01 Feb 22. I am as ever, extremely grateful to Professor David Bailey, Professor of Business Economics at Birmingham University Business School and who is also Senior Fellow at ‘UK In A Changing Europe’ for sending me a copy of ‘Manufacturing After Brexit’ which he co-authored with Dr Ivan Rajic, Research Fellow at Birmingham University.
Regular readers will know that being Birmingham born and bred I have a long history of association with this fine University and particularly having served on the University Business School Advisory Board for several years past. Having known him personally for many years, suffice to say that in the world of business and politics, David Bailey is one of my most regular ‘sparring partners’ and that while we often disagree on political aspects, his wide industry knowledge, commitment and support for industry as a whole and particularly for Midland based industry, plus other aspects of his University work with respected organisations such as ‘UK In A Changing Europe’, I hold him in high respect and that in our various challenges my hope is that we constantly learn from each other.
The link to ‘UK in A Changing Europe’ can be found below and I thoroughly recommend its reading in full.
The Report Summary concludes that:
The Trade and Cooperation Agreement (TCA) helped avoid tariff barriers. However, non-tariff barriers have returned, and the end of the transition period has brought adverse impacts for UK manufacturing.
The TCA does not fully replace the frictionless trade and market integration that existed before it. The main adverse effects have been administrative barriers to trade (e.g. customs formalities, proving rules-of-origin requirements) and disruptions to labour ﬂows, both affecting certain manufacturing sectors directly (e.g. food and drinks) and indirectly harming manufacturing by damaging service sectors (e.g. logistics) that support it.
The adverse impacts are for now mainly showing through reduced exports and imports to and from the EU (around 15% less for both, as compared to a no-Brexit scenario), and through some production disruptions.
The ongoing conﬂicts around Northern Ireland probably represent the biggest risk to UK-EU relations, with the potential to aﬀect the entire TCA in case they escalate.
Potential beneﬁts from Brexit have yet to be felt: – There has been some redirection of exports towards non-EU countries, but this has not compensated for the reduction in trade with the EU.
The UK has signed only two truly new trade agreements, with New Zealand and Australia, the former still only ‘in principle’. Both countries account for a small fraction of total UK trade, and the expected beneﬁts of the trade agreements with them are minor. Trade negotiations with the US are currently stalled. Whether there is more progress on the trade front in the future remains to be seen.
If there is more regulatory divergence from the EU going forward, it will become possible to see whether it will bring beneﬁts or disruptions to UK manufacturers.
Any beneﬁts that may potentially arise out of Brexit will not happen automatically. The UK needs an active, integrated, and well-funded industrial policy, within a stronger devolution framework, if UK manufacturing is to beneﬁt from future growth opportunities. This is especially the case in the context of net zero, industry 4.0 and levelling up.
The impact of Brexit on manufacturing is likely to be most profound in regions in the north and midlands. That in turn will make levelling up more challenging.
Having now read the report in full I can find little if anything with which I could argue or challenge and thus will make no further specific response in regard of this. However, as a question that I am regularly asked and because it might help some to be reminded of just how little manufacturing represents in respect of percentage UK GDP today I am, following a brief comment on JLR and GKN Birmingham, including some statistically related comment from within the report in order to remind of the present state of UK manufacturing.
JLR – Jaguar Land Rover
One of the few remaining ‘true’ UK automotive manufacturing operations – by which I mean one that has retained a predominantly if not wholly UK based supply chain – Jaguar Land Rover parent company Tata has today announced that, due to a global shortage of computer chips, JLR lost £9m in the final three months of 2021 as the company witnessed a 37.6% decline in retail sales on the same period a year earlier despite revenue being up 22% on the previous (July to September) quarter.
Despite facing a serious chip shortage – one that is expected to remain a challenge over the next year – Jaguar Land Rover continues to experience strong demand having sold some 80,126 vehicles during the final quarter of the year. The company moved forward into the current year with a record high order book of 155,000 vehicles due to strong demand for the new Range Rover.
Separately, the SMMT said on Friday that with UK car manufacturing output last year down to 860,000 units that this was the lowest production output since 1965 – a year that I would remind was the post war peak for car production ahead of years of decline.
My point it to recognise the importance not on of UK car manufacturing and exports within the context of the ‘UK In A Changing World’ report but also of some of the difficulties that the that industry faces.
GKN Erdington, Birmingham – Closure Looms Large
Speaking of the importance of supply chain manufacturing retention and of how, predominantly, through greed but also sometimes due to poor competitiveness, failure to invest and poor management, we have lost too many large manufacturing companies in and around Birmingham over the past three decades including ‘household’ named companies like Lucas Group, Girling and so many others, I thought that I would remind of another that is planned to take place later this year – the GKN Melrose plant in Erdington, Birmingham.
Very sadly, mainly I suspect through pure greed and the potential offered by ‘real estate’ sale we are about to lose a once very important and significant part of GKN Automotive engineering, the plant in Erdington, Birmingham and which, by courtesy of the late Sir Trevor Holdsworth who, back in 1965 had sought that in order to fully understand the concepts of manufacturing and production, I should spend a whole night shift working at the plant, is one that I understandably hold close to my heart,
To old hands like me, the former Hardy Spicer factory that Melrose plc is determined to close, remains a hugely important part of the overall UK and global automotive supply chain producing as it does today, drivetrains that effectively move power from vehicle engines to the wheels.
Whilst I can to an extent understand the predicament caused by Brexit on the Birmingham GKN plant – one that essentially does the final assembly of components manufactured in various other European GKN subsidiary operations – the potential loss of yet another 500 important manufacturing jobs in Birmingham is huge. These jobs, Melrose has indicated, will now go to Poland and France.
True, I also accept that former GKN management must bear a high level of responsibility for allowing the company to fall into Melrose hands and for its ‘riches’ to be opened up and sacrificed to the elements in the name of ‘city’ greed.
The loss of such an important plant such as GKN Erdington in respect of producing large and vital UK designed automotive components is nothing short of shameful just as it is also personally very regrettable.
The thought of yet another shopping centre being built on the factory that produced the infamous ‘Hardy Spicer Joint’ and that today is still producing a range of crucial drivetrain products fills me with horror and foreboding.
So much for Melrose senior management promises made at the time of its unwelcome hostile takeover bid for GKN and which, similar to the Brexit vote, in this case Melrose won by a small margin of 2%.
Back to ‘UK in A Changing World’
Back to aspects of the ‘UK in A Changing World’ report that I wanted to emphasise if for no other reason than answering frequently asked questions:
“Manufacturing encompasses all economic activities that transform raw materials into either intermediate product (such as steel bars) or final products (such as cars). Although the UK, like other developed countries, is considered a service-based economy (services account for the majority of employment and GDP), manufacturing still plays a more important role in the UK economy than is often assumed, as we showed in the original version of this report.
The share of manufacturing in UK GDP is around 10% and around 9% in total employment (circa three million jobs). However, these figures may underestimate the real size and importance of manufacturing.
Over several past decades, many manufacturing firms have outsourced activities such as consulting, cleaning, maintenance, deliveries, and even some in-house research. Now that these services are bought from other companies, they are counted in official statistics as part of the service sector, whereas when they were previously done within manufacturing firms, they were counted as part of manufacturing. Thus, manufacturing may have declined statistically, but in practice not much may have changed.
Moreover, some services (for example, industrial research and development) fully depend on demand for them from the manufacturing sector. In that sense, manufacturing is more important than its direct size alone would indicate. Of course, certain services also create the demand for manufacturing products (e.g., the need for transport creates a need for more buses or trains), but research suggests that manufacturing creates a greater demand for services than vice-versa.
Overall, although there is no easy way to quantify the ‘true’ size of manufacturing, estimates suggest that, when its indirect effects are taken into account, it still accounts for 15 to 22% of the UK economy and between 5 million and 7.4 million jobs, substantially more than the ONS figure suggests.
Manufacturing is also critically important in terms of research and development (R&D), accounting for 65% of total R&D spend and 57% of R&D employment in the UK private sector (the numbers for other countries are very similar). This is one of the reasons why productivity tends to grow much faster in manufacturing than in the overall economy, and why, subsectors of manufacturing have higher productivity than most other sectors of the economy (real estate activities are a huge outlier, mostly due to the way ‘output’ is calculated for that sector).
This productivity, in turn, enables manufacturing to pay around 15% higher wages than the national average (although wages depend not only on productivity but also on the power of labour, often organized in unions, which tends to be higher in manufacturing than in services)”
(CHW – London – 1st February 2022)
Howard Wheeldon FRAeS
Wheeldon Strategic Advisory Ltd,
M: +44 7710 779785