Select Committee on Trade and Industry Minutes of Evidence

First memorandum by the Engineering and Machinery Alliance (EAMA)

  I am writing to you in may capacity as Chairman of the Engineering and Machinery Alliance (EAMA) a powerful new grouping of eight trade associations (launched on 1 November 2001) with a breadth of cross-sectoral interests for the engineering, production machinery, components and tooling manufacturing sectors in the UK. The Alliance represents an annual turnover well in excess of £20 billion, over 4,000 companies and more than 400,000 employees.

  The member trade associations are all closely linked with high technology capital investment both as suppliers and as users and therefore offer a timely barometer of what is happening at the sharp end of industry. We strongly believe that modern CNC machinery and associated CAD/CAM technology are the key to improving manufacturing productivity and competitiveness.

  Unlike organisations such as CBI and EEF we are in the unique position to represent the small and medium size companies, many of whom form the supply chain to sectors such as aerospace and automotive, and who have been hit extremely hard in the past year and particularly since the events of 11 September. I feel that it is important in any inquiry on the productivity and competitiveness of British manufacturing that these businesses views are taken into consideration.

  The Alliance would argue that the long-term under-performance of UK manufacturing investment relative not only to the United States but also our European competitors is due to a culture of short termism that has grown up not only through Government but also from the City and the Banks. There has also been an unwillingness in British culture to recognise the value of manufacturing to the economy and to society more generally and this has led to its general decline in terms of a percentage of GDP. We believe that the under investment in areas such as modern high technology machinery has seriously dented our productivity and therefore our competitiveness.

  This situation has been exacerbated in the past three years when our manufacturers have been competing with an uncompetitive exchange rate, especially in relation to the Euro, making our exports expensive and imports to the home market cheaper. Thinking that this was a short-term situation, many companies took reduced margins and even losses to maintain their customers but this has weakened their balance sheets so that they are unable to invest either from retained profits or borrowings. This further depletes their ability to be competitive. It is a spiral that needs reversing urgently. The lack of confidence felt in many key markets through the economic downturn was exacerbated by the terrorist attacks on 11 September and the result was a dramatic decline in capital investment intentions. Figures from Oxford Economic Forecasting estimate the impact on UK GDP was two or three times that from foot-and-mouth and, to the extent that different sectors have been hit, investment goods seem to be the worst affected.

  We believe that confidence needs to be restored but it will take a concerted effort by the Government and the City. We need to cut the cost of investing by:

    —  accelerated capital allowances;

    —  making it easier for pension funds to invest in venture capital;

    —  encouraging the retention of profits for re-investment;

    —  reducing the cost of finance;

    —  improving advice and support for SMEs;

    —  reducing the regulatory burden.

  Whilst the government cannot directly influence the exchange rate or the global economic downturn, it can take measures to help manufacturers to cope with a situation which comes as an external shock to the economy (just as foot-and-mouth was to the tourism industry) and to prepare to meet the eventual upturn from a position of strength.

  EAMA will provide you with more detailed evidence at a later date. However, I would request that we could appear before the Select Committee to give our unique view both from being more representative of SMEs and from a more business focused position. I would be willing to discuss this with you further.

30 January 2002


  British Fluid Power Association (BFPA).

  British Gear Association (BGA).

  British Plastics Federation (BPF).

  Gauge and Toolmakers Association (GTMA).

  Machine Tool Technologies Association (MTTA).

  Mechanical and Metal Trades Confederation (METCOM).

  Printing, Papermaking and Converting Suppliers Association (PICON).

  Processing and Packaging Machinery Association (PPMA).

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