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Wanted Urgently – UK Industrial Strategy By Howard Wheeldon, FRAeS, Wheeldon Strategic Advisory Ltd.

cameronKey aspects of a well thought out and properly defined national industrial strategy should be a document that sets out all aspects of engineering and manufacturing based training requirement, including post-graduate and apprenticeship based schemes, advanced manufacturing requirement, research and technology based investment requirements, technology and product ideas creation support, innovation, tax incentivisation, competitiveness, how government intends to ease regulatory burdens on industry and how it intends to ensure small and medium sized company access to available finance.

While it is true that Government has already set out some elements of industrial policy along with manufacturing and export related targets and other notions such encouragement to increase apprenticeship schemes this is far from being termed as a comprehensive based overall strategy that leads the way forward. Given that government policies aimed at rebalancing the economy between manufacturing and services have made little if any progress and that export targets have also failed to be met It is increasingly clear to me that what the UK needs most of all now is to have a formal and comprehensive based national industrial strategy.

The present Government just as the past Coalition Government had done is working hard to provide a soundly based economic recovery strategy. The process is however, as the Chancellor reminded us only a week ago, far from being complete yet. The deficit is still high and the level of international debt that we still have to pay down is not only still rising but is completely unacceptable. For all that what the Government has done so far has allowed the economy to at least return to a path of recovery.

Growth is of course a rather emotive word and one that has different meanings to different people. What recovery and so called growth that we have so far seen in the economy has, if we are honest with ourselves, been based on improved consumer based confidence and append despite considerable effort on the part of Government and industry to increase the level of manufacturing output and product based exports and which quite frankly leaves much to be desired.

Our skills base has probably never been as bad as it is now and the increasing level of engineering workforce maturity suggests that the position will get a lot worse before the corner is hopefully turned. Economic and political stability is what all facets of industry and commerce crave for but that is, of course, not the sole gift of Government to provide. Falling global economic activity based on lower demand combined with the impact of declining commodity prices play out badly for us as well. Don’t blame our Government for that but do blame it for failing to provide a cohesive industrial strategy that sets out how government intends to support industry and to provide a platform on which it can feel content to invest and grow.

It is of course right to say that over the past near six years the present Conservative Government and its coalition predecessor attempted to address some of the more basic industrial policy deficiencies such as creating access to finance. These have in part been satisfied by creative initiatives such as the Business Bank and even the Green investment Bank although sadly I rather fear that it is still very much easier for a householder to raise mortgage funds than it is for small businesses to raise money in which to expand.

Government has of course set out a huge set of intended infrastructure investments over the years ahead but as we have seen there has been a preference to reach out to other governments to fund some of these schemes and thus they create little benefit for sovereign based industry. Of course, in its determination to cut public spending Government and get better value for the taxpayer it has gone for what it believes to be the cheapest as opposed to best available deal. In truth our government has far too little regard for retention of sovereign based capability and important skills.

Arguably due to the persistence of short-termism amongst the investment community and who may reasonably be accused of an inability to think further than the end of their nose means that large industry has been forced to become far too risk averse. The investment community frowns on research and technology development costs unless they can provide almost immediate payback. One does not find such attitudes prevalent in our two largest Europe based competitors Germany and France but then, they have well thought out and defined industrial based strategy.

Interestingly, the recently announced Defence and Security Strategy Review – SDSR 2015 – did make great emphasis on innovation just as it also did on the prosperity agenda. The point here is that not only did the Government show a better realisation of the huge additional value that what we spend on defence brings to the national economy but that exports and exportability bring huge benefits as well. Such emphasis is certainly to be welcomed but unless words are turned into real actions of support and genuine intention such beliefs will all too easily prove worthless.

Clearly, there was no actual laid out plan in SDSR 2015 of how ideas of innovation creation might be supported and it is clear that there will be no additional taxpayer money provided. Initiatives such as growth partnerships apart, the role of Government will probably remain restricted to creating an efficient tax environment and hopefully, investment based tax incentivisation. We may also hope that the Government does something about the high cost of business rates and energy costs that are rightly blamed in part for our inability to be as competitive as we need to be.

Most of us would probably agree that it is for the private sector to take the real initiatives required in relation to what is most often referred to as innovation. For industry to play its part requires a belief that government will not only do all that it can to provide economic stability but also whatever support that it can. Clearly, under EU and other regulatory based rules, there are strict limits as to what central Government is allowed to do. That said it is clear that it can do a lot more in terms of putting the national interests first just as it can also do by better recognising and supporting what sovereign based capability can provide.

Is there really a problem at all and should we care? We should because despite significant efforts on the part of Government to provide a tax environment and incentives that could encourage manufacturing based investment in the hope that we could start making more of what we consume and also boost our exports of manufactured goods far too little progress seems to have been made.

The outlook for manufacturing appears grim as the Engineering Employers Federation which only two weeks ago said that aerospace, pharmaceutical and vehicle production would be the drivers of manufacturing growth in 2016 has this week produced the results of a survey that points to manufacturing having another tough year ahead.

Ironically, the two rather different sounding statements are not at odds with each other as one might imagine. Aerospace for instance is a business with extremely long lead times and despite the possibility that even this spectacular high growth engineering based industry cannot ignore global economy alarm signals it is, along with other exceptions such as defence and pharmaceuticals, on balance likely to increase employee numbers this year as opposed to other sectors within the manufacturing arena that the EEF suggested back in December would be reducing employee numbers during this year.

Should we be concerned that the most influential manufacturing based trade organisation is now firing a few warning shots across the bow? From a global economy viewpoint I believe that we should show and increasing levels of concern. Despite the probability of further overall improvement occurring in the Eurozone through this year and certain of our industries still doing well we would I believe be deceiving ourselves if we were to move forward into and through 2006 on the basis that we are all but shielded from global economic events.

Global market concerns about the Chinese economy are genuine and rightly so. Financial markets do not like to be spooked and right now they haven’t a clue what happens next and what they should do. Inevitably, as a result of fear, they go into a caution and sell mode. Moreover they remain concerned over the continuing fall in the price of oil and how this plays out across demand for a vast range of products that use oil plus other important metal based commodities that have declined in price due to falling demand. Sadly, while the declining price of oil might well appear to be a positive for consumers because it often means that they have more money in their pockets to the oil price fall is bad news for oil producing governments and companies just as it is for governments such as the UK in terms of falling tax revenues. The fall in the price of oil and other important commodities is particularly bad for engineering based concerns in the UK due to investment in oil based research and development engineering comes to a virtual halt. So too is it bad for the shipping and maritime based industries as planned investment in new ships are put on the back burner.

Industry must of course do more to help itself and that means investing more in its own future. But the lack of a formal industrial strategy and one that we can all work too remains a very serious issue for the UK and one that in my view must be addressed. Outside of the separate defence and aerospace growth partnerships I would like to see specific defence industrial strategy, aerospace industrial strategy and an engineering based industrial strategy as well.

CHW (London 14th January 2016)

Howard Wheeldon FRAeS

hwheeldon@wheeldonstrategic.com

Tel: 077710-779785

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