Oral statement to Parliament

Remaking Britain’s economy: the growth plan for manufacturing

This speech was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

Introduction It’s a great pleasure to be here today for this Manufacturing debate. As a businessman, I believe that growth will come from …

Introduction

It’s a great pleasure to be here today for this Manufacturing debate.

As a businessman, I believe that growth will come from private enterprise, from businesses, from industry investing, designing, manufacturing, exporting and expanding.

However, Government has a role. Our job is to clear away the barriers to expansion, critically examining every policy to ensure it doesn’t act as a brake on recovery.

Clearly, sustainable, long-term growth - in manufacturing or elsewhere - will not be achieved overnight.

In common with other industrialised countries - including the US, Japan, France, and Germany - the share of manufacturing in the economy has fallen in the past two decades. This is due in particular to fierce international competition, from cheaper producers elsewhere.

But that doesn’t mean we should throw in the towel and concentrate on a future as a service economy. Far from it. This country still has the know-how to make products that consumers around the world want to buy.

Why manufacturing matters

The UK remains one of the world’s leading manufacturing nations. Industry generates £140bn a year to the economy, around 11% of total GVA. And it accounts for 55% of our total exports. So much for the notion that UK manufacturing is moribund.

As the past decade has proven, we cannot rely on a small number of economic sectors, often centred in London and the South East, for our national prosperity.

Instead, we have to encourage innovation and investment across a much wider range of industrial sectors. Advanced manufacturing in disciplines such as plastic electronics, robotics and composite materials; biotech and the life sciences; digital businesses; and emerging low carbon technologies.

These are just some of the sectors that will enable this country to compete in global markets and earn its living in the future.

But to succeed, we also need to rebalance the economy geographically and allow other regions to catch up with the South East, boosting the capability and productivity of every local area.

Our job as a Government is to enable manufacturers - wherever they are located - to maximise their competitive advantages, thereby stimulating economic recovery and reanimating the spirit of industrial enterprise in this country. These objectives underscored the Plan for Growth published alongside the Budget in March.

Now, the theme of this year’s debate is whether manufacturing can contribute to long term job creation and regional economic balance through investment, innovation and incentives.

I believe these are the drivers that will power future growth in UK industry - and that the answer to the question posed is an emphatic ‘yes’.

So let me now explain the role Government intends to play in facilitating investment, encouraging innovation, and offering incentives for growth in order to support the resurgence in UK manufacturing.

Investment

Investment - whether in research and development; plant and machinery; or people and skills - is the bedrock of a successful manufacturing sector.

So creating an environment that enables British companies to reinvest a greater proportion of their profits, or to secure growth capital to finance expansion is an absolute necessity.

That’s why we’re reforming our tax system.

The tax code has become too complex and time consuming. Fewer, simpler rules will save business time and money. Our aim is to make the UK one of the most competitive tax regimes in the G20.

That’s why we are cutting corporation tax by 5p, reducing it to 23p by 2014, and the small profits rate to 20p. This will leave over £1bn a year for firms to invest.

And because we recognise manufacturers’ specific needs, we are extending the capital allowances short life asset regime from four to eight years. We are also increasing small firms Research and Development tax relief to 200% this year, and 225 % next year.

But we are also seeking to spur investors for SMEs. We are increasing entrepreneur’s relief on capital gains tax to £10 million, so individuals who start up on their own are rewarded for their hard work and endeavour. And for investors we have increased the Enterprise Investment Scheme tax relief to 30%.

Together these measures will incentivise investment, research and development, and reward entrepreneurs.

Securing access to finance is also vital. This is especially true for SMEs with high-growth potential.

Under the Project Merlin agreement, the big five UK banks pledged to make £190bn of credit available this year, including £76bn for small firms.

The figures for the first quarter show that the banks are broadly on track to meet their overall target, having lent £47.3bn against a potential £47.5bn. But they are behind when it comes to SMEs, lending £16.8bn rather than the £19bn implied by the pledge for the year.

Although it is still early days, we want to see significant improvement over the next few months and we are monitoring the banks’ performance extremely closely to ensure they are living up to their commitments.

However, equity finance is just as important as loans. The £2.5bn Business Growth Fund, launched last week, is intended to address a long-standing growth capital gap.

This comes on top of the £200m being provided under the Enterprise Capital Fund programme [managed by Capital for Enterprise Ltd], which is intended to provide risk capital of less than £2m to individual SMEs. There are currently ten funds active, investing in a range of small businesses with real growth potential.

In addition, the Regional Growth Fund is investing £1.4bn in projects that will enable areas to develop new capabilities and re-orientate the local economy towards the growth sectors of the future. Taken together, these new sources of investment will allow manufacturers to establish themselves in these growth sectors and capitalise on the new opportunities.

Innovation

But if UK manufacturers are to compete and win in a fiercely competitive global marketplace, they must innovate - in everything from the technologies they use to the services they offer customers - to stay ahead of their rivals.

In reality, individual companies often cannot afford to invest the resources required to develop these innovative products and processes. That’s why, despite the Government’s huge fiscal deficit which we inherited, we are making crucial investments in industrial innovation.

So we have ring-fenced the science budget and are holding it at £4.6bn a year for the spending review period.

This will help secure the quality of the UK’s research base and will give a real boost to industry. But we would want to do more. We recognise that innovation occurs between disciplines, in particular between academia and entrepreneurs, universities and businesses. We need to get smarter in how we commercialise bright ideas.

So we are investing £200m in a network of elite Technology and Innovation Centres, creating state of the art facilities where the fruits of business and university partnerships can be tested, refined and scaled up until they are commercially viable.

The first centre is focusing on high value manufacturing, and comprises a nationwide chain of institutes specialising in cutting edge sectors, from composites to metals, nuclear to bio-processing.

The Technology and Innovation Centres will be a launch-pad for innovative UK manufacturers to get their products out of the laboratory and into the market - powering business growth and creating more jobs in industry.

And this collaborative model is to be seen right here, at Cranfield.

It’s a testament to the quality of this institution’s research that Cranfield is collaborating on five of the nine new Engineering and Physical Sciences Research Council Centres for Innovative Manufacturing.

Indeed, Cranfield will lead three of the new Centres in the £45m programme, researching ultra precision technologies; industrial sustainability; and through-life engineering services. It’s a sign that we understand and applaud.

Incentives

Investing in innovation is only part of the story, important though it is. We also need to encourage manufacturers to be ambitious; to grow their business; and broaden their horizons.

That’s how the industrial sectors will create more jobs and prosperity - and that’s why we are placing such emphasis on improving productivity and increasing trade.

To aid productivity we are launching an enhanced Manufacturing Advisory Service, with an extra £7m over the next three years on top of the £50m already allocated, so it can help more manufacturers to boost their productivity and help modernise the supply chain

Exporting is also a proven way to increase performance. That’s why we are offering more support for potential exporters, incentivising them to go out and grasp these new global opportunities: expanding overseas markets will be critical to the UK’s long-term growth prospects.

The centre of gravity in the world economy has shifted east, but our trading patterns are still rooted in the old order: we trade less with Brazil, Russia, India and China than we do with Ireland.

If emerging economies continue to grow at the pace that they have in recent times, hundreds of millions of new middle-class consumers will be created, providing an expanding market for high value goods and services.

Manufacturers specialising in a huge number of sectors - life sciences; aerospace; low carbon; composites; food and drink; to name just a few - can and should use these shifts to fuel their future growth.

So trade promotion and export opportunities are now benefiting from strong leadership across the whole of Government. And the Prime Minister has made it a personal priority.

It’s critical that we establish a stronger presence in high-growth emerging markets and encourage more firms, especially small ones, to seek out new opportunities overseas.

Conversely, we must reinforce our appeal as a top investment destination for overseas businesses. We are currently one of the top three recipients of foreign direct investment and we intend to maintain that position.

But we need to be better at promoting the UK’s strengths, which is why we launched plans last week to target sovereign wealth funds and other major potential investors, using private sector expertise to attract more projects.

We are also setting up the High Value Opportunities Programme, to identify the biggest growth opportunities around the world and help UK companies of all sizes to access them.

It will work hand in hand with the schemes we have introduced - export enterprise finance guarantees, working capital, bond support and foreign exchange credit support - to help more companies expand their trading horizons.

Of course, it’s not just a question of incentivising manufacturers - we must also incentivise young people to choose careers in manufacturing.

This is the reason we are making strenuous efforts to raise the profile of manufacturing and redefine its public image. The corrosive notion that the UK is a post-industrial economy has gone unchallenged for too long.

That needs to change. Take the need for graduates in Science, Technology, Engineering and Mathematics. Around 43% of those who graduated in 2009 did so with a degree in a STEM subject - yet just one in twenty of them went to work in manufacturing.

In other words, many young people who have the potential skills industry needs are going elsewhere. So we need to spell out to them that if they are looking for a well-paid, skilled job with good prospects - manufacturing and engineering offer a wealth of opportunities.

And we can do that in part, by nailing the myth about low salaries being the norm in industry. There is a common misconception that engineers are poorly paid - particularly when compared to other popular choices, such as accounting or the City. In fact, skilled engineers enjoy comparable levels of pay.

We have set up the ‘See Inside Manufacturing’ campaign, a nationwide programme of company open days to showcase manufacturing careers. It’s starting with the automotive sector, but the other main sectors will follow. We also intend to stage a major exhibition of UK manufacturing alongside the London Olympics to boost the image of industry.

Of course, it’s not just a question of attracting young people into the sector. We must all - industry and Government together - ensure they have access to high-quality training to develop the skills they require.

Skills

We have ambitious plans to enhance and rebalance the skills base to meet that demand.

We are committed to creating a new generation of University Technical Colleges. Students with technical aptitude should have the option of starting vocational training alongside their core academic education. So we have doubled from 12 to 24 the number we want to see established by 2014.

And we are investing heavily in apprenticeships. The extra £180m announced in the Budget means this Government will deliver at least 250,000 more apprenticeships over the next four years, compared to the previous Government’s plans.

It’s important we get this right, so manufacturers can recruit the people they need with the skills they need.

Conclusion

Over the last 12 months, we have built a firm foundation for engineering and manufacturing. The Plan for Growth sets out a clear direction for facilitating investment, encouraging innovation, strengthening skills and offering incentives for growth.

But I am well aware that we still have a long way to go. That’s why we are committed to working with engineers and manufacturers - charting a course for the next decade, so companies can plan and invest with confidence for the long term.

As partners, Government and Industry both wish to renew and rebuild our design, manufacturing and engineering capability. It won’t be easy, but then nothing worthwhile ever is.