| The
government’s manufacturing strategy
This is a summary of the original manufacturing strategy,
which the government launched in May 2002.
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Manufacturing matters. It accounts for
a fifth of the economy, it employs around 4 million people
and many more in associated industries and services. Manufacturing
accounts for 60% of our exports and 80% of research and
development, so is a key driver of innovation and technology
uptake.
But
manufacturing productivity in many other industrialised
countries is higher than it is in the UK: around 30% more
in France and Germany, and 55% more in the US. If UK manufacturers
could match performance in these countries, the UK would
be £70 billion better off. Returns on investments
would be higher, jobs better paid, and companies more competitive.
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Analysis
The UK has many world-class companies and real strengths to build
on, including a stable macro-economic environment, a first class
science base and membership of the EU with access to the world’s
largest single market. But we also have significant weaknesses.
UK manufacturers invest less in capital equipment on average than
competitors. With a few exceptions we spend less on R&D and
average skills levels are lower. The National Institute of Economic
and Social Research has quantified the impact of this and other
factors contributing to the productivity gap including business
effectiveness at utilising capital, skills and innovation.
We
recognise the short-term challenges UK manufacturers have faced:
falling manufacturing output, low global demand form products
and the relative weakness of the euro have resulted in job losses
and profits have fallen to significant lows. But demand and output
are increasingly picking up and we must seize the significant
opportunity we have to narrow the productivity gap and increase
prosperity for all. The increasing pace of globalisation also
presents many opportunities for increasing trade as barriers come
down and capital becomes more mobile. But it also means that companies
face increasing competition from goods and services produced in
lower-wage economies. Companies that rely on labour-intensive
products and processes will find it ever more difficult unless
they evolve to meet the challenges. The evidence is clear that
more innovative and knowledge-intensive products, processes and
management are vital. Success is possible in every sector. For
example our chemicals, pharmaceuticals, electrical and optical
sectors have all grown faster than the economy as a whole. Many
textiles companies that would not otherwise have survived in traditional
lines are now producing innovative products such as technical
textiles with new fibres, new processes and new applications.
Strategies for success
The Manufacturing Strategy is the Government’s response
to the challenges we all face. It is being developed in partnership
with industry and key stakeholders, on a sectoral and regional
basis and must deliver real outcomes. Measuring progress is important
and plans are in hand to establish testing measures of success.
Our goal is to narrow the productivity gap, assisting companies
to move up the value-added chain to more knowledge-intensive,
high-skilled manufacturing. Manipulating exchange rates, which
would put at risk economic stability, or imposing export or other
restrictions that would undermine competitive market frameworks,
are mistakes that we should avoid. But we do need to promote investment,
skills, innovation and best practice – creating a virtuous
circle that builds a high value-added manufacturing sector.
Additionally,
Government must ensure the right business environment by delivering
macro-economic stability, a modern infrastructure and the right
market frameworks. These are the seven pillars of the Government’s
approach. Each pillar sets out goals, policies and roles, with
future prospects and milestones.
Summary
of key messages from the Seven Pillars
Pillar 1: macro-economic stability
Macro-economic stability has been a key priority for the Government.
Stability has been hard won and must be preserved. It provides
the basis for improved investment by giving us an assured basis
for planning. CBI survey evidence shows that the hurdle rates
of return companies expect from investment have come down significantly
reflecting the improved macro-economic environment. Our policy
on the euro supports the maintenance of macro-economic stability.
Pillar
2: investment
We must encourage companies to invest, to back innovation and
to provide workforces with the equipment they need. UK investment
stock per worker is well below US and German levels. Investment
decisions are primarily for the market, but Government has a role.
Apart from macroeconomic stability, measures include changes to
the tax system which encourage entrepreneurship; assistance to
investment in certain regions and by small companies; and encouragement
of inward investment.
Pillar
3: science and innovation
Innovation in its broadest sense, combined with best practice,
skills and investment, is a key to competitive success and resource
productivity. We aim to raise manufacturing innovation performance
by making much better use of the excellent UK science base and
by encouraging the transfer of technology from a wide range of
UK and international sources. We promote key emerging technologies,
foster knowledge transfer and encourage commercial R&D. Our
measures have included the recently introduced R&D tax credit
for large companies, and the continued expansion of investment
in the science base. The additional funding for science and technology
announced in the Government’s Spending Review 2002 will
help to drive this work forward.
Pillar
4: best practice
Best practice enables innovation and investment to be turned into
profitable products. Our policies include support for the new
Manufacturing Advisory Service (link: http://www.mas.dti.gov.uk/)
the expansion of the industry forum schemes, and the promotion
of partnership in the workplace. At the manufacturing summit last
December we earmarked an additional £20m for best practice
activity.
Pillar
5: raising skills and education levels
Improved skills levels contribute to higher productivity, better
customer service, and to the exploitation of investment and new
ideas. To this end, we have established the Learning and Skills
Council (link www.lsc.gov.uk) with overall responsibility for
post-16 learning in England outside higher education. We are establishing
the new sector skills councils with clear business leadership.
On the supply side, our measures include steps to drive up standards
in further education colleges; a major increase in the number
of modern apprenticeships; and a range of measures to assist existing
workforces to up-skill and to raise the status of vocational and
work-related learning within the educational system.
Pillar
6: modern infrastructure
The UK’s infrastructure has suffered from historic under-investment.
We have set out a 10-year plan to modernise the transport network
at a cost of £181 billion. We are also taking forward a
strategy to increase broadband penetration.
Pillar
7: the right market framework
Successful manufacturing requires competitive and dynamic markets,
confident consumers and well-motivated employees. The UK scores
well internationally on its regulatory environment. Our priorities
are to strengthen further the competition framework through the
Enterprise Bill, to work within the EU and internationally for
free and fair trade and to underpin an enterprise economy with
sensible minimum standards in the workplace. Action is currently
in hand to reform the planning system to meet business concerns.
UK
Prosperity depends on a successful and dynamic manufacturing sector.
In partnership with industry and other stakeholders, we are determined
to deliver results.
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Last updated 8 February 2004 |
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