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Memorandum submitted by EEF (GJS28)
Summary
· The current policy framework must be complemented by a more proactive and focussed industrial policy if the UK is to capture the maximum economic benefit from the transition to a greener economy.
· To date, policy has focused creating financial incentives to consume less, or lower carbon, energy, create less waste, and recycle more. Consistent and long-term price signals are necessary to stimulate markets for green goods and services but not sufficient to stimulate development of the industries which supply them.
· Failure to implement a pro-active green industrial strategy could see the UK miss out on skilled manufacturing jobs in industries supplying major global markets and put at risk employment in R&D.
· Government must set out a clear industrial strategy which signals to potential investors what it is trying to achieve, how it will achieve it and over what timescales.
· The strategy should be to focus on two main objectives: (1) creating a world-class business environment for manufacturing and (2) identifying and supporting the most promising low-carbon industries for the UK.
· Developing a strong industrial base and attracting inward investment in green manufacturing will require an appropriately skilled workforce. A steady flow of school and university leavers with STEM skills, a strong apprenticeship system to teach the practical and technical skills on which manufacturing depends, and a continuous commitment to upskilling from employers, employees and government will be critical.
· Where requirements for new specialist skills emerge, Sector Skills Councils will need to collaborate to develop new qualifications frameworks. The skills and training landscape is already crowded and complex. So the emphasis should be on collaboration between existing bodies rather than the creation of new institutions.
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 our representational work focuses on the issues that make a difference to the productivity and competitiveness of UK manufacturing, including regulation, investment, innovation, skills and tax issues.
2. This memorandum is a submission to the Environmental Audit Committee's inquiry into the prospects for green jobs and policies aimed at increasing employment in environmental industries.
Existing Policy Framework
3. The current policy framework must be complemented by a more proactive and focussed industrial policy if the UK is to capture the maximum economic benefit from the transition to a greener economy. Failure to do so will mean that the UK risks missing out on developing industries which could generate substantial wealth and become major sources of high-quality jobs.
4. Government has already done much to encourage and cajole the transition to a low-carbon and resource-efficient economy in the UK. Extremely ambitious long-term targets for renewable energy generation, recycling and emission reductions have been set and backed up by a battery of financial incentives and regulations.
5. Policy has focused on sending "price signals" - i.e. creating financial incentives to consume less, or lower carbon, energy, create less waste, and recycle more. Prominent examples include emissions trading schemes, subsidies for renewable energy, the Climate Change Levy, the Landfill Tax and the linkage of Vehicle Excise Duty to carbon dioxide emissions.
6. The price signals these policies create, when they are consistent and maintained over time, are very important because they help stimulate demand for low-carbon goods and services. However, financial incentives to consume low-carbon products, be they cars, energy or domestic appliances, will not be sufficient to ensure that the UK develops the industries which supply them. Products can, obviously, quite easily be developed and manufactured in one country and supplied into another. Investors will favour locations with the best business environments, the best expected returns on investments and the lowest risk.
7. The wind energy industry provides a perfect example. Despite having some of the most generous wind energy subsidies in £/MWh terms, the wind turbines now being deployed at an increasingly rapid rate in the UK are mainly manufactured overseas.
8. The expansion of low-carbon energy supplies and growth in markets for green goods and services will undoubtedly create significant employment in wide range of professional, technical and financial services. However, unless industrial development is encouraged in parallel, the UK will miss out on the opportunity to develop skilled manufacturing jobs in sectors with major export potential such as low carbon vehicles and clean coal technologies. Failure to cultivate manufacturing could also place employment in R&D at risk. There is evidence to suggest that in the long-run companies favour locating R&D close to manufacturing activity.
Low Carbon Industrial Strategy
9. The industrialisation of new and emerging technologies is costly, lengthy and risky. A frequent criticism of UK industrial policy, compared to that in other countries, is that it lacks a clear agenda. Government must set out a clear strategy which signals to potential investors what it is trying to achieve, over what timescales, and how policy will be used to deliver the desired outcome.
10. The strategy should be built around two main objectives: (1) creating a world-class business environment for manufacturing and (2) identifying and supporting the most promising low-carbon industries for the UK.
11. Shaping the business environment and nurturing the development of emerging industries are not trivial exercises. To have credibility and make an impact, the strategy must be positioned as a long-term undertaking and should set out a broad plan for at least the next 5-10 years. This will reduce the perceived political risk of making costly long-term investments in the UK against the strategy.
Creating a world-class business environment for manufacturing
12. The business environment of a country is created by the complex interplay of a number of factors such as taxation, access to finance, innovation policy, the skills of the workforce and infrastructure. Manufacturing will tend to focus, all other things being equal, in countries with the most conducive business environments. So government's first priority must be to ensure that the UK is amongst the most attractive locations for high-value manufacturing and the investments in plant, capital equipment, training and R&D that it depends on.
13. The strategy should set out a plan for reviewing and improving the business environment for manufacturing. Government should commit to undertaking a comprehensive audit and making any necessary reforms over the medium-term. The tax system's treatment of capital investments is an example of an area in urgent need of reform.
Identifying and supporting priority industries
14. The strategy should identify the most promising low-carbon industries and make a long-term commitment to support them. Constraints on resources, international competition and the fact that the UK is significantly better placed in some industries than others, mean that support will need to be tightly focused.
15. Government has typically had an aversion to "picking winners" based on the belief that it is more efficient to let the market alone decide which technologies to back and that any intervention risks supporting the wrong technology and becoming a costly mistake. However, the risk runs both ways, especially when dealing with early-stage technologies. Failure to back technologies which are potential winners means the UK could miss out on being at the forefront of some of the major industries of tomorrow.
16. Rather than managing risk by avoiding taking any chances or making strategic decisions, government should develop a more sophisticated approach to risk management in industrial policy. Identifying priority industries on the basis of the markets they serve rather than specific technologies and focusing support on a portfolio of industries selected through robust criteria will help minimise the risks. Market potential, UK competitive advantage and clear evidence of market failure should be important criteria when identifying priority industries.
17. Funding should be focused on priority industries and targeted at market failures not adequately addressed by existing support. A greater share of existing R&D funding should be allocated to low-carbon technologies. New funding, like the Low Carbon Investment Fund, should be directed exclusively at priority industries and targeted at issues such as setting up low-volume manufacturing facilities and supply chain development.
18. Policy should focus on stimulating demand in industries in which the UK has the opportunity to create early and significant domestic markets. Signals to private consumers must be clear and reliable (e.g. replace the Renewables Obligation with feed-in tariffs for marine renewables) and public procurement should be leveraged wherever possible (e.g. replicate the Low Carbon Vehicles Procurement Programme for renewable heating).
Skills Base
19. Developing a strong industrial base and attracting inward investment in green manufacturing will require an appropriately skilled workforce. STEM skills, a strong apprenticeship system to teach the practical and technical skills on which manufacturing depends, and a continuous commitment to improving skills from employers, employees and government will be critical.
20. The fundamental requirement for developing a strong green industrial sector ensuring a flow of people with STEM qualifications from schools and universities. These core science and engineering skills will continue to provide the foundation for research, design and development activities. Government, employers and society in general must seize the opportunity to encourage young people to study STEM qualifications by promoting the skilled and exciting jobs opportunities that addressing climate change provides.
21. STEM qualifications need to be combined with the practical and technical skills crucial to a successful career in the manufacturing sector. Therefore, a strong apprenticeship system will also be crucial to creating and sustaining the workforce required to develop a green industrial base.
22. Technologies, markets and industries constantly evolve and workforce skills will need to keep pace. UK manufacturers have achieved considerable success in this area in recent years. Despite often quite challenging trading conditions, the manufacturing sector has grown employment in professional and technical occupations have grown. To develop strengths and capabilities to gain/maintain competitive advantage in 'green industries' this emphasis on upskilling will need to continue.
23. Inevitably, in some areas a need will emerge for a new range of specialist skills specific to environmental industries The breadth of activity and skill requirements across the UK's diverse manufacturing base means that employers already source training solutions (e.g. bespoke short courses and recognised qualifications) from a similarly diverse range of providers - (e.g. in house training, FE and HEIs).
24. Responding to the need for new specialist skills will require collaboration and coordination across Sector Skills Councils to develop new qualifications frameworks. The skills and training landscape is already crowded and complex. So the emphasis should be on collaboration between existing bodies rather than the creation of new institutions (e.g. Sector Skills Councils and Skills Academies).
Conclusions
25. Government must set out an ambitious green industrial strategy backed up by a world-class business environment, focused funding and creative use of policy tools such as public procurement. Failure to do so will mean the UK runs the risks of missing out on the growth industries of tomorrow and the skilled employment opportunities that they provide.
26. Developing a strong industrial base and attracting inward investment in green manufacturing will require an appropriately skilled workforce. A steady flow of school and university leavers with STEM skills, a strong apprenticeship system to teach the practical and technical skills on which manufacturing depends, and a continuous commitment to upskilling from employers, employees and government will be critical.
27 May 2009 |