Written evidence from The Manufacturing
Technologies Association
1. The Manufacturing Technologies Association
is the UK's Trade Association for companies in the manufacturing
technology sector—the core of engineering based manufacturing.
2. Our members design, create and supply
the major machinery, technology and equipment essential to enable
the manufacture of everything from everyday items such as mobile
phones, computers and family cars through to high-tech precision
items like F1 racing cars, planes and space shuttles.
3. We welcome the establishment of the Committee's
Inquiry into Government support for industry. The severity of
the recession which began in 2008 necessitated a range of interventions
and support mechanisms of a scope and depth that would have been
unimaginable even months before. It is therefore timely to review
these and learn lessons from them.
EXECUTIVE SUMMARY
4. In general Government support for industry
over the last two years has been welcome. However there have been
significant shortcomings in addressing some of the issues caused
by market failures in the Financial Service sector.
5. Capital Allowances are a key part of
the investment mix. The myriad changes that their regime has been
subjected to over the last decade have not helped business to
plan and the paring back of the rates claimable has impaired British
manufacturing investment levels and hence productivity improvement.
6. The Enterprise Finance Guarantee has
been a successful scheme, which has prevented many companies from
collapse; but it has not made a substantial contribution to rebalancing
the financial playing field. It remains an expensive option of
last resort. It also provides no support for exporting companies
as export finance is excluded from its remit
7. Specific Sector interventions have been
welcome; not just in those sectors but in the supply chains with
which they have a symbiotic relationship.
8. UKTI activity is valued by our sector
and by industry in general but it is hampered by a lack of resources.
9. ECGD has been allowed to wither to a
point at which it is almost invisible. The market has not filled
the gap and British Business is at a substantial competitive disadvantage
as a consequence.
10. While the levels of availability and
affordability of credit have recovered from their mid-crisis nadir
there remains a very strong belief in industry that the Financial
Services sector understates the levels of demand for credit in
the industrial economy and is reluctant to advance credit to manufacturing;
certainly not on the scale seen in some of Britain's competitors.
THE PROVISION
OF LOANS
AND GRANTS
11. The provision of loans and grants to
industry has a long and chequered history. There is a well founded
tendency within industry to be suspicious of Government intervention
in the market and Government's track record has been far from
unblemished. However the circumstances, speed and severity of
the recession of 2008-09 were such that Government intervention
was quickly deemed necessary in the financial services sector.
This was welcome, few wished to see the entire edifice of financial
service provision collapse. Many other industries experienced
significant difficulties as a result of the recession. It should
be noted that by and large it was individual firms that took responsibility
for saving themselves. This often entailed painful cuts in jobs
and activity.
12. However in a few key industries, notably
the automotive sector, Government did elect to intervene and provide
support. This support was welcomed, not just by companies whose
products readily placed them within the industries concerned,
but by the whole supply chain. This was well recognised at the
time. For instance the MTA, among others, wrote to the then Secretary
of State, Lord Mandelson in September 2009 requesting an extension
to the Car Scrappage scheme because we could see the benefits
that it was beginning bring to our members within the automotive
supply chain.
FINANCIAL SUPPORT
FOR MANUFACTURING
13. Investing in new technology is the best
way for manufacturers to grow their businesses. The speed of technological
change and the process of globalisation which pushes low technology
processes overseas has made that more true than ever before. Yet
British manufacturers are disadvantaged by a Capital Allowance
regime which is significantly less generous than those of most
of their competitors. As technology advances ever more quickly,
machinery becomes obsolete ever faster. The current rates and
allowances do not recognise this. In addition the constant chopping
and changing of the rules over the last few years has made it
much harder for companies to plan ahead with the degree of confidence
necessary to engender investment.
14. The Enterprise Finance Guarantee has
been a limited success. A feature of this recession has been the
lower than expected level of bankruptcies that have occurred to
date. EFIG has surely played a role in that. However the scheme
has not performed the role that was ascribed to it at its outset
which was as a source of finance for companies in a wide range
of difficult circumstances. Because of the cost of the finance,
typically more expensive than that available elsewhere and the
need for personal guarantees to be expended before it is applied,
it has functioned as a lifeboat.
15. The Government has been sympathetic
to manufacturers, with the rhetoric of the present Secretary of
State seemingly upping the ante further, but hitherto the actions
of Governments of all political stripes have not matched their
stated intentions to re-balance the economy.
16. An example of this was the almost overnight
disappearance of the trade credit insurance market at the outset
of the recession. Once Government was persuaded, after some six
months, that there was a problem action was taken in the 2009
Budget. However because the scheme was not backdated it was of
virtually no use to anyone. While what appeared to be an oversight
was eventually corrected a facility that many companies had found
very useful has still not returned.
THE SUPPLY
OF CREDIT
TO SMES
17. The Banking sector has returned to business
as usual faster than seemed likely at the onset of the recession.
Regrettably, the rest of the economy has not been able to do so
with quite the same alacrity. There is something of a dialogue
of the deaf going on between a banking sector that insists that
the only reason that rates of lending are low is the paucity of
demand and a manufacturing sector which consistently reports a
pattern of banks unwilling to lend in support of projects and
companies which make good economic sense.
18. This is compounded by a mismatch of
data. The financial services sector of course collates significant,
real time data on lending activity. There is no reason to suspect
that this data is unreliable, indeed if it is the data used for
management within institutions it would not be in anyone's interest
for it to be so. However the picture is persistently at variance
with the anecdotal, but consistent, impression formed by Trade
Associations such as the MTA, that there is an underreporting
of refusals of credit. This is probably due to the invisibility
of applications which never get beyond the level of a discussion
between lender and customer. We would suggest that there is a
role for one of the structures in the new financial services regulatory
architecture to take an interest in this problem.
THE WORK
OF UKTI
19. We are concerned at the reductions in
UKTI's budget for exhibition support and the over emphasis on
inward investment (which, while welcome, sees profits go overseas)
rather than on export support which can help British companies
identify new opportunities and markets for exports. We believe
this will inevitably put us at a competitive disadvantage. We
would like to see a level playing field with our competitor nations,
many of whom invest far more in trade promotion.
20. UKTI support concentrates on fledgling
exporters with very little available to experienced exporters.
Our competitor nations support ALL exporters, and in fact seem
to promote the more experienced companies such that the fledglings
can sit side by side with them and profit from the reflected customer
contacts.
21. Ambassadorial support at exhibitions
is prevalent among our competitor nations, endorsing the quality
of their national engineering prowess and exporting achievement.
UK has an excellent network of embassies which could be better
used to promote British industrial interests.
22. Synergies and savings can be achieved
by UKTI through working with Trade Associations; however there
is scope for a considerable increase here with isolated good practice
needing to be applied more evenly. The MTA runs its own exhibition,
MACH, on a bi-annual basis. This exhibition, which attracts substantial
foreign interest is a key shop window for British manufacturing
technology. In 2010 MACH hosted a successful inward mission organised
in conjunction with UKTI.
23. Many SMEs believe that export support
that does exist is not well configured to support them. This is
especially true of second and third tier companies in complex
supply chains. Companies of this size will often initially follow
a major company into a market as part of their supply chain. Where
help could be given is to exploit subsequent, secondary, opportunities
in the new market.
24. UKTI, not unreasonably, looks to exploit
new and developing markets, there are huge opportunities in countries
such as the BRICs. However this approach can tend to overlook
the export opportunities that exist on our doorstep in Europe.
For many SMEs, perhaps with little experience of exporting, Europe
is a natural first step.
25. In summary, engineering based manufacturing
needs three areas of support from Government to increase both
its domestic market and also to promote an increased positive
balance of payments through stronger exports; a helpful and competitive
tax regime for investment in equipment, training, and research
and development, support for the sector with the competitive provision
of business and export finance and credit insurance, and finally
the use of language that supports the sector both at home and
abroad (through our excellent network of embassies), promoting
the UK as a nation at the forefront of technology and advanced
engineering. Perception is a great persuader for foreign buyers.
24 September 2010
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