Analysis

Can David Cameron Rebalance the economy?

Alison Clements , 02 Nov 2010

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David Cameron is talking up manufacturing as a way of rebalancing the economy. But can a manufacturing renaissance really happen and do we have the skills to support it?

The prime minister, David Cameron, believes he has the power to stimulate a full renaissance in British manufacturing, as part of his high-profile bid to "fix Britain’s broken economy". His Manufacturing Growth Framework, expected to be launched this month, promises help by encouraging investment, commercialisation of new technologies and "aligning sectoral skills demand and supply". The idea is attractive, particularly given the country’s over-reliance on financial services, housing and construction and the public sector. But is Cameron’s vision just wishful thinking?

Howard Davies, director of the LSE and a former chairman of the Financial Services Authority, certainly thinks so. He is one of the many economic and HR experts wondering how the mooted rebalance can really be achieved given labour costs and questionable local demand.

"Business demand today is in areas such as investment banking, media and communication," Davies recently pointed out at an Association of Graduate Recruiters conference. "To pretend our competitive advantage will be somewhere else is romantic disillusion. Manufacturing is only 12% of the economy. That is not going to change simply by increasing the number of engineering graduates."

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Cameron, however, believes manufacturing can be placed firmly back at the heart of the British life, ensuring more jobs and growth from "industries like aerospace, high-tech engineering and low-carbon technology". He sees the current geographical imbalance in the job market – with London and the South East getting all the cream – being addressed in this modern industrial landscape.

So can UK manufacturing deliver? If it can be nurtured while construction and business services contract, it would certainly help ease acute pain in the jobs market. The UK is the world’s sixth-largest manufacturer by output and UK manufacturing already contributes £140 billion per annum to the UK economy, with recent data showing clear signs of growth. The prime minister’s 19-person Business Advisory Group, announced in October, includes four manufacturing big-hitters hailing from Dyson, Tata Group, BAE Systems and GlaxoSmithKline. But sceptics have been quick to point out that Sir James Dyson moved manufacturing from the UK to Asia in 2002, and Tata Steel has had to announce job losses recently in reaction to weak demand from the construction industry.

Conversely John Bryson, professor of enterprise and economic geography at the University of Birmingham, is an enthusiastic supporter of UK manufacturing but thinks it risks collapse because of a severe skills shortage. "British manufacturing is thriving because many firms have transformed themselves to produce high-value, innovative products rather than trying to compete in the mass market on price with China and other countries," he says.

"It is therefore very worrying that hard-to-fill vacancies and skill shortages will make it difficult for firms to grow, and in some cases even continue to survive. Companies find it increasingly difficult to recruit commercially aware engineers and other forms of skilled labour," he adds.

Bryson argues that the opportunity for specialised training, making manufacturing more appealing at GCSE and A level, and using a more up-to-date definition of manufacturing, would increase its appeal as a career option. "The firms that need the skilled labour do not have the capacity to offer training as they are largely SMEs," he says. "Over the next five years there will be 90,000 hard-to-fill manufacturing jobs in the West Midlands alone that could be filled by people with the right skills and expertise."

Semta, the sector skills council for Science, Engineering and Manufacturing Technologies, has identified opportunities for further growth in the UK from ‘advanced manufacturing technologies’ (AMT) such as aerospace, clean power products, industrial biotechnology, plastic and silicon electronics. "These use a high level of design or scientific skills to produce innovative and technologically complex products and processes," says Lynn Tomkins, Semta’s UK operations director. "High value-added manufacturing skills will be needed to secure the country’s economic future, to be both progressive and competitive in the global marketplace. AMT will also aid the transition to a low-carbon economy by energy efficiency savings."

Semta research shows that in engineering and manufacturing companies, 21% have skills gaps and 70% of these are technical skills. Only 11% employ apprentices or trainees. There has been some government help in recent years, through the Sector Compact which pushed up NVQ registration to a record 100,000 in 2009, says Semta. The Compact is still in place until May 2011 and should be helpful to SMEs, which form over 90% of the manufacturing and engineering sector. "Semta can support companies either through this funding or with practical help in diagnosing skills priorities and building training plans to meet business objectives which will give a real return on investment," says Tomkins. The National Skills Academy for Manufacturing Business-Improvement Techniques courses, for example, provides a 6:1 return on investment."

But firms should be aware that the current Government has called for a ‘transfer of power’ – and also of responsibility – from the centre to individuals and their employers. This will mean companies will need better guidance on identifying skills needs and accessing good quality training from organisations like Semta. "Employers need to be in the driving seat," says Tomkins.

Inspiring the next generation about STEM (science, technology, engineering and maths) careers is vital in preventing future skills shortages because of retirement. In addition, the Government announced there will be 10,000 fewer university places this year, due to deep cuts to public spending, despite record applications. However, the Government has pledged extra funding for apprenticeships.

Proskills, the sector skills council for the Process and Manufacturing sector, has been calling for greater investment in skills if the UK economy really is to be ‘rebalanced’. Proskills research has found there are around 3,500 vacancies across its sector, and more than 44,000 people already in employment in process and manufacturing have skills gaps. "Investing in training and development for new and existing employees will help fill these vacancies and deal with the current skills crisis," says Terry Watts, CEO of Proskills. "To remain at the forefront of world manufacturing we must, with employers, invest in the skills of the workforce and make those skills transferable to allow people to become multi-specialists. "

"Nationally there are some good apprenticeship schemes for engineering, and companies can get involved with bodies like Proskills and the National Apprenticeship Service to develop new schemes for specific manufacturing trades," says Andrew Biddle, HR director at Crown Paints. "Better training of this kind will certainly be essential if manufacturing is to boost the economy’s performance."

When it comes to skilling-up, smaller companies feel very much left to their own devices. Barry Green is managing director at Premier Plastics, a small plastic fabrication and manual machining specialist in Norfolk. His view is that specialised work and a base of around 300 loyal customers is keeping the business successful, but that the nature of catering for very specialist local needs means the firm will always be small. "We have 10 employees and train people in-house," says Green. "When I hear government talk of supporting manufacturing I assume we’d be too small to see any impact. The reality for small companies is these kinds of benefits never filter down to our level." 

Although the Government has pledged extra funding for apprenticeships, cuts dominate the headlines and will, of course, affect manufacturing. Manufacturing businesses have been disappointed by the coalition’s scrapping of the nine regional development agencies (RDAs) the Labour government had set up – promising funding of £64.4 million – to support low-carbon manufacturing and research and development in regions such as the Midlands, Yorkshire and the Tees Valley. The RDAs are being replaced by Local Enterprise Partnerships (LEPs), the effectiveness of which will be hard to determine for some time.

Yet the Government seems to be proactive in other ways. A planned reduction in corporation tax and national insurance breaks for new businesses created outside London could help foster economic growth in the regions. And Cameron has talked about "getting the infrastructure right", pledging to invest in high-speed rail links and bolstering international trade links.

Business minister Mark Prisk has recently been championing UK-manufactured low-carbon products, and the Department for Business, Innovation and Skills (BIS) has demonstrated a commitment to encouraging exporting of such products. Best practice companies being showcased recently by BIS included Intelligent Energy UK (a clean power systems company), Tata Steel (involved in developing the low-carbon vehicles and travel networks of the future) and Flow Control (which has invented and manufactures a non-spill Fuel Can).

"Growing the manufacturing sector is a crucial part of our plans to create economic growth, so we need to take advantage of new business opportunities such as low-carbon," says Prisk. The Manufacturing Growth Framework will form part of the Government’s wider strategy for growth, and aims to promote manufacturing as a valued, skilled career, and enable the UK to become Europe’s leading high-tech exporter. The BIS recognises that firms are struggling with the costs and complexity of exporting, and in developing specialist skills in these new technologies, but a central plank of the framework will be to encourage "industry involvement, action and co-operation" without necessarily drawing on public funds. It appears the work of changing the perceptions of manufacturing as a career, encouraging investment and planning strategy will need to be done by manufacturers themselves.

At least manufacturers are used to going it alone. "What struck me most during the downturn was how many manufacturing firms hoarded skilled labour to prepare for post-recession recovery, with workers accepting part-time working, taking pay freezes and even pay cuts to stay in work," says David Bailey of the Applied Research Centre in Sustainable Regeneration at Coventry University Business School.  "But looking forward a few years, we have the same old problem that we don’t train and educate enough of the highly-skilled workers through our further and higher education sectors that an increasingly high-skill and high-tech industry needs."

A skills shortage, rising costs, uncertainty over demand for manufactured product as Eurozone countries continue to struggle, and limits to how central government can help all cloud the horizon. But if high-tech and traditional manufacturers can develop better skills and crack new export market opportunities, change could come, with manufacturing jobs given a far higher profile than today.

Solid base on which to grow

Office for National Statistics figures released in October 2010 reveal that UK manufacturing output has this year grown at the fastest rate for more than 15 years. Output rose by 0.3% in August, taking the annual rate of increase to 6% from 5% in July, reflecting an increase in customer demand.

Recent research (6 September) from the Engineering Employers Federation reveals rising overseas demand has created buoyant conditions for manufacturers. The report predicts manufacturing output would increase by 3.7% this year (2010) and by 3.2% in 2011.

"The UK has an established manufacturing base and customers, both domestic and international, are attracted to UK businesses for their innovative, forward-thinking approach," says Lynn Tomkins, UK operations director at Semta."However, the recent economic climate has presented a challenge for many manufacturing firms. To continue growth into the future it is important employees have the right skills."

During the recession, Semta has worked with 3,000-plus companies helping them to up-skill and maintain critical expertise. This has resulted in more than 1,300 training and development plans being completed and N/SVQ registrations hitting a record 100,000 in 2009.

Semta has produced an Advanced Manufacturing Report that has identified the following areas of growth: aerospace, plastic electronics, silicon electronics, industrial biotechnology, composites and nanotechnology.

Of the 29,300 per annum jobs required in Semta’s sectors between now and 2016 approximately 10,000 a year would require higher-level skills, potentially developed through apprenticeships.

The engineering sector has done comparatively well, with apprenticeship numbers reaching 16,500 last year. Around a quarter of all apprenticeship started between 1 August 2008 and 31 January 2009 were in engineering and technology, with around 35,400 new engineering and technology sector apprenticeships.

Skills must be constantly updated

Andrew Biddle, HR director at Crown Paints, says apprenticeships have always helped the company ensure it has the right levels of skills to compete in paint manufacturing in the UK. The firm employs more than1,300 people at manufacturing sites in Darwen in Blackburn and Hull, and, as part of its strategy to remain a sustainable business and long-term employer, is looking to increase its training initiatives at all levels of the company from the shop-floor upwards. It’s vital for Crown Paints to ensure its maintenance staff, engineers and technicians are fully up-to-date with the latest processes, as the firm builds business, he says.

"We believe UK manufacturers like us can still use traditional HR methods such as apprenticeship schemes to encourage employment and self-development within a large workforce," says Biddle. "We don’t put vast numbers through apprenticeships, but we do it on an ad hoc basis, so there might be three or four people a year on a scheme, and then none the next." The important thing is to pre-empt the skills that will be needed four or five years down the line. "What’s particularly challenging is the fast-moving nature of coatings processes and the technology around it," says Biddle. "We have to be able to adapt, and have the skills to do it, very fast."

Crown Paints has been working with Proskills and the National Apprenticeship Service to develop a decorative coatings apprenticeship scheme. "There are plenty of people who want to come into the business, and it helps us to have a nationally recognised scheme to give individuals skills that will help them personally, and equip us as a business to grow and thrive," says Biddle.

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