APPENDIX 16
Memorandum submitted by the Department
of Trade & Industry
INTRODUCTION
1. The Department welcomes this inquiry.
Manufacturing forms an integral part of the UK economy and the
Government is committed to the development of a strong, high value
added manufacturing sector with the ability to compete successfully
in world markets.
UK MANUFACTURING
2. In 2004 manufacturing accounted for 14%
of GDP, a seventh of our national wealth, a similar share to that
of business services, and larger than that of financial services.
The manufacturing sector's importance to the economy is further
emphasised by a number of other factors:
— manufactured goods make up over 50%
UK exports;
— it accounts for 75% of business Research
&Development driving innovation and productivity improvements
that raise the competitiveness of the whole economy; and
— it provides over 3 million high quality
jobs and supports many more in the service sector.
3. Manufacturing is undergoing a period
of structural change as a result of globalisation and technological
advance. Rapid growth in low labour cost economies in Asia and
elsewhere has resulted in intense international competition. Global
restructuring is focussing advanced industrial nations away from
low skill, low-tech products and processes to the technology driven
and high value added.
4. However, we must not overlook the many
world-class manufacturing companies already operating in the UK,
rising to the challenge of globalisation and competing successfully
in world markets.
(i) In 2005 we produced more than 1.6 million
vehicles, close to the historic peak of the early 1970's and nearly
twice the number produced in the early 1980's. BMW have recently
transferred the production of new MINI engines from Brazil to
Birmingham.
(ii) Pharmaceuticals exports are over £12
billion a year and an £3 billion a year the biggest UK investor
in R & D.
(iii) Our Aerospace industry invested £2.7
billion a year on R&D in 2005, had a turnover of over £22
billion, directly employed 124,000 people, a 9% rise on 2004,
and provided jobs for over 150,000 more in the supplier businesses.
5. We also have new fast growing sectors
such as bioscience where the UK has the largest industry in Europe
with nearly twice as many products in clinical trials as its nearest
European competitor. And environment goods and services where
the international market forecast is set to reach $700 billion
by 2010.
THE GLOBALISATION
CHALLENGE
6. The Government is acutely aware of the
pressures globalisation brings to bear on UK manufacturing but
we are committed to creating the right conditions for manufacturing
companies to succeed and meet the challenges. We firmly believe
that manufacturing will be a vital part of the future UK economy,
fundamental to our success as a high technology, high added value
economy competing in the global marketplace.
7. Globalisation brings the opportunity
to take advantage of rapid expansion in world trade, and manufacturing
companies must compete on the basis of added value using high
technology and skills. They will not succeed by competing on low
value and low wages. We must develop our competitive edge from
technologically intensive and science based industries.
MANUFACTURING STRATEGY
8. The Government Manufacturing Strategy
established in 2002 is based on promoting the application of science
and innovation, encouraging investment, spreading best practice
and enhancing skills development. The Strategy is helping manufacturing
companies towards success, in particular by encouraging high value
production.
9. Economic stability is crucial to sustainable
business growth and the Government has delivered an unprecedented
period of macro-economic stability creating the right underlying
conditions for sustainable growth, investment and high employment.
10. The UK with its strong science base
is well placed for high value manufacturing. We must use
the science base for competitive advantage—turning ideas,
research and design into commercial products. That is why we have
more than doubled the science budget to support innovation and
knowledge transfer, helping to move research from laboratories
to the market place.
11. Through the Technology Programme we
are supporting around 450 Collaborative Research & Development
projects and 19 National Knowledge Transfer Networks designed
to stimulate innovation in the UK's key technology areas by promoting
collaboration, best practice and knowledge sharing between industry
and universities.
12. Twelve innovative Manufacturing Research
Centres were launched in November 2001, to create a unified programme
of novel and innovative research across UK manufacturing. Their
role is to research, develop and disseminate technologies, processes
and systems to give UK manufacturing competitive advantage in
the global market place. There are now 18 Research Centres, covering
a wide range of areas of manufacturing including engineering design,
sports technology, healthcare, composites materials, construction,
and life sciences.
13. We introduced and improved the R&D
Tax Credit to promote investment and stimulate innovation. As
a result the credit has provided £977 million Government
support for SMEs, the majority to manufacturers. The large company
R & D tax credit introduced in 2002 is worth up to £400
million a year. And, in response to the 2005 HM Treasury review
of R&D Tax Credit scheme we will set up specialist units in
HMRC to handle all SME R&D tax credit claims to ensure high
quality and consistent treatment for all.
14. We have set the Manufacturing Advisory
Service (MAS) which provides manufacturers in every region with
local access to practical advice. So far MAS has generated added
value of over £224 million for the companies that have worked
with it. The Government's commitment to the service is demonstrated
by the announcement in the last Spending Review of a further funding
boost for MAS, which will further enhance its effectiveness.
15. We have provided £30 million towards
the establishment of 15 Industry Forum organisations in key sectors,
delivering lean production processes, generating saving of £369
million.
16. We are also working to build an appropriately
skilled workforce to meet the requirements of a high value manufacturing
sector. Skills are one of the issues covered by the initial three
inquiries and further details of Government action is detailed
in the attached written memorandum.
17. We are seeking to develop an enterprise
culture providing access to financial support for small businesses
through the Small Firms Loan Guarantee, Regional Venture Capital
Funds, and the first Enterprise Capital Funds which has a strong
emphasis on supporting new technologies. The first Enterprise
Capital Funds were established in March; The IG Capital Fund worth
£25 million and the 21st Century Sustainable Technology Growth
Fund worth £30 million.
MANUFACTURING FORUM
18. We know that we cannot afford to reduce
our efforts and in 2004 we carried out a comprehensive Review
of the Manufacturing Strategy from which we developed an Action
Plan which sets out the priorities for Government, industry, trade
unions, Regional Development Agencies and other stakeholders in
key areas where we can most effectively work together to ensure
the future success of UK manufacturing. In addition we established
the Manufacturing Forum to ensure the effective implementation
and evolution of the Strategy.
19. The Forum is jointly chaired by Industry
(Kevin Smith CBE, Chief Executive of GKN) and Government (Margaret
Hodge MP, Minister of State for Industry and the Regions). It
brings together all key stakeholder organisations and monitors
work that is already in place, helps to steer policy that impacts
on manufacturing and actively engages in areas where increased
participation of stakeholders can make an impact.
CONCLUSION
20. Government has a key role to play in
developing a competitive business environment to allow businesses
to grow. Competition is increasing and world markets are opening
whilst technology and consumer demands are changing fast. Successful
manufacturing in the UK can only come from being competitive,
from innovation and investment, from enhancing skills and best
practice. Government is taking action through the Manufacturing
Strategy, working in partnership with industry and all key stakeholders,
to create the right conditions for business success and help manufacturers
to respond to the challenge of globalisation and to take advantage
of the opportunities it undoubtedly offers.
21. The first three issues chosen for consideration
by the Committee in this series of inquiries, support for exports
and inward investment, public procurement, and skills are all
key areas, vital to the future success of manufacturing. UK Trade
and Investment leads on the provision of support to companies
trading internationally and inward investment whilst the public
procurement and skills are issues on which we are taking action
through the Manufacturing Strategy. The Government's written evidence
to these three inquiries is attached.
September 2006
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