Politics

Should the government do more to support manufacturing?

November 24th, 2014
Author: Economic Voice Staff

Reviving the British manufacturing sector is a key government policy, with an ambitious target to increase exports to £1 trillion by 2020 and a new body, Reshore UK, being set up to make it easier for companies to bring their manufacturing back to the UK.

The uplift in reshoring is being heralded as a turning point for manufacturing in the UK. However, despite high profile cases like Hornby, who reshored model train production to East Sussex from India, and Jaeger, who brought 10% of production back to British shores, this is being described by financial and industry press as a trickle rather than a flood.

Things are far from plain sailing for those companies already based here too. This summer saw a 20% increase in the number of manufacturers entering insolvency as growth stalled across the sector, the sharpest drop in any business segment in the UK. This lag is expected to continue into the final financial quarter of the year. As they are so reliant on exports, manufacturers are being particularly badly hit due to weak worldwide growth, despite increased consumer confidence at home.

Should the government do even more to help the British manufacturing industry?

Wider economic benefits

Drill Bits (PD)One of the main drivers of the government’s support for British manufacturing is a 2013 Department of Science report highlighting the need to nurture the sector to remain globally competitive. It points out that countries with a strong, export-led manufacturing base tend to recover faster from recessions. As the UK’s over reliance on the financial sector was criticised by the IMF as one of the reasons it was so badly hit by the global economic downturn, this seems to give a strong argument for continued investment in growing the manufacturing sector.

Since the 1970s we’ve been so used to hearing about the decline of manufacturing in the media that it may come as a surprise to realise that although it only represents 14% of the British economy in 2012, as opposed to 41% in 1948, this is in line with other G7 countries. And while Japan’s manufacturing sector is the second biggest in the G7 at 19%, its economy shrank by 7.1% in the second financial quarter of the year as it struggles to emerge from two decades of stagnation. Clearly, manufacturing is not a cure all for economic ills.

Job creation

According to the Department of Science report, by 2050 there will be 800,000 manufacturing jobs in the UK and the prospect of creating more employment is a strong argument for increased investment in the sector.

This could particularly benefit young people through growing the number of manufacturing and engineering apprenticeships available. The number of apprenticeships in this area fell by 5% in 2012/13 [1] when nearly a million under-25s were unemployed.
As it is predicted that manufacturing growth in the UK is going to be increasingly high-tech and include offering services as well as making objects, jobs will be increasingly skilled and well-paid. If even a proportion of this employment is located in some of the areas blighted after the shutdown in British industry during the late twentieth century, this could be a powerful force for regional renewal and help rebalance the economy geographically too.

Infrastructure

Manufacturers and exporters of physical products need a robust infrastructure system that will allow them to transport their raw supplies, parts and products around the country quickly and efficiently. Britain’s hollowed out infrastructure links are held up as a major impediment to growth in the sector, which is particularly pressing as shortening supply chains is one reason that businesses are choosing to reshore production.

Congested road and rail links increase costs for businesses. To build the export-led manufacturing sector the government wants, there needs to be sufficient capacity at major international airports and at the Channel Tunnel.

The benefits of reducing congestion and improving transport provision would be felt by other business segments, who would find it easier to move personnel and equipment around the country, and by the general population. Another knock-on effect would be creating new jobs in the construction and transport sectors.

Should the government do more?

There are powerful arguments for increasing support to manufacturing but it’s also important to be realistic about outcomes. Finance and services are still likely to remain the biggest economic drivers within the economy. Services will be increasingly important within manufacturing too, following the precedent of existing well-performing companies such as Rolls Royce, who in 2013 derived 47% of their income from aftermarket parts and services.

Highly-skilled workers will be needed to fulfil growth of a high-tech manufacturing sector, including possibly recruiting leading talent from abroad, meaning that a return to the days of mass employment for low-skilled manual workers may not happen.
Before making promises of further support, it would be wise to see what results the current levels of investment produce.

[1] www.gov.uk/government/statistical-data-sets/fe-data-library-apprenticeships–2

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