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Small UK manufacturers reject the Government`s strategy

01 May, 2003

Small UK manufacturers reject the Government`s strategy

Almost every small manufacturer in the UK rejects the Government`s manufacturing strategy, a poll has discovered. A survey of nearly 300 manufacturing SMEs (small and medium enterprises), conducted by the Engineering and Machinery Alliance (EAMA), has found that 95% of the firms do not support the Government`s policies on manufacturing.

Moreover, the respondents condemned the Government`s advisory agencies for SMEs as being ineffective, and reported that some Government policies — notably the Climate Change Levy (CCL) and the increase in employers` National Insurance contributions — were having a damaging effect on UK manufacturing.

The findings are contained in an EAMA report* addressing the problems facing UK manufacturers as a result of the "two-tier economy" that EAMA argues has prevailed in recent years. The Association says that the Government has failed to recognise or address the long-term damage being done to the UK`s manufacturing base and export capabilities by its reliance on the growth of consumer spending and the service industries to drive the economy.

"For the past six years, our members have experienced intense frustration as they have witnessed UK manufacturing suffering the consequences of the two-tier economy, with interest and exchange rates working against them," says EAMA chairman Mike Legg (above). The situation, he adds, "has reached a critical stage where declining productivity, compared to our major competitors in Europe and the US, is widening the competitiveness gap. Its hard to see how we can ever reverse the trend.

"It is important for Government to understand the strength of feeling at the cutting edge of SME manufacturing," says Legg. "The Government has a major role to play in creating the right market conditions that will encourage long-term investment in high-technology capital plant, in skills training, and in research, development and innovation."

Based on the survey, EAMA has proposed a seven-point plan suggesting how the Government should respond to the crisis in the manufacturing sector:

• The Government must sit down with business and trades unions to create a "real" manufacturing strategy with specific, measurable targets that should be reviewed regularly.

• "Dramatic action" is needed to reverse years of under-investment and weak productivity, and to kick-start a manufacturing and engineering revival. Measures should include the introduction of 100% first-year capital allowances. EAMA asks the Government to look carefully at grants or tax credits targeting the SME sector.

• The Government needs to boost competitiveness by encouraging innovation. The R&D tax credit needs to be easier to apply for, and grants should be introduced to help companies to turn innovation into commercial advantage.

• Access to Government assistance schemes needs to be improved and simplified, with a single agency handling all schemes. There should be less emphasis on start-ups, and more on helping existing businesses to survive adverse economic conditions.

• The Government should try to remove the burden of red tape which hinders many SMEs. The CCL should be abolished and possibly replaced by a "more equitable" carbon tax.

• To deal with the skills crisis, a major effort is needed to raise awareness in schools and the media of the career opportunities in engineering. The Government also needs to boost apprenticeships and to give more support to manufacturers providing training.

• A change in culture is needed in the Treasury to appreciate the problems facing UK manufacturers. EAMA suggests that Treasury economists should spend a week in industry every year to understand the issues.

EAMA concedes that none of these suggestions with provide a quick fix to the long-term problems facing the manufacturing sector, but says they should at least start a partnership process between Government and industry aimed at defining the most effective route to reviving UK manufacturing.

"The report makes some very positive proposals which we hope will be taken on board by the Government as a means to improve the relationship with SME manufacturers, to boost confidence in the sector, and to get better value for the taxpayer out of DTI schemes," says Legg.

EAMA is the umbrella organisation for nine engineering sector trade associations, together representing more than 4,000 companies — mostly SMEs — with a combined annual turnover of £33bn and employing 400,000 people.

* UK manufacturing in transition: the impact of the two-tier economy. Details from EAMA on 020 7298 6450

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