Memorandum submitted by EEF
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"—ie 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 five to 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 (eg replace the Renewables Obligation
with feed-in tariffs for marine renewables) and public procurement
should be leveraged wherever possible (eg 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 (eg bespoke short courses and recognised
qualifications) from a similarly diverse range of providers—(eg
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 (eg 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
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