Focus on Manufacturing | Irwin Mitchell | State of the Nation

Over recent months, many column inches within national newspapers have told a grim story of UK manufacturing and sounded the literary equivalent of death knells for the sector which bore the Industrial Revolution and upon which much of the country’s prosperity has been founded.

The naysayers are many but, tellingly, the manufacturing sector remains buoyant and the harbingers of doom appear to be being brushed off by a sector accustomed to challenges, the need for innovation and, most apparently, to doing it on its own. The most recent Markit/PMI measure of manufacturing confidence continues to confound expectations and in March stood at 51, remaining above the key 50-mark point which would indicate contraction in the sector.

2015 saw UK car manufacturing output hit a 10-year high. The green shoots of recovery, to borrow a quote from the Chancellor, are sprouting. The challenge now is to ameliorate the hostile environment into which they have grown.

Steel industry – reinforcement needed

In the six months to March 2016, over 5,000 jobs were lost in UK steel production, firstly as SSI’s Redcar operation collapsed into administration and later with the swingeing job cuts announced by Tata across four of its UK bases. Employment contracted severely at a number of other steel manufacturers, including Sheffield Forgemasters, during the same period, and worse could be to come with the pending closure of Tata’s Port Talbot steel plant.

A recurring theme emerged during the fall-out from those redundancies; the existence of a perfect storm of high domestic energy prices, an uncompetitive currency and a flood of cheap imports, problems exacerbated by shrinking global demand for steel.

SSI, Tata and Forgemasters all laid blame, at least in part, at the door of Europe’s regulatory regime which was accused of failing to stem the inflow of cheap imports, particularly from China, with the effect of undermining the competitiveness of the UK’s steel manufacturers.

The EU has responded; in February it imposed tariffs of up to 16% on Chinese steel imports to a lukewarm reception amongst UK manufacturers. Too little, too late, complained most, many drawing comparisons with the USA where preliminary tariffs of 236% were imposed on the imports of certain grades of Chinese steel in November 2015. The political appetite appeared, even at a pan-European level which has seen 40,000 steel-sector jobs lost in the previous year, to be lacking.

David Cameron wants “a strong British steel industry” but the will of UK government has so far done little to assuage the concerns of the sector. Sajid Javid, the Business Secretary, recently said that “the UK steel industry is absolutely vital for the country and we will look at all viable options to keep steel making continuing in Port Talbot”.

Maybe that is the case, but the perception amongst the UK’s manufacturers is that the government is only just now reacting to a crisis which has been anticipated for some time. Sheffield Forgemasters was but one voice in a chorus of many which criticised the government for failing to secure, or support, contracts for UK manufacturers in UK-based projects. Hinckley Point C was one such example.

The government will point at Crossrail, where almost all of the steel was British steel, as evidence of its support for UK manufacturing.

‘Where we can, we will’ appears indicative of the government’s approach. Whether that is true will be viewed largely in the context of current and forthcoming major infrastructure projects; how much UK steel will be utilised in the £563m redevelopment of Bank station, construction of the Thames river super-sewer or in the work to electrify cross-country rail routes. In the long-term, of course, the HS2 project offers government a highly-visible opportunity to demonstrate its commitment to supporting domestic steel industry.

Tata Steel will also point to their repeated warnings of a crisis in the sector which went unheeded by the government. The government has been accused of “abject failure” when it came to protecting the UK’s steel industry and a number of manufacturers feel it is now too little, too late.

Whether this government does what it can, where it can to support the UK steel industry may ultimately be a question for posterity.

Brexit - should we stay or should we go now?

The referendum wagon has already rolled into town, and for the first time since 1975, Britain will go to the polls to decide whether to be a part of the European Union. Whilst newspaper headlines in the run up to 23 June will be dominated by talk of the “migrant crisis” and issues of national security, the economic consequences of so-called Brexit would be significant and its bearing on the UK’s manufacturing sector profound for generations to come.

We explore, on page 10, some of the key drivers which are likely to be at the heart of the sector’s decision to vote to remain in or leave the EU, and we give our thoughts on what a post-EU world might mean to the UK’s manufacturing sector.

Apprentices – the young ones

Safeguarding the future of the UK’s manufacturing sector is not only a question of investment in infrastructure; it is essential that human capital is sustained and developed alongside the machinery, robotics and infrastructure which will form the tools of tomorrow’s manufacturers and historic failures to address skill shortages continue to weigh heavy on the sector.

The tide may just have begun to turn, however. In August 2015 the government reaffirmed its commitment to an apprenticeship levy as just one of a ream of measures designed to create three million new apprenticeships in the UK by 2020. The will of big business coupled with the efforts of SMEs will undoubtedly bear fruit but it remains to be seen whether the determination of private industry, without addressing what the sector bemoans as chronic underinvestment in skills training by central government and local authorities, will produce the number of qualified apprentices envisaged by the government.

What is beyond doubt is that the will exists in the manufacturing sector to create a highly-skilled, value-added sector capable of competing on the world stage in precision and specialist manufactured goods, and in doing so to continue the work done by generations of steelmakers, cutlers and industrialists who first propelled the UK to the fore of global manufacturing.