Download Submission to the BIS Select Committee Inquiry into Industrial Strategy

Submission to the BIS Select Committee Inquiry into Industrial
Strategy
September 2016
About the MTA
1. The MTA exists to promote the interests of the manufacturing technologies sector in
the UK.MTA members design, create and supply the advanced machinery,
equipment and intellectual property that enable the creation of the products we rely
on from day to day and that drive our economy.
2. Established in 1919 the MTA has been at the core of the UK’s engineering based
manufacturing economy for almost a century.
3. Key aspects of manufacturing technology include; machine tools, cutting tools,
metrology (measuring) equipment, additive manufacturing (3D printing), surface
finishing, robotics and computer aided design and manufacturing products
(CAD/CAM) which combine to make up complete systems - increasingly automated
and adaptive - that manufacturers deploy, making the sector fundamental to the
nation’s economy.
Industrial Strategy
4. The concept of Industrial Strategy has had a long and chequered career in British
politics and industry. Governments of different shades have variously held it to be
self-evident and an anathema and its success or otherwise has been hotly contested
by industrialists. This Inquiry is well timed as a number of positive things that have
happened over recent years are at a key point in their development, with the advent
of a new Government promising to put industrial strategy at its heart.
5. The MTA believes that much of what has been done over the period of time since the
financial crisis under the banner of industrial strategy has been positive and would
like to see further support for initiatives that have proven successful and popular. We
believe that industry can play a vital role in addressing agendas such as regional
growth, productivity and growing our international trade position and that a strategic
approach will be very beneficial.
Strategy needs to be long term and work with the Business Environment
6. Businesses plan for the long term and an industrial strategy should aim to enable
them to do that. It assures them that that Government’s actions and reactions will be
predictable and stable. It is no surprise that the UK’s highly successful financial
services sector has seen fifty years of consistent support from Government in its aim
to become the world’s leading financial centre, with regulations progressively cleared
(at least up to the financial crisis) and the UK a consistent friend of the sector at
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international negotiating tables. This is no criticism, simply a rebuttal of the idea the
industrial strategy is somehow inimical to the UK.
7. Discussion of industrial strategy often avoids mention of the prevailing macro
environment; as though an omnipotent Minister or far sighted company can deliver
success entirely through their actions. In fact, considerations such as the fiscal
environment, the availability of finance, the legal and regulatory framework, relative
international competitiveness and finally and probably most importantly demand are
central to success.
8. The prevailing conditions in the economy are partly a result of macroeconomic policy
but also, increasingly, a product of factors outside the control of governments. There
is little that any western government could have done, for instance, about the shift of
semi-skilled manufacturing and service jobs to China and India in the late ‘90’s-early
‘00’s.
9. A long term competitive tax environment is essential for businesses to grow and to
have the confidence to invest. This is not as simple as just having a low rate of
corporation tax, as welcome as that might be. The headline rate is just part of the
picture.
10. The availability of Capital Allowances is key to enabling business in capital intensive
industries to recover their investment at an internationally competitive rate. Tax
support for R&D has been one of the successes of the last decade with a scheme,
now widely understood and applied, helping to encourage business to invest in R&D
in the UK. We would encourage any Government, but particularly one facing such a
challenging growth environment as the Brexit landscape to increase the both of these
allowances to make sure that the UK is as positive a place for investment, whether
domestic or Foreign Direct Investment as possible. These interventions are
particularly germane to manufacturing.
11. The availability of finance and its cost is an important factor for business, in particular
business that seek to grow. The dire situation of 2009/10 has been addressed but
bank finance can still be hard to access for medium sized businesses wishing to
grow. UK manufacturers are particularly resistant to non-bank finance and although
this is changing, it remains a block on the ability of potentially high growth companies
to perform as strongly as they could. Importantly it is seldom headline rates that are
the problem rather the reluctance of finance providers to fund projects in which they
do not understand the risk, perhaps because the project is dependent on new
technology or is in a sector, notably defence, where they have limited (or no) appetite
for risk.
Openness to investment
12. In general, the UK benefits from being an open economy. As one of the most
globalised sectors, manufacturing technology has been transformed by the injection
of foreign investment. In particular the UK has been more successful than the size of
its manufacturing market would lead one to expect in encouraging companies from
outside Europe (in particular Japan and the USA) to locate headquarters functions in
the UK. We would not wish to see any roll back of that open, internationalist, attitude,
especially in the light of Brexit.
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13. There is however a legitimate concern that the capability of the UK is being ‘hollowed
out’ with certain sectors disappearing entirely and companies unable to build supply
chains wholly or largely within the UK. We believe that part of this problem comes
from low visibility on the part of much of the UK’s supply chain. The position is in fact
more favourable than it appears. Part of an industrial strategy should be to map the
capabilities of the UK’s supply chain companies, a recommendation of the draft
Machinery and Component Supply Chain Strategy on which we have worked as a
member of the Engineering and Machinery Alliance (EAMA).
The Changing Industrial Landscape
14. The UK’s relative position is potentially poised to improve as technological change
impels manufacturing towards areas such as software and servitisation where the UK
has significant strengths. The adoption of digital technologies provides a means to
grow UK manufacturing’s impact.
15. Two particular areas in which the UK is building potential strength are in the
digitisation of industry, sometimes called the 4th Industrial Revolution and additive
manufacturing sometimes called 3D Printing.
16. Digitisation builds on the strengths of the UK’s well established and dynamic tech (or
IT) sector. There is a role for Government in looking at what it can do to help facilitate
manufacturers and tech companies to work together, especially in relation to SMEs
where they do not necessarily ‘speak the same language’ and where again visibility
of UK capability is not always as high as it should be. Anecdotal evidence suggest
that tech companies sometimes look abroad for hardware suppliers, or partners, first
rather than into the UK manufacturing supply chain.
17. The potential impact of this is significant in terms of the reshoring agenda.
Technological change is creating jobs but it is also taking some out of the economy
as previously labour intensive tasks become more automated. We need to make sure
that the UK is not in a position where it is a net loser in that equation. We should be
well placed but if our companies are not competing because they do not know the
competition is on then we will fail to take advantage of the that change.
18. Additive manufacturing technologies have been around for several decades but they
have seen a massive expansion in the last few years. Our sector is particularly
concerned with metal based additive technologies. Here the UK has significant
strengths, including a major indigenous machine manufacturer and a material
supplier (the integrity of base material being a major risk factor for the process).
There is a Government Additive Strategy underdevelopment (begun under the
coalition) and care needs to be taken to ensure that the needs of all players in the
supply chains are considered not just those of OEMs, vital though they are.
Industrial strategies past
19. The last Labour Government was poor at the strategic application of policies which
were individually positive, the upshot being that the Government looked like it was
tinkering.
20. When there was a strategic driver, for example in the creation of the RDAs, too much
was allowed into the ambit or claimed for the policy - which had the effect of losing
the primary economic focus.
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21. The phase embarked upon by Lord Mandelson and then carried further by Vince
Cable under the Coalition Government saw benefits of a strategic approach accrue to
a several manufacturing sectors, notably aerospace and automotive. The Catapult
Centres and Sector Strategies are the most obvious successes, with substantial
business buy in to both and significant co-investment brought in.
22. Looking further afield, Germany is the model which is often cited. Certainly there are
elements of Germany’s successful development that we could emulate and indeed
the Catapult Centres owe a great deal to the Fraunhofer Centres (of which Germany
has 67…). However, another component of Germany’s industrial success is its
financial services infrastructure which acts in sympathy with manufacturing in a way
not always evident in the UK. There may be an opportunity in Brexit for the UK
Government to look once again at measures which have been deemed state aid in
the UK context but which pertain, because of grandfathering, in Germany, notably the
KfW (specifically the KfW mittelstand bank which provided over €20bn to German
business in 2015).
Sectors and Place
23. As noted above, the industrial strategy pursued by the coalition 2010-15 was
explicitly sectoral in its focus. This had obvious benefits in being readily understood
and enabling actions to take place relatively quickly. Major OEMs had specific needs
in terms of technology investment and these can be addressed and co-funded
through the bodies such as the Aerospace Technology Institute or the Advanced
Propulsion Centre. The strategies were crystallisable. It was less good for sectors
which for whatever reason, did not find themselves selected in what felt like quite a
Darwinian process. There was also a feeling that companies within value chains
were not as exposed to the benefits of the industrial strategy as those at the apex,
though this was partially addressed by initiatives such as the Advanced
Manufacturing Supply Chain Initiative. If a wholly sectoral approach is adopted care
must be taken to mitigate the risk of stifling the supply chain.
24. There is a danger that Industrial Strategy is asked to do too much, and loses
because of that. This is a particular danger when a regional lens is applied to it. Of
course there is a regional dimension to Industrial Strategy, not least because the
risks when industries decline are very often felt regionally – for instance the decline
of the coal industry created very specific and acute problems in ex coalfield areas.
But this should not blind us the fact that industries, certainly advanced
manufacturing, think globally and will make their investment decisions accordingly.
Placing industries into particular areas to address employment shortages will not
yield sustainable growth.
25. Policy should work with the grain of local economies, facilitating and accelerating
their growth organically. Clusters emerge for a number of reasons; Government
action may be one, but it is seldom the only one. It should also be said that an
approach which delivers everything regionally can create an uneven playing field and
even set regions and localities, the boundaries of which may be arbitrary, against
each other.
26. That said many of the things that local communities want further investment in, such
as transport links and good training provision are very welcome to industry and it
setting up a false dichotomy to pitch Regional Policy and Industrial Strategy against
each other. They are intrinsically linked, but they are different things.
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