Call for UK manufacturing boost

The UK needs to create hundreds of large manufacturing companies during the coming decade if it is to fulfil its growth potential and achieve a more balanced economy, according to a report by the EEF manufacturers’ federation and Royal Bank of Scotland.

Manufacturing output is growing at its fastest rate since 1994 and companies are poised to step up innovation, investment and exports, says the report.

But the sector has so far clawed back only a third of the 15 per cent drop in output it suffered during the recession and its growth could be held back by having far fewer large companies than competitors such as Germany and the US.

The report urges the government to concentrate not just on young companies and start-ups but to break down barriers to growth for all sizes of companies.

“The UK doesn’t just need a handful of larger companies over the next decade – we need hundreds of them with the scale and muscle to tackle our economic challenges. Otherwise we risk placing a speed limit on our growth potential,” said Terry Scuoler, the EEF chief executive.

“While the current attention on young businesses and start-ups is helpful, we must not ignore the wider benefits to the economy that larger companies bring.”

Big companies support supply chains, drive product development and invest in skills, the report says. The largest 1 per cent of manufacturers account for half of employment and two-thirds of turnover.

But only 1.2 per cent of UK manufacturers employ more than 250 people, compared with 2.1 per cent in Germany. In the US, companies with 500 or more employees account for 2.9 per cent of manufacturers, compared with 0.6 per cent in the UK.

Foreign-owned manufacturers such as Siemens and Toyota make up two-thirds of the largest manufacturers. The EEF says the UK must continue to attract them – particularly in areas such as offshore wind – but needs more home-grown companies, such as Rolls-Royce and JCB. Ministers should target their support at high-growth sectors such as nuclear energy, electric cars and high-speed rail.

The EEF praised the planned £60m investment in ports infrastructure, aimed at attracting wind turbine manufacturers.

It believes that manufacturing, which employs 2.5m, can create jobs in spite of having lost nearly 4m since 1980. It created 165,000 in the five years after the previous recession in the 1990s.

In a survey of 300 member companies, 76 per cent said they planned to increase innovation and 69 per cent would raise capital investment. Exports accounted for more than half of turnover in 40 per cent of companies, but Mr Scuoler said more needed to “get on their bikes” and sell to Brazil, Russia, India and China.

The EEF urges the government to create a stable and internationally competitive framework for tax, regulation and skills, starting with its planned growth paper and manufacturing framework.

It must curb red tape and provide clarity on environmental, business and personal tax reforms, the EEF said. Access to finance needed to improve, through greater competition between banks, alternatives to equity finance and merging government-backed schemes into a single source of funding.