government is currently considering a new business support scheme, to follow on from the CBILS and more recent Recovery Loan Scheme (and EAMA is urging it to be ambitious in its support of manufacturing investment). Whether it will amount to much more than a re-hash of the Enterprise Guarantee Scheme, remains to be seen.
- Also in The Times today, columnist and chief leader writer Simon Nixon suggests the UK might learn valuable lessons from Italy’s approach to levelling up, which involved ambitious support for business. Having just returned from Italy, he says the confidence of business leaders there is palpable, in marked contrast to the past decade. My understanding is that targeted investment support for manufacturing has left it well placed to complete internationally, benefiting the sector and the broader economy and ensuring well-paid jobs, IP and tax revenues and maintained.
- Meanwhile the short-term reality is that sectors of UK manufacturing face an “existential threat”, according to representatives of intensive energy users, such as steel and ceramics. Soaring energy costs are reducing competitiveness against our near neighbours, which have lower costs and greater levels of energy cost support.
- Clive Hickman’s MTC has just compiled its first Reshoring Index, in which it concludes that the UK is becoming increasingly reliant on low-cost imports from the Far East. (Source: www.machinery.co.uk )
- We would welcome any thoughts on reshoring, including specific wins and the reasons for them.
- There has been notable support for some large companies. For example, UK export Finance now guarantees loans to Jaguar Land-Rover of more than £1 billion. The greater challenge is to increase the support for SMEs in manufacturing and advanced engineering.
- Meanwhile, inflation in the UK is reported to have reached its highest level for 30 years. CPI has reached 5.5% and RPI 7.5. Expectations are rising that the Bank of England will increase interest rates to contain inflation, despite slowing economic growth.
- It is a critical time for pressing the government to increase support for manufacturing, and I intend to produce a policy paper shortly. One of the strongest messages I am getting is that firms want longer-term commitment and clarity from government, including on tax measures such as investment allowances; but also support on a greater and broader scale. Meanwhile, we will continue to try to help government to understand our sector and the supply chain. Links to reports on the importance of UK manufacturing are here: True Impact of UK Manufacturing – EAMA
- The new Brexit opportunities and government efficiency minister, Jacob Rees-Mogg, has been much in the media. In an article in the Sun newspaper, he promised reform to allow small firms easier access to public contracts, to reduce regulations on sole traders, and a new approach to data. It seems, however, that maintaining data adequacy with the EU will be an important consideration in any reforms.
- He asked Sun readers to suggest to him old EU rules he could scrap or reform, a request widely ridiculed by political opponents.
- On a visit to Felixstowe this week, Rees-Mogg told reporters: “I think Brexit has been extremely beneficial for the country. I think the evidence that Brexit has caused trade drops is few and far between.”
- Those opposed to Brexit appear to have stepped up their campaign against the current government, with leading figures attacking the PM’s honesty, planting the thought that if the PM goes Brexit goes – that “the wheels are coming off the Brexit bus”.
- Labour leader Sir Keir Starmer stated in a widely-reported radio interview: “We have exited the EU and we are not going back. Let me be very clear about that… There is no case for re-joining.” Starmer said he wanted to see the UK having a clear Brexit plan – something the government has been widely criticised for lacking – and taking advantage of the opportunities of Brexit. Many remain campaigners were disappointed; the Daily Telegraph suggested that he had made a U-turn that took the public for fools.
- Special relationship? Lord Frost, has just said that it was never government policy under Boris Johnson to seek a “special relationship” with the EU. Nor should it be, it added – we should treat each other as close neighbours but third countries. Frost was responding to an article by Darren Jones, chairman of the Commons’ committee covering BEIS, who says that the UK thinks it should have a special relationship. “The British need to make sure we’re in Brussels more often, working on our shared goals and making the case for the special relationship we ought to have in the future,” he says. No-one has yet asked Lord Frost if it has been the Johnson government’s policy that we should retain a special relationship with the US.
- Rees-Mogg and the government’s statements on Brexit have so far failed to offer any detail; similarly, Starmer’s new position lacks detail.
- Meanwhile, the disputed implementation of the Northern Ireland protocol remains an obstacle in trade talks between the UK and the US and means that the UK’s involvement in the Euro100 billion Horizon Europe project remains on hold.
- EAMA is keen to continue to understand the impacts of Brexit on the machinery and component sector – positive and negative – as they develop. Our submission to the House of Commons’ international trade committee last month is here: Microsoft Word – EAMA submission ITC EU trading relationship inquiry.docx
Feedback on these issues is welcome; as always, in confidence.