Manufacturing: Is this the forgotten sector?

Published by Rodney Sutton on 21 July 2020

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I was asked by a client what my opinion was of how the manufacturing industry was faring at present. The answer is that this is a sector that needs further urgent direct and concerted help from the government to maintain the flagship industry which has been the envy of the UK’s trading partners since the Industrial Revolution.

Here is the reason why: The CBI has recently reported that in the quarter to 30 June 2020, a survey of over 360 manufacturing businesses, both large and small, showed that only 17% of respondents reported increases in output whilst over 74% reported less. This is a 57-point gap which is the largest gap since 1975. Order books may have shown a small increase in June, however, only 13% of the respondents reported higher than average order books for the time of year, while over 71% reported lower than average increases, this is a 58-point difference. Finally, exports in June were at their lowest levels since records began with only 2% of respondents reporting increases in export sales while 81% replied that exports were down.

This is a sector that needs listening to by government and it is clear that motor manufacturing in the UK is one of the hardest-hit sectors. This is an industry that employs 800,000 employees across the UK either directly or in allied supply businesses. 6,000 job losses in this sector have already been announced and I am sure more are to follow if urgent support is not forthcoming from the government. There needs a dedicated package that includes the following measures:

  • VAT cuts.
  • Business rate holidays.
  • Simpler and quicker access to emergency government funding by extending and simplifying the CBILS scheme.
  • Extension of short-term working support until the sector is back on its feet.
  • Stimulation of customer demand, which in the motor sector would include the reintroduction of a generous scrappage scheme which not only supports the industry but also has the potential to lower the UK’s CO2 emissions through the introduction of cleaner and greener technology.
  • Direct equity stakes by government in key manufacturing businesses, much in the same way as was applied to banks following the 2008 financial crisis.

Clearly, the government has already provided unprecedented support to the economy via furlough support and emergency access to funding via the CBILS scheme. However, if the expected recession which is predicted to be as severe as The Great Depression of the 1930’s, manufacturing and the wider economy needs further innovative and wide-ranging government support. This is also against a backdrop of the looming Brexit deadline of 31 December 2020 where what the sector requires is a comprehensive free trade agreement that ensures zero tariffs and quotas, but all the messaging at present is that the UK will  “Hard Brexit” with further potential cost increases and uncertainty at a time where the sector needs clarity and support.

I am in no doubt that the sector is resilient and has shown just how much it can adapt so far, but without increased support I think the sector is just beginning its uphill battle of survival.

If you would like to discuss the topics explored in this article, please contact your usual Kreston Reeves contact or Rodney Sutton.

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