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SMEs - relief at last from the credit squeeze?

28 November 2011

Are we witnessing a damascene moment for the government as it struggles with sovereign debt and the need for growth? Manufacturing – that long neglected engine of our economy – is at the centre of the government’s strategy for economic recovery and it appears now to be targeted on two fronts – investment and employment. Last week, Deputy Prime Minister Nick Clegg outlined a £1bn 'Youth Contract' in response to the appalling youth unemployment figures, published earlier this month.

He wants to see all jobless young people either earning or learning again lest we risk a lost generation. Mr Clegg claims that over a period of three years, the Youth Contract will provide at least 410,000 new work places for 18 to 24 year olds; it includes 160,000 wage subsidies, 250,000 new work experience placements and at least 20,000 more incentive payments to encourage employers to take on young apprentices.

Accused of resurrecting the employment boosting tactics of the previous administration, which targeted the public sector, Mr Clegg countered his critics, saying his package will get young people into “proper, lasting jobs in the private sector”. And there’s to be no feather-bedding; if a young person signs up for a job, there will be no signing on for the dole. They will have to stick with it and not break their side of the bargain. The exercise is not cheap and the money will probably be found in various ways that are unlikely to be popular with tax payers. Sacrifices need to be made, but the government will need to show discipline in carrying out its youth employment plans.

The second prong of the government’s campaign for manufacturing growth came to light over the weekend with the inevitable managed leaks of information that foreshadow any major government announcement – in this case, the Chancellor’s Autumn Statement.

Later today, the Chancellor of the Exchequer, George Osborne is expected to announce three credit easing schemes to release around £20bn in loans to small firms, including one whereby the government underwrites banks' borrowing so they can pass on cheaper loans to those firms turning over less than £50m. In effect this is a government guarantee for banks to borrow on the financial markets and, in return, pass on cheap lending rates to their SME customers.

Other proposals include the government taking a stake in an investment fund along with private investors to offer affordable loans to SMEs, and another that wants to see SMEs seeking funding from other sources of capital, such as pension funds, by selling their own ‘bonds’ to the financial markets.

Support for manufacturing as a driver of economic growth, was also the message pressed home by Society of Motor Manufacturers and Traders president, Nigel Stein, when he addressed the great and the good of that key sector at the organisation’s annual get-together last week. He also recognises that there is, in his words, a continued shift in government attitude towards manufacturing. “Policy makers are increasingly recognising the economic importance of a strong manufacturing base and are working with us to make sure the UK can successfully compete globally,” he said, joining the growing choir of voices calling for action in the Chancellor’s Autumn Statement.

A more competitive UK plc – but how?
Of course, there is tough foreign competition – particularly from manufacturers in the Far East and Eastern Europe. At present, we cannot compete with these nations on labour costs, though other factors such as language, distance and quality issues may act to some extent in our favour.

On the wages front, however, European Automation’s Jonathan Wilkins believes that changes are afoot. He says the salary landscape across Europe is changing. Facilitated by the common relocation of western operations to Eastern European countries, salaries in the East are increasing. Meanwhile salaries in the traditionally affluent West are declining as a result of the global recession. This is supported by statistics from the European Industrial Relations Observatory Online, which show how the real life impact of agreed EU pay rises between 2009 and 2010 vary from country to country. 

These real increases were negative in the UK, at -1.5%, and in Belgium, at -1.3%, while moderate increases were observed in Spain and France of 0.2%. The most substantial real impact was seen in Eastern European countries, with positive increases observed in Slovakia (1.5%) and the Czech Republic (1.9%). These figures are very significant for a one year period, says Mr Wilkins; imagine them extrapolated over five or even ten years.

Jonathan Wilkins’ premise is that we should take advantage of this now by investing in automation – something UK industry has been rather slow to take up compared with the efforts of our European neighbours. There may be an element of self interest in this proposal – after all, Mr Wilkins’ company is an automation component supply chain specialist – but his reasoning is nonetheless spot on. Automation not only hones manufacturing efficiency, it also helps companies to meet their carbon emissions reductions obligations. And he is certainly not alone in this view.

GAMBICA’s deputy director, Steve Brambley reminds us that in its Advanced Manufacturing Growth Review at the end of 2010, the Department for Business, Innovation and Skills recognised the importance of automation as a key technology – and one that will enable globally competitive manufacturing operations to invest and grow in the UK. “Smart automated systems and processes are not only essential in attracting foreign direct investments, but represent a key component to grow and rebalance the British economy,” says Mr Brambley. “A combination of world-class R&D, both corporate and academic, and early adoption of automated technologies by UK-based modern manufacturers can accelerate economic recovery and unleash the potential to give Britain’s long-term prosperity.”

To reinforce this view, GAMBICA and the technology business representative body, Intellect will be holding a joint event in February 2012 in London to promote the concept of automation and its benefits to the manufacturing supply chain. Called Automated Britain – The Renaissance of UK Manufacturing, this event will also explore whether there are any perceived obstacles that discourage industry from making more investments of this type.

Automation, of itself, is actually a core strength of the United Kingdom and a manufacturing industry in its own right. It contributes over £5bn per year to the UK economy and directly employs around 100,000 people. The aim of the conference is to alert manufacturers, government and the media to the opportunities that automation affords a manufacturing operation, and to spread the good news through joint presentations by both the providers and users of industrial automation who have enjoyed success through its implementation.

When I spoke to Steve Brambley last week about the conference, he was a little embarrassed by the fact that no specific date or venue had yet been decided. However, it will be sometime in February and it will be in Central London. In the meantime, he urges anyone interested in attending to check out the GAMBICA website over the coming weeks – and you can be sure we’ll let you know as soon as the details are announced via the DPA website.

Les Hunt

Reader comment:

From Mr Derek Rose:

There is no guarantee that the government owned bank will pass on or increase lending to SMEs, it would be far better for the underwriting to be direct to the SME thereby guaranteeing the loans will happen.

With training, just bring in a law any capital contract over £2m or government and local government service contract must train on a 4 or 5 to 1 ratio unemployed people during the project. That will ensure that the foreign companies winning UK business also have to train as well as poach uk companies' employees. Don't give the choice to the long term unemployed - turn up and be trained or don't receive any money. They should receive expenses, of course. This could reduce the number of unemployed instantly in those moon-lighting.
Employers actually need intelligent youngsters and the increase in uni fees is likely to be the biggest provider of those. The industry has for a number of years been dumbed down to a lower education level, that's not what the country needs to compete in today's world.

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