State support in boosting UK manufacturing is central in rebuilding the country’s economic fortunes, as Marcus Leroux reports
Prime Minister David Cameron walked on stage at the Davos summit and told the world’s business elite Britain is becoming the “reshore nation”.
The aim that industries which had long since departed to cheaper markets overseas could be coaxed back to the UK dovetailed neatly with the government’s policy of rebalancing the economy to make the country less reliant on financial services and the City of London.
Britain’s factories are certainly stirring back to life as overseas demand for British goods hit a three-year high in January. But manufacturing output is still 9 per cent below its pre-2008 crisis peak and accounts for less than 10 per cent of the economy.
The march of the makers, promised by Chancellor George Osborne in his 2011 Budget, has got off to a sluggish start, but is at least shuffling in the right direction.
However, is there more to the drive to build a manufacturing renaissance than nostalgia for a faded industrial past? The government last year put £4 billion on the table through a variety of schemes to support industry, most of it relevant to manufacturers.
Beyond that are myriad schemes aimed at boosting British manufacturing that can leave businesses bewildered.
Last year’s Budget included a £1.6-billion industrial strategy package for the aerospace, automotive and agri-tech sectors, which was devised to encourage the creation of high-skilled jobs. Another £200 million was earmarked for the Catapult network, a series of centres where businesses, scientists and engineers can collaborate on research and development, and help get companies’ products closer to marketable reality.
Britain’s factories are certainly stirring back to life as overseas demand for British goods hit a three-year high in January
The Advanced Manufacturing Supply Chain Initiative was created just over two years ago and has distributed £245 million by supporting projects where Britain is well placed to take a lead.
The focus on high-end manufacturing is understandable as high-value engineering was responsible for about a third of British exports, according to the Office for National Statistics.
But there is some concern that a high-end focus will inadvertently freeze out smaller and medium-sized companies.
Felicity Burch, a senior economist at the manufacturers’ trade body EEF, says: “These sectors have quite a lot of ability to organise themselves to get what they want from government and they innovate in a different way. You need to make sure that it doesn’t matter what sector you’re in; it’s the type of activity you’re doing that matters.
“Innovation is really hard and really risky, and you need access to facilities and universities, and you need help from government to get it. If you meet those criteria, you should be able to get that support. It shouldn’t come down to what sector you operate in.”
The Technology Strategy Board addresses this through financial support and schemes, such as the Knowledge Transfer Partnership, which pairs businesses with experts from universities, colleges and other research bodies.
A similar difficulty was addressed by Trade Minister Lord Livingston when he announced that every mid-sized business in the country – some 9,000 of them – would be offered one-on-one trade advice and an intensive programme of support. The scheme is an attempt to emulate the German mittelstand, the army of innovative, outward-looking, mid-sized companies that are the powerhouse of industrial Germany.
Only 17 per cent of mid-sized businesses in Britain generate revenues outside the European Union, compared with 25 per cent in Germany and 30 per cent in Italy, according to the Department for Business, Innovation & Skills (BIS).
The British Business Bank is another strand in the government’s endeavour to release finance to small and medium-sized businesses. The bank, which began operating last October, is set to be fully operational by this October. Britain had been the only G8 country without a development bank.
While the bank’s £1.25 million in core funding is modest, its chairman Ron Emerson says it will need to have a track record of success before it can ask for more money. Its investments will be evenly split between debt and equity, he says.
While it is too soon for the nascent Business Bank to have produced results, the Enterprise Finance Guarantee (EFG) scheme, which was introduced during the financial crisis, has a longer provenance. Some 24,000 loans, issued by banks but underwritten by the government, have been made since 2009, injecting £2.1 billion into the economy.
Last year BIS estimated that for every pound invested by the government, £33.50 was recouped by the economy. Some 13 per cent of EFG loans have been to manufacturers.
However, a recent spate of mis-selling claims underlines the importance for businesses to enter into arrangements, even those backed by the government, with open eyes. Lenders complained they were not informed they were liable for the full loan, even though the government guaranteed the bank for 75 per cent of the sum.
The flurry of new policies in recent years may, perversely, impede the speed of take-up. A survey by the EEF found schemes that had been stable for a long time enjoyed better take-up and superior awareness among business leaders. So 89 per cent of companies had used or heard of R&D tax credits, but only 30 per cent were even aware of Innovation Vouchers, a Technology Strategy Board initiative, which enable businesses to work with outside experts. Catapult centres and the Small Business Research Initiative, which exists to help businesses tackle public-sector challenges, both suffer from low levels of awareness.
However, the impetus to boost manufacturing does not look like dissipating, even as the UK moves further towards economic recovery. Mark Carney, governor of the Bank of England, has warned that “the recovery is neither balanced nor sustainable”.
Meanwhile, the debate has moved beyond a free-market distrust of “picking winners” and aversion to meddling in the private sector.
Professor Mariana Mazzucato, in her recent book The Entrepreneurial State, concludes: “Most of the radical, revolutionary innovations that have fuelled the dynamics of capitalism – from railroads to the internet, to modern-day nanotechnology and pharmaceuticals – trace the most courageous, early and capital-intensive ‘entrepreneurial’ investments back to the state.”