Memorandum 34
Submission from EEF
INTRODUCTION
1. EEF is the representative voice of manufacturing,
engineering and technology-based businesses with a membership
of 6,000 companies employing around 800,000 people. A large part
of its representational work focuses on the issues that make a
difference to the productivity and competitiveness of UK manufacturing,
including the engineering sector.
2. We are delighted to respond to this survey
as it provides the opportunity to highlight some of the fundamental
changes that have taken place in engineering, how this affects
the contribution that it makes to the UK economy and the implications
this has for how best to support the sector.
THE ROLE
OF ENGINEERING
AND ENGINEERS
IN UK SOCIETY
3. The first question in the enquiry is
widely drawn and is therefore likely to generate a large variety
of responses. These responses are also likely to reflect the fact
that the distinction between different sectors of the economy
are blurring and that engineers also work in a wide variety of
industries. This makes it harder to put down a simple definition
of what engineering and engineers do. It is therefore important
to recognise the contribution that engineers make in sectors such
as construction, financial services and engineering services..
4. However, for the purposes of simplicity
we have confined our responses to the engineering industries represented
by EEF's membership. These cover the SIC codes from 27-35 and
encompass metals, metal products, mechanical engineering, electronics
and electrical engineering, motor vehicles and other transport
equipment (predominantly aerospace).
5. THE BASIC
STATISTICS SHOW
THAT ENGINEERING:
- Contributed just under £60 billion
in gross value added to the UK economy in 2006, accounting for
40% of manufacturing. Of this the largest sectors are metals and
metal products (£25 billion), mechanical equipment (£20
billion) and motor vehicles (£15 billionn);
- Employs 1.3 million people, with a growing
share of them in jobs involving a high level of skills Over half
(52%) of those working in engineering are qualified to level 3
or above compared with 45% in the rest of manufacturing;
- Generated export revenues of £132.1
billion in 2006, just under 60% of total manufacturing exports.
Of this the largest export category is electrical and optical
engineering with sales abroad of £62.7 billion. Official
statistics for manufacturing exports and responses to EEF surveys
suggest that a growing proportion of exports are destined for
rapidly expanding markets in China, India, other parts of Asia
and Central Eastern Europe. For example, four in ten firms see
China as a major growth market over the next five years, compared
with just one in 10 in 2002;[111]
- Spent £5.3 billon on research and
development (R&D) in 2006 with aerospace the largest spender
at just over £1.8 billion.
6. While these statistics provide an impression
of an industry that is innovative and highly successful, they
do not provide a complete picture of what the engineering industry
does today and the contribution it makes to the UK. In the rest
of this section we therefore highlight two areas of recent EEF
research on changing sources of competitive advantage in engineering
and on the role that the sector plays in combating climate change.
7. Our research shows that engineering companies
are responding to increasing competition by focusing on the areas
where they can best add value. Compared with previous EEF survey
research, the number of companies competing with low cost countries
by cutting prices aggressively has more than halved. Related to
this, companies are rethinking where the competitive advantage
lies. In a large survey of manufacturers, firms were asked to
rank their top three sources of competitive advantage from a list
of activities.[112],[113]
This showed that the traditional focus of manufacturing (production
and assembly) was at the top of the list, ranked as the source
of competitive advantage by 29% of companies. However, it had
only a narrow lead over design and development, which was mentioned
by 23% of companies. Providing services to customers was a little
further behind at 19%.
8. Looking ahead to the next five years,
design and development (25% of companies) is set to overtake production
and assembly (23%) as the key source of competitive advantage.
Despite these developments, we should not dismiss the importance
of production and assembly as 70% of companies placed it amongst
their top three sources of competitive advantage. In addition,
although manufacturers expect to see some production activities
shift out of this country, just under seven in ten of them (68%)
expect the UK to be the primary location for it in five years'
time.
9. The innovative and export-oriented nature
of much of modern engineering is also reflected in our work on
the actual and potential contribution it can make in helping to
address climate change. Reducing greenhouse gas emissions will
require the transition to a "low-carbon economy" which
emits substantially less carbon dioxide per unit of output. The
key components of a low-carbon economy-more efficient and less
polluting transportation, energy supply and buildings-will be
designed, developed, produced, operated and maintained with a
major input from engineers and engineering businesses.
10. The UK engineering sector plays a central
role right across the value chain in the emerging low-carbon economy.
This includes the design, development, manufacture and operation
of more energy-efficient and less carbon-intensive systems, products
and services. Each subsector, from mechanical through to electrical
engineering, is actively engaged in improving the performance
of existing technologies and developing new alternative technologies.
11. The transition to a low-carbon economy
therefore provides UK engineering with significant businesses
opportunities at home and abroad. These include the design, development,
manufacture and implementation of renewable energy systems, carbon
capture and storage systems, low-carbon domestic heating systems,
efficient automotive engines and industrial automation systems.
EEF research shows that a combination of strengths in technology,
skills and infrastructure leave UK engineering particularly well-placed
to capitalise on these opportunities, although this will depend
on government backing with a strategy that supports research and
development in new low carbon technologies.
THE ROLE
OF ENGINEERING
AND ENGINEERS
IN UK'S
INNOVATION DRIVE
12. Engineering has not always been in this
position of strength. In the decade between 1993 and 2003, engineering
growth was fairly slow, averaging just 0.8% per year. Yet since
2004, engineering has grown on average by 2.0% per year. In doing
so, engineering businesses have overcome a number of significant
obstacles over the past decade-an uncompetitive exchange rate,
growing competition from lower cost producers and rising commodity
prices.
13. We believe that this improved performance
reflects a range of changes that companies have made in how they
run their business. Over the past five years, engineering productivity
has increased by almost 30%, partly driven by greater, more effective
use of modern management techniques such as lean manufacturing
and high performance working. Yet it also reflects a more fundamental
transformation, with many engineering firms investing in innovation
to differentiate their products and services from their competitors
and develop niche markets. This is reflected in the 2005 Community
Innovation Survey (CIS) which shows that engineering is the most
innovative sector in the UK.
14. EEF research also shows a growing proportion
of engineering companies increasing the emphasis they place on
innovation. Our 2005 survey[114]
showed that two-thirds of companies surveyed were increasing their
focus on innovation with a further fifth planning to do so or
considering it. Just under half of them (45%) were developing
niche markets and customizing their products. A more recent EEF
survey[115]
showed a majority of them increasing their innovation activity
(71%) with 58% planning to do so in the future and that it was
delivering results.
15. Much of modern engineering's investment
in innovation is driven by its high R&D expenditure. In 2006,
engineering expenditure on R&D was £5.3 billion, accounting
for 50% of all manufacturing R&D and just over a third of
all business R&D. More than this, engineering's R&D intensity-a
key factor in improving innovation performance and productivity
growth-was 4.0% in 2006. This compared with 3.4% for the rest
of manufacturing and 1.1% for business as a whole.
16. However, innovation activity in engineering
is not limited to just R&D expenditure. The CIS survey shows
that engineering was:
-the most active sector in acquiring machinery,
equipment and software to support its innovation;
- more likely than any other sector to investment
in design and development when innovating; and
- the second most likely sector-behind only
computer and engineering related consultancies-to train staff
specifically to develop innovation.
17. Moreover, innovation in engineering
goes beyond product and processes. The CIS shows that engineering
is second only to computer and engineering related consultancies
in terms of implementing wider innovations, such as developing
and adopting new business models, management structures and marketing
techniques. Investment in these areas is allowing engineering
firms to engage in higher value activities.
18. This investment in innovation has translated
into productivity gains and stronger, more sustainable output
growth. In the five years between 2002 and 2006, average annual
productivity growth in engineering was more than two and a half
times that of the whole economy. As Chart 1 shows, productivity
growth in engineering also accelerated from 4.5% between 1997
and 2001 to 5.3% in the next five years at a time when it slowed
in the whole economy from 2.2% to 2%.
CHART 1
Engineering sees faster productivity gains
Average annual rate of change in manufacturing
output per hour
Source: National Statistics
19. Certain sectors have benefited from
this investment in innovation:
- Mechanical equipment has seen average annual
productivity growth of 9.5% between 2002 and 2006 and experienced
average annual output growth of 4.1% over the past five years;
- Transport industries experienced annual
average productivity growth of 8.8% between 2002 and 2006 as output
growth in these sectors has averaged 3.6% since 2002.
20. Investment in innovation means that
engineering continues to contribute to the UK's economic growth,
even as financial market turbulence threatens to undermine the
economy. Yet EEF believe more can be done by government to help
engineering take advantage of its innovative potential. This includes:
- Making greater use of public procurement
to stimulate innovation;
- Improving engineering links with universities;
and
- Supporting applied research in universities
engineering and design departments
THE STATE
OF THE
ENGINEERING SKILLS
BASE IN
THE UK
21. The shift by companies in engineering
to the higher value added activities described in the previous
section means that they need more highly skilled employees and
also a workforce with a wider breadth of skills. The UK engineering
sector currently has a higher proportion of employees qualified
to Level 3 and above compared with the rest of manufacturing and
a lower proportion with low or no qualifications-as shown in Table
1. There is also variation in skill levels across engineering
sectors. The machinery, electrical and optical equipment sector
has the highest proportion of employees qualified to Level 3 or
higher-at 56% compared with 45% in the metals sectors. In addition,
employment in UK engineering compares well with our major European
competitors on its skills content. The UK has a slightly higher
proportion of employees in professional and technical occupations
compared with France and Germany and a similar share of the workforce
employed in science, engineering and technology occupations.
Table 1
ENGINEERING EMPLOYMENT IS HIGHLY SKILLED
% OF WORKFORCE BY QUALIFICATION
|
| | <level 2
| Level 2 | Level 3
| Level 4+ |
|
| Engineering | 20
| 28 | 25
| 27 |
| Rest of manufacturing | 24
| 29 | 21
| 24 |
| Whole economy | 18
| 28 | 22
| 32 |
|
| Source: Sector Skills Development Agency.
|
22. Having the right technical and practical skills remains
critical for engineering, but increasingly companies are looking
for employees with management skills, good commercial awareness
and the ability to work in teams. However, some companies are
experiencing difficulties in meeting these demands. Furthermore,
the occupational profile within engineering and manufacturing
is forecast to shift further towards higher skilled occupations
in the coming decade. An EEF survey[116]
in 2007 showed that over 45% of companies thought that problems
attracting and retaining skilled people would be among the biggest
barriers to business growth over the next three years.
23. Analysis from the Sector Skills Council which includes
engineering (SEMTA)[117]
shows that companies are currently experiencing skills gaps and
hard-to-fill vacancies across a range of occupations and skills
levels-from experienced technicians to recent graduates and professional
occupations.
24. There are a number of reasons for the current skills
problems facing the sector. Firstly, there are insufficient, suitably
qualified young people entering the industry. The numbers of young
people studying for STEM qualifications post-GSCE remain below
levels recorded ten years ago. This has also translated into a
fall in the number of UK-domiciled students accepted onto engineering,
maths and science courses at university (see chart 2). In addition,
over two thirds of companies recently surveyed by EEF[118]
said the average age of their workforce was between 41 and 50
years old. The UK's ageing workforce is likely to lead to greater
skills shortages in future unless more young people progress in
science, maths, engineering and technology-related subjects. Combined
with the falling numbers of UK students applying to study engineering
is the relatively high proportion of graduates that look to other
sectors for employment on completion of their studies. For example
the Higher Education Statistics Agency shows that at least one
in five electrical and electronics engineering graduates are not
employed in a related occupation.
Chart 2 UK students in maths and engineering declining
Number of UK-domiciled students accepted on maths and engineering
courses
Source: UCAS
THE ROLES
OF INDUSTRY,
UNIVERSITIES, PROFESSIONAL
BODIES, GOVERNMENT,
UNIONS AND
OTHERS
25. Given the importance of workforce skills to competitiveness
it is clear that it is in employers' interests to ensure that
their employees have access to training and skills development.
Employers are investing significant amounts in training. The latest
National Employer Skills Survey put overall business investment
in skills at just over £33 billion a year. EEF research in
2005 showed some 44% of engineering companies increasing their
investment in training and just 5% reducing it.
26. As well as increasing investment in the training
of their existing workforce companies are looking to encourage
more young people to consider careers in engineering. There are
many examples of companies engaging with schools and universities
to show young people what working in the modern engineering sector
is really like. The EEF has supported the safevisits.org.uk website
which advises business how to organise effective and safe visits
to workplaces.
27. The new developments in 14-19 education (in particular
the introduction of the new Diplomas from September this year)
will also involve cooperation between employers and the delivery
consortia. This will be critical if students are to have meaningful
and productive work placements. The forthcoming curriculum changes
will also mean that young people will need high quality careers
information and guidance at an earlier stage than they currently
receive it.
28. The evidence suggests that those providing young
people with formal or informal careers advice do not fully understand
the opportunities offered by careers in the engineering sector
or the value of a high quality vocational qualification such as
an engineering apprenticeship.[119]
We have welcomed the introduction of the Quality Standard for
Young People's Information Advice and Guidance which should ensure
that all young people receive impartial advice about their future
career and educational options. It is now important that delivery
on the ground is properly monitored.
29. However, it is also important that more young people
achieve good foundation in STEM subjects at Key Stage 3. The proportion
of people achieving grades A*-C at GCSE in Maths and Science has
fallen below the average for all subjects. A-level entries in
Maths and Physics have declined considerably over the past ten
years. Increasing the number of young people studying STEM subjects
is important and it is important to implement quickly the Sainsbury
review's recommendations to improve the quality on STEM teaching
to provide students with information on how science is used in
industry through the curriculum and expand the number of science
clubs in secondary schools.[120]
30. As the Sainsbury review highlights, the array of
bodies aimed at attracting young people to study STEM subjects,
or to enrich teacher training or the curriculum, actually makes
it more difficult for teachers looking for resources or for industry
to engage with STEM teaching. The rationalisation of schemes recommended
by Lord Sainsbury should be an urgent priority for the government's
National STEM Director.
31. In addition to ensuring the successful roll out of
changes to the 14-19 years old curriculum, government also has
a role in delivering an effective market for training beyond the
compulsory learning age. The effectiveness of business investment
in skills would be improved by speeding up progress towards a
funding system driven by business and learner demand rather than
by a `predict and provide' model. We also believe that the government
can play a role in improving the effectiveness of business training
through, for example, better promotion of Investors in People
and better collaboration among business support agencies including
the Manufacturing Advisory Service.
32. The government's plans to increase the number of
apprenticeships and to improve their status are welcome as long
as the plans for expansion are driven by business demand rather
than centrally-determined targets. It is important that the government's
plan for growth does not only concentrate on developing new places
in sectors where apprenticeships are rare. It should also look
at ways of encouraging new supply in the engineering and manufacturing
sectors. We therefore welcome its proposals to encourage SME take
up of apprenticeships.
33. Higher education providers must also ensure that
undergraduate programmes are response to the changing demands
of the engineering sector. In addition, higher education also
has a role in communicating the career possibilities to engineering
graduates-however, it is essential that this process starts as
early as possible.
34. Demographic change, which will see a fall in the
number of 18 year old school leavers, combined with the need for
an increase in the number of adults with higher level qualifications
will lead to a change in the way in which higher education and
industry work together. More students will come from the workforce
rather than straight from school and there will be increased demand
for qualifications or courses aimed at meeting specific business
needs and delivered in a different way to the traditional honours
degree course. For this change to succeed business and academia
will have to learn to work together and to understand each others'
needs. This will be a critical issue for the government's forthcoming
review of higher level skills to tackle.
CONCLUSION
35. As our submission has outlined, engineering continues
to perform an important role in the UK economy. It remains a generator
of substantial wealth and a major employer across the whole of
the country. However, engineering operates in a fast-moving global
economy, and the importance of seeking high value-added and niche
markets remains the number one challenge. Underpinning success
in this respect are skills and innovation-the need to employ and
retain a highly skilled workforce, and to innovate continually
in order to compete effectively in the market place. Therefore,
there remain a number of challenges for business and policy makers
alike, in order to ensure the continuing success of the sector.
March 2008
111
EEF (2007) Export support: how UK forms compete abroad. Back
112
EEF (2007) High value-how UK manufacturing has changed. Back
113
EEF (2007) Delivering the low carbon economy-business opportunities
for UK manufacturers. Back
114
EEF(2005) Where now for manufacturing? Back
115
EEF(2006) New light on innovation. Back
116
EEF(2007) Blurred vision-the need for a clear strategy
on business taxation. Back
117
SEMTA (2007) 2006 Labour Market Survey of the GB Engineering
Sectors. Back
118
EEF (2008) Absence survey (not yet published). Back
119
Trade and Industry Committee, fifth report 2006-07: Better
Skills for Manufacturing, HC 493, paragraph 78. Back
120
HM Treasury The Race to the Top: A review of Government's Science
and Innovation Policies. October 2007. Back
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