Manufacturing

From planes, trains and automobiles to whisky, pharmaceuticals and light bulbs, the rich and diverse nature of the UK manufacturing industry is the foundation of a balanced and robust economy. The UK has recently had many manufacturing success stories such as the automotive sector where car manufacturing hit a 10-year high in 2015 at nearly 1.6 million vehicles, 77% of which were for export and is the second highest export to the EU [1] . The biggest challenges that manufacturers are expecting to face in a post-Brexit world are around supply chains, labour skills and movement, technology and innovation. There are serious concerns about the disruption leaving the EU could bring to manufacturers' business models and trading, as well as their regulatory and business environment. This has an effect on the UK's reputation as a place to do international business, as noted in the public concern of many international manufacturing companies. The fall in value of sterling has seen a surge in competitiveness for both EU and non-EU trade, benefiting manufacturers. However, the downsides of the weaker pound lead to an increase in unit costs, with manufacturers concerned this will be passed on to consumers.

Key stats

  • 2.7 million employees
  • £162.4 billion GVA (9.8% of total GVA)
  • £228.9 billion exports
  • £313.3 billion imports
EU Trade: As an integrated industry, a tariff-free and barrier- free relationship with the EU is important to manufacturing

Manufacturing outperforms every other sector in exports: it accounts for 45% of UK exports, 57.5% of which are to the EU [2] , and therefore the question of trade is of utmost importance to it. Manufacturers are part of complex integrated supply chains that extend across the EU, for example 60% of parts supplied for cars built in the UK are imported [3] , mainly from Europe. The potential imposition of tariffs between the EU and the UK has the potential to hugely increase costs for manufacturers. For example, food manufacturers could face an average EU tariff of 22.3% against 2.3% for non-food products [4] . However, non-tariff barriers that interrupt just-in-time delivery models and increase compliance costs could be just as disruptive – if not more so, for many manufacturing sub-sectors.

Regulation: Regulation that allows continued easy access to our largest market is important for manufacturing

Manufacturing exports are subject to many regulations and standards that keep products harmonised across the EU, simplifying trade and creating a level playing field. The majority of businesses in manufacturing believe the UK should continue to meet these mutually recognised product standards, and continue to be involved in their design, in order to support ease of movement of goods across the region and across the globe.

There are also manufacturing businesses raising questions about cross-sectoral EU regulations in areas including energy, the environment and financial regulation.

Migration: International labour, skills and flexibility of movement support growth in the manufacturing sector

With hard-to-fill vacancies from engineering to IT roles, nearly two-thirds of manufacturing firms surveyed by the CBI see challenges in recruiting the skills they need in the years ahead [5] . Some of the skills gaps in manufacturing have been filled in recent years by EU citizens. However with the future uncertain for these employees, it is crucial that government takes action. In the long-term, this issue must be addressed in the education system by the continued encouragement of STEM in schools as well as by providing high-quality careers advice that portrays manufacturing as an attractive career. However, the labour implications of Brexit go beyond this: manufacturers often move highly skilled engineers between the UK and Member States at short notice and Brexit risks a loss of this flexibility. If UK engineers cannot move quickly from the UK to the EU, talent pools will be developed there and the UK capability may be affected.

Funding: A new funding deal for innovation must support R&D and collaboration in the manufacturing sector

It is primarily through innovation and R&D that EU funding will affect the manufacturing sector. Manufacturing alone accounted for 68% of UK R&D expenditure in 2015 [6] and therefore is highly exposed to changes to the funding scheme landscape. While the government has committed to underwrite Horizon 2020 funding after the UK leaves the EU, there must be programmes and schemes established to replace the EU funding mechanisms in the long-term. It is also vital for UK manufacturers to be able to maintain collaborative links to ensure that they avoid being left behind.

International: New international trade agreements could be an opportunity for this sector

There could be new opportunities stemming from an ambitious international trade agenda that benefit the manufacturing sector. However, the EU deal is the priority, and business will have to be closely involved in the process of new deals – as some domestic producers have already raised concerns about challenges from countries that do not operate on a level playing field. Additionally, many manufacturing businesses benefit from current preferential trading agreements in place, including with South Korea and South Africa, and are seeking clarity about the future of those deals.

Exit: A smooth exit from the EU is necessary to ensure uninterrupted trade in manufactured products

The process of leaving the EU must be as smooth as possible for the manufacturing sector. In a scenario where the UK leaves the EU without a deal or temporary interim arrangement, the sudden imposition of tariffs and complex customs processes would be hugely disruptive. Confusion and delays for imports and exports have the potential to affect entire supply chains if sufficient time is not secured to transition to new arrangements. A period to adapt to any new deal is critical.

Our members say

"For manufacturing to survive the challenges of Brexit, business investment, market access and freedom of movement and skills are the three most crucial areas. HMG and industry need to work together and send signals that overcompensate for any loss of confidence in the UK." - South West aerospace manufacturer

"In a post-Brexit world the future competitiveness of UK manufacturing and continued growth in our economy is crucial, which makes securing the right deal with in our largest market the EU vital." - UK-wide cement manufacturer

"This has been a trigger for us to look more at international markets such as the Commonwealth. But that's hard to do when dealing with currency fluctuations and calculating the risks for our well-established EU trade." - small manufacturer of components
Our partners have more information:
  • ADS
  • Food and Drink Federation
  • Society of Motor Manufacturers & Traders

For manufacturing at the CBI, contact: Nicola Hetherington on 0207 395 8080 or Nicola.Hetherington@cbi.org.uk


References

[1] SMMT, The UK Automotive Industry and the EU

[2] SMMT, The UK Automotive Industry and the EU

[3] SMMT, The UK Automotive Industry and the EU

[4] Open Reason/Liberal Democrats, Food, Drink and Brexit

[5] CBI, The Right Combination

[6] ONS, Business Enterprise Research and Development, UK: 2015

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