Elections to impact UK industrial strategy

The run-up to the general election is an uncertain time for business leaders who nevertheless believe the next government will back UK manufacturing


Change can be a scary thing. Many of us prefer to stick with what we know for fear that the unknown might be even worse. Better the devil you know indeed. It’s even more the case for investors and companies, and elections are about the most potentially disruptive event that can befall a country, other than truly unknown unknowns such as financial crash.

The corporate world wants to eliminate as many variables as possible, but elections can often herald a change of government that upsets, if not upends, the apple cart.

Companies in the manufacturing sector are preparing for such an eventuality on the morning of May 8, when Britain should know whether David Cameron will get to stay in Downing Street or make way for Ed Miliband. While the composition of the next parliament is impossible to predict, one thing is certain: either the Conservatives or Labour will lead Britain’s government for the next five years.

There’s always a fear that, if there is a change of government, babies could be thrown out with bath water

For Terry Scuoler, chief executive of EEF, the manufacturers’ organisation, his primary concern is ensuring continuity in industrial strategy in the months and years after the election.

“Investment cycles are not linked to five-year parliamentary terms,” he explains. “I think we’ve got a number of positive initiatives underway to support the growth agenda, and there’s always a fear that, if there is a change of government, babies could be thrown out with bath water. I hope that’s not going to be the case.”

To ensure a seamless transition for EEF members with the new government, its executive team has been “talking a lot to the Labour front bench”. Mr Scuoler’s main fear is that a Miliband government could dismantle some of the initiatives implemented by the coalition over the past five years, such as more funding for apprenticeships, ringfencing the science budget at 2010 levels and doubling funding for UK Trade & Investment (UKTI) to promote exports.

IDEOLOGICAL CHALLENGES

Funding for many of these programmes expires in April 2016 and he worries that a Labour prime minister might face more “ideological challenges” in winning funding for these types of initiatives. “Ed Miliband does need to reassure British business that he is an ally and show that he appreciates the sector,” the EEF chief adds.

Yet Mr Scuoler might be pleasantly surprised that, in many respects, he and Labour appear to be singing from quite a similar hymn sheet. Iain Wright, the shadow industry minister, says that his party aims for stability in industrial policy. “We want to provide as much certainty as possible to ensure we attract as much inward investment and as many good manufacturing jobs as possible,” Mr Wright says. The MP for Hartlepool adds: “We’re very short term in our outlook – good manufacturing businesses are much more long term in their thinking. We’ve got to align with that as much as possible to ensure manufacturing is a success in Britain.”

In Mr Wright’s mind, the coalition is on the right track with its industrial policy, but has not done enough to foster innovation, which he says ought to be at the heart of British manufacturing. There has also been a failure to pay enough attention to sectors such as food and drink manufacturing where Britain is strong and has a global reputation. Neither is the UK selling as much to the rest of the world as it should. “Exports are key and we don’t achieve our potential – we’re underplaying our strength,” he says.

GLOBAL OUTLOOK

However, Mark Stephenson, UK manufacturing lead partner at Deloitte, argues that UKTI has done a good job of encouraging small and medium-sized manufacturers to adopt a global outlook, and develop products with exports in mind. He says politicians from all sides have become cheerleaders for manufacturers and helped the public to recognise the sector’s importance to the economy. But Mr Stephenson also notes: “It’s crucial that politicians continue to champion the increasingly highly technical, modernised and inventive industry that is UK manufacturing.”

No matter who forms the next government, he believes a more coherent industrial strategy that identifies key manufacturing hubs to help bolster the whole ecosystem is important. “Support from the government is crucial to the long-term success of the industry,” he says.

Mr Scuoler says the EEF is not happy with all aspects of government policy, most notably the Tory stance on Britain’s ongoing membership of the European Union. “The possibility that we could leave the EU is not something that we are comfortable with and it is causing uncertainty,” he says. Yet overall it is a “balanced scorecard” for the coalition, which delivered economic growth of 3.5 per cent in 2014.

“We have, to a large degree, rediscovered manufacturing and engineering, but there’s a long way to go. Until I see business investment above pre-2008 levels, until I see exports rising strongly, the net trade gap decreasing and more being spent on research and development, and applied research, we’ll not be able to tick all those boxes,” Mr Scuoler says. “Whoever comes into government on May 8 just needs to have the courage to continue to put the foot on the austerity pedal, but still drive the levers of growth.”

BALANCING ACT

That could prove to be a tricky balancing act, particularly if some of the storm clouds on the horizon become more ominous. Those clouds include the slowdown of many economies in the eurozone, which accounts for half of Britain’s exports. The most recent Deloitte CFO Survey found that economic weakness in the eurozone and deflation were two prime concerns for chief financial officers and corporate Britain this year. They are all reasons why the EEF boss says that headwinds for manufacturers are more severe than they were 12 months ago.

Yet it should not be forgotten that the UK economy is set to perform better than any other European country this year, giving the next government the prospect of healthy tax receipts which can be spent on assisting sectors such as manufacturing. And following the dramatic slide in the oil price, lower energy costs are in effect a tax cut for both businesses and consumers that could add a further 0.8 percentage points or more to GDP growth this year.

Despite the potential disruption the general election could cause for manufacturers, job creation, investment and expansion does not appear set to stop. As Mr Scuoler concludes: “There is some caution out there, but it’s still a positive message for 2015.”