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Manufacturing investment: a case of ambition clouding reality

05 March 2013

Despite, or possibly because of, the prevailing economic conditions, UK firms are holding on to their cash, and investment in manufacturing infrastructure is stalling.

On the eve of its second annual Manufacturing Conference in London on Tuesday (March 5), the Engineering Employers' Federation (EEF) released its latest report - Invest for Growth - Encouraging more globally focused companies to expand in the UK - which also includes a survey of manufacturers' investment plans. While manufacturers have ambitious strategies focusing on bringing new products and services to new overseas markets, the report raises questions as to whether they are investing enough to deliver them.

Setting aside Jaguar Land Rover's encouraging news - news of a substantial investment in export-led manufacturing infrastructure that appears to buck an otherwise depressing trend of declining investment, the overall recovery in business investment has been slower than that of our international competitors, leaving it still 14 percent below its 2008 peak.

But aspirations abound; of the 250 companies surveyed, nearly nine in ten firms say they want to invest to improve productivity; three-quarters plan to adopt new technology and seven in ten want to develop capacity to manufacture new products.

On a positive note, firms have been upping their capital expenditure with half of companies increasing investment in the last three years and only one in ten reducing it. Investment is being made not just in modern machinery but also in skills, R&D, marketing and innovation.

However, the report shows that a fifth of manufacturers feel they are falling behind their international competitors. In addition, a third said the gap between what they want to invest and what they actually invest is growing.

Closing that gap is not going to be easy, with many manufacturers facing challenges in accessing finance on the right terms and the need to cover pension liabilities. Moreover, competition for investment from locations across the globe is increasing and many manufacturers are foreign-owned and therefore face challenges in getting approval from their parent companies.

EEF chief executive, Terry Scuoler says we need to close this gap between ambition and reality by overcoming the barriers to investment facing manufacturers and by giving them every reason to invest here rather than abroad. “The global race for business investment is becoming ever more intense and winning it won’t be easy," he claims. "The starting point for government must be redoubling its efforts to create an environment that gives industry the certainty and stability it needs to make long-term investments.”

At the heart of a more predictable business environment must be a long-term strategy that focuses on manufacturing; this was the call from more than half (53 percent) of companies responding to the EEF’s survey. Among a raft of policies that responents identified as having an impact on the ability of manufacturers to invest were: a competitive tax system for all companies investing in the UK; improved access to external finance; increased availability of suitably qualified staff; competitive energy costs, and more support to commercialise technology.

Broadband: we are 'on track'
Ofcom has reported to government on the coverage, take-up, usage, price and choice of fixed and mobile broadband services in the UK, relative to other European countries. The so-called ‘European Broadband Scorecard’ was originally proposed by the Department for Culture, Media and Sport, to allow the government to measure progress towards its ambition that the UK should have the best superfast broadband network of any major European country by 2015. The Scorecard focuses on the UK’s position within the European Union’s five leading economies – the ‘EU5’: France, Germany, Italy, Spain and the UK.

According to Ofcom's analysis, the UK generally performs well among major European economies. On all measures of coverage, take-up, usage, price and choice, we rank between third and first in the EU5. The report finds that the UK has approximately the same fixed broadband take-up, at 32 connections per 100 people, as France and Germany. Take-up in these three markets is considerably higher than it is in Italy and Spain.

We come third among the EU5 for superfast broadband coverage, slightly behind Germany and Spain but ahead of Italy and France in this very new market. In June 2012, Ofcom reports that superfast coverage had reached 65 percent of UK premises.

The UK has high mobile broadband take-up (the second highest in the EU5 with 64 connections per 100 people, narrowly behind Spain). We are also avid internet users (the highest in the EU5, as it happens, with 81 percent of the population having online access).

We also have some of the lowest fixed and mobile broadband prices; when assessing various measures of price, the UK leads the EU5 in eight metrics out of twelve.

Ofcom's upbeat message is: we are accelerating fibre roll-out, cable broadband speeds are being increased and the government is proceeding with its programme of publicly-funded superfast deployment in rural areas, which gained European Commission approval in November.

Telecommunications minister, Ed Vaizey was quick to pick up on these statistics, claiming that the UK’s plans to put broadband at the heart of its economic growth agenda, are on track. "Our aim is to remove the barriers preventing investment and innovation, and demonstrate that Britain is one of the best places in the world to do business online," he told his audience at the Cable Congress in London on Tuesday (March 5).

And he wants nothing getting in the way of progress. "We cannot allow rollout to be delayed by planning refusals, or confusion when carrying out street works, or by long running legal issues over access to private land," he said. "Our goal is to provide certainty, to ensure the money invested in rollout is used to take superfast broadband further, not wasted on delays and disputes. It is important that the regulatory framework governing the telecoms sector is fit for purpose and competitive."

Andrew Ferguson, who edits the website thinkbroadband says that while the Scorecard offers some welcome bright spots it is largely just a summary of what has previously been reported. Services like BBC iPlayer have trail blazed the idea of watching TV over the Internet, he says, and this has led to increasing competition for TV services like Blinkbox, NOW TV, Lovefilm Instant and Netflix.

But he offers a warning: just as the Internet decimated the music industry, if we do not pay attention to the many smaller emerging economies we may find ourselves simply being seen as the birth place of the digital economy, with other nations reaping the benefits both socially and economically. 

Les Hunt

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