5 May 2016

  |  CBI Press Team

Speech

Government and business must work together to revitalise a modern industrial strategy

CBI Director-General Carolyn Fairbairn says that we must champion and grow the UK’s manufacturing sector because it matters for prosperity and makes our economy more balanced, diversified and innovative.

To succeed in reversing the long term decline of the sector Carolyn will call on the Government to give its full backing to a modern Industrial Strategy.

She will call business to work in partnership with the Government to embrace long term opportunities and trends, particularly in digital. She will also emphasise the need to focus on developing the right skills in the sector, managing energy costs, and encouraging more R&D investment.

 

 

Speaking to manufacturing firms at University of Warwick, Carolyn will outline the importance of the sector to supporting higher-skilled jobs outside London and to diversifying the UK’s economy to make it more resilient to economic shocks.

However, she will describe UK manufacturing as a ‘tale of two sectors’, outlining the contrast between the steel industry’s high-profile difficulties with the automotive sector’s record productivity, production and sales. 

Carolyn will say: “Steel gives a sharp example of where we didn’t think long term. Where the answers didn’t come until it was too late.

“Yet the automotive industry provides the evidence that a clear, collaborative approach works. The industry came together, identified barriers holding back its productivity and put its top three proposals to Government.

“Government acted and deserves great credit for doing so. The results have been astounding.”

On what an Industrial Strategy should look like, Carolyn will say:

“Every manufacturing sector should have a plan for its future and many already do - we would suggest that each plan addresses these three questions.

“First, is the sector strategic for the UK?  Second, is the sector currently globally competitive, and if not why not? Does the UK have a competitive advantage?

“Third, what actions could government and business take to make it more competitive?

“Solutions may be about enhancing competition to encourage new disruptors to enter, further actions on skills, getting the right infrastructure in place, targeted R&D or support with digital transformation.

“Of course, because government funding is scarce, all proposals need ruthless prioritisation based on their impact on UK prosperity.  That’s the world we live in.  And the solutions at the end of the day may well be cross-industry. 

“But the building blocks are sector strategies - modern industrial strategies.”

On how manufacturing is evolving and the digital challenge, Carolyn will say:

“Manufacturing is evolving. First is the increasing tendency for manufacturers to develop and sell services. Rolls Royce’s ‘power by the hour’ engine service – for example – offers engine management and maintenance, at a fixed price per hour of flying.

“And in today’s knowledge economy – the line between ‘manufacturing’ and ‘services’ is blurring even further. For example, in the creative industries the making of a television programme is categorised as a service. Yet it is filmed, edited and made – and exported – with many characteristics of a physical product.

“In the years to come, as digital technologies increasingly define what we make and do, I think we’ll see more creative and technology companies doing things which could be classed as ‘manufacturing’.

“But on digital, less than half of manufacturers agreed that adopting digital technologies would boost job creation. Without vision, British firms risk being behind in the digital revolution.”

Carolyn will highlight three things, in particular, holding manufacturing back:

Skills

“Skills can be linked to an outdated perception of what a career in manufacturing is like. I recently asked CEOs from across our manufacturing sector what worries them most about the future of UK manufacturing. It was this problem they raised first – our ability to enthuse and train the next generation.

“When you say ‘manufacturing’ to people today – most people still think of hard labour and oil-stained clothes, not fighter jets, driverless cars or 3D printing.

“We need to offer young people a true picture of 21st Century manufacturing. The Careers and Enterprise Company is helping to do this with Enterprise Advisers – business volunteers – who are heading out into schools and colleges across the UK.

“But we also need to address the chronic shortage of physics teachers. This is holding back an entire generation of STEM skills which manufacturing depends on.” 

Energy

“For our largest users – electricity prices are still about 80% higher than the European average - double the cost of the USA. This has caused real headaches for our foundation industries.  

“Last year, the CBI proposed that foundation industries receive appropriate support for the costs of energy and policies that are making them uncompetitive globally.

“We achieved this. But in the longer term, we need a clear plan from Government to help develop new energy sources while keeping industry’s costs under control.”

R&D

“In 2014, the Government’s contribution to the UK’s total R&D spend was the lowest of the G7 economies – just 0.49% of GDP. In 2013/14 Innovate UK’s budget was just 0.03% of GDP.  

Is that really the best we can do? Numbers so small they round down to zero?  This investment matters.

“Our Catapult network – including the High Value Manufacturing Catapult at Warwick Manufacturing Group - is funded one third by government, one third by universities and one third by business. We’ve already seen how the Catapults have helped firms make the leap from ideas to invoices.

“And raising Government investment will help achieve our long term target of a combined government-business R&D spend of 3% by 2020.”

Carolyn will call for Government to commit to an Industrial Strategy:

“The automotive industry provides the evidence that a clear, collaborative approach works. The industry came together, identified barriers holding back its productivity and put its top three proposals to Government.

“Government acted and deserves great credit for doing so. And the results have been astounding. Productivity in this sector is now twice the national average. Last year, UK new car sales hit a 10-year high.

“Jaguar Land Rover – a real presence here in the West Midlands – saw its production rise by 9%.  It just goes to show that where there is a clear and proven case of market failure – government intervention is both legitimate and crucially important. It sends a signal to global investors that the UK is committed for the long term.

“This Government has shown welcome commitment to lifting productivity and protected R&D spending on aerospace, aviation and automotive in the Autumn Spending round. But what about other manufacturing sectors?

“Industrial strategy needs to be by sector because that is how the world thinks and acts. And that is how our competitors are thinking and acting. It’s about co-funding from Government and business in a partnership of equals.

“The economic rationale is sound. Markets are not perfect – they fail in known and identified ways, particularly in the areas of skills, infrastructure and R&D investment.

“Modern Industrial Strategy isn’t about ‘handouts’ for business.  It’s an investment in our future competitiveness which will pay dividends in sales, exports, jobs and livelihoods.

“Let’s help other sectors to do what we’ve already seen in automotive and aerospace. Let’s scale-up this approach. And deliver long term results by 2030.

“The Business Secretary’s talked about an “open door” policy on government and industry working together. I’m sure firms – including our great manufacturers – will be queuing round the block.”

Professor Stuart Croft, Vice-Chancellor of the University of Warwick, said:

“We are delighted that the CBI has chosen to hold their conference on our campus. While I am sure our superb conference facilities were a factor in that choice it is clear that the symbolism of the location was not lost on the CBI.

The University of Warwick shares the CBI’s vision that investment in manufacturing, particularly in new technologies, R&D, and skills, is key to UK economic growth and that such a focus will help rebalance our economic recovery away from London and the South East.

“The University of Warwick is renowned for playing a proactive role in support of that vision for manufacturing, particularly through the work of WMG (Warwick Manufacturing Group), led by Professor Lord Kumar Bhattacharyya,  to support the technology and skills base of manufacturing companies large and small, and also through the University’s collaboration in regional manufacturing and technology initiatives such as: the Midlands Engine, Midlands Innovation, and the recently announced £180 million Energy Research Accelerator initiative.”

James Walton, Director of Manufacturing, Mid Markets, Lloyds Bank Commercial Banking

“The manufacturing sector is constantly evolving due to digital change which is why it is important that we focus on the drivers, barriers and opportunities of embracing innovation. Businesses that invest in processes and technology will benefit from improved productivity and a competitive edge.  

“That’s why we’ve been supporting the manufacturing sector for over 250 years, ensuring that we continue to meet the changing needs of our customers. We have committed up to £1bn in funding a year for the sector through our Helping Britain Prosper Plan, trained over 300 relationship managers in partnership with the Warwick Manufacturing Group and support the Lloyds Bank Advanced Manufacturing Training Centre in Coventry to help address the skills gap.

We’re ready to work with manufacturers to help them take the next step and improve UK productivity, diversification and innovation.”

Introduction

It’s great to be here at the CBI Manufacturing Conference.

And I’d like to thank E.ON and Lloyds Bank for their support and Simon for hosting us today.

I can’t think of a better place to talk about the ‘future of UK manufacturing’ than here at Warwick University.

Warwick is leading the way on innovation and cutting-edge technologies.

Take the future of transport, for example.

Today, up to half the cost of an electric car goes on the battery.

A major obstacle to affordability and accessibility.

Yet - as part of a 20 million pound project to develop electric batteries - Warwick Manufacturing Group is driving the electric revolution.

As a country and as business, we should celebrate our successes.

Including ones right here in this room.

And these are exciting and extraordinary times.

We are in the throes of a new revolution – what many are calling the fourth industrial revolution.

I spent much of my career of the digital side of the media industry and have seen how radically an industry can change in 10 years.

And now digital is coming to the real world, transforming the backbone of our economy – our core manufacturing base.

There’s no doubt it’s a challenge.

The UK currently ranks 14th in the world for adopting new technologies, despite being 5th in the world for the availability of digital.

And the CBI recently carried out a survey which showed that only around half of UK firms have a digital strategy. 

When we asked manufacturers – in particular – less than half agreed that adopting digital technologies would boost job creation.

Without vision, British firms risk being behind in the digital revolution.

We can’t let that happen.

That’s why we are here today – to help identify and rise to these challenges.

Creating a space to discuss the practical application of new technologies to the world of manufacturing.

From the Internet of things, to block chain and artificial intelligence.

But in my remarks this morning, I’d like to take a step back and look at the bigger picture on UK manufacturing.

intro

Why does this matter? - Manufacturing is a vital sector for UK prosperity

My first point today is that manufacturing matters.

It is vital to businesses’ ability to create a prosperous society.

Above all, for three reasons.

It makes our economy more balanced.

Manufacturing is a crucial part of ensuring our economic recovery benefits the whole of the UK.

Most UK manufacturing is concentrated outside of London and the South East.

This means that growing manufacturing helps provide higher skilled, higher paid and more productive jobs where they are needed most.

It also makes our economy more diversified.

Generating sustainable growth and making us less susceptible to specific shocks.

Today, with so much global uncertainty, this is more important than ever.

And we still export more in manufacturing than we do in services - another key reason it’s important.

Manufacturing also makes our economy more innovative.

You might not know that two-thirds of business R&D is in manufacturing.

That’s crucial investment our economy couldn’t do without.

So this isn’t just about one sector.

It’s about the wider success of the UK, of families and of communities.

matter

How is it doing? - Declining manufacturing base

Yet in recent decades – we have seen a long-term decline in manufacturing in our country.

This chart shows rounded figures for manufacturing as a share of the UK economy. And as you can see, it shows that since 1995, manufacturing has shrunk to less than 10% of our Gross Value-Added.

Now, we know that this data is missing several important elements of how manufacturing is changing.

First is the increasing tendency for manufacturers to develop and sell services.

Rolls Royce’s ‘power by the hour’ engine service – for example – offers engine management and maintenance, at a fixed price per hour of flying.

Yet this is not included in official estimates of manufacturing in the UK.

Secondly, traditional definitions of manufacturing ignore trends towards greater outsourcing of marketing, employment and logistics.

Recent research from BIS shows that considering the full range of the supply chain the sector covers about 5 million jobs.

About 15% of the UK workforce.

And third, in today’s knowledge economy – the line between ‘manufacturing’ and ‘services’ is blurring even further.

For example, in the creative industries the making of a television programme is categorised as a service.

Yet it is filmed, edited and made – and exported – with many of the characteristics of a physical product.

And in the years to come, as digital technologies increasingly define what we make and do, I think we’ll see more creative and tech companies doing things which could be classed as ‘manufacturing’.

Our own CBI analysis suggests that – taking a ‘broader’ definition – manufacturing accounts for around 20% of UK GVA. Double the 10% figure I just mentioned.

So manufacturing is a significant part of our economy – bigger than many think.

One thing we would like to see in the future is a clear and agreed definition – firms across the UK are keen to work with the government to create one.

But let’s be clear.

Even if the base is bigger – it has still declined by about a third since 1997.

So while there is a measurement issue – we can’t avoid the reality of a long-term decline.

doing

What are the reasons for this?

Yet to reverse this, we need to understand the underlying causes and be confident that we can build a sustainable solution.

And we can be confident.

Because this decline isn’t a foregone conclusion.

If we look at our peer countries around the world, we don’t see the same picture as here in the UK.

Manufacturing sectors in Germany, France, the Eurozone and advanced economies were all badly hit by the recession – shown by the clear dip in 2009.

Today they have all increased since 2009.   

Yet in the UK manufacturing has continued to decline.

So why is this?

Well – three things, in particular, are holding us back.

First is skills, and linked to that an outdated perception of what a career in manufacturing is like.

I recently asked CEOs from across our manufacturing sector what worries them most about the future of UK manufacturing.

It was this problem they raised first – our ability to enthuse and train the next generation.

When you say ‘manufacturing’ to people today – most people still think of hard labour and oil-stained clothes, not fighter jets, driverless cars or 3D printing.

One member told me recently of a trip to a factory where school pupils were told –“this is where you’ll end up if you fail your exams”.

We need to offer young people a true picture of 21st century manufacturing.

The Careers and Enterprise Company is helping to do this with Enterprise Advisers – business volunteers – who are heading out into schools and colleges across the UK.

We also need to address the chronic shortage of physics teachers. This is holding back an entire generation of STEM skills which manufacturing depends on.  

The second problem holding back our manufacturing industry is energy.

For our largest users – electricity prices are still about 80% higher than the European average. And double the cost of the USA.

This has caused real headaches for our foundation industries.  

Last year, the CBI proposed that foundation industries receive appropriate support for the costs of energy and policies that are making them uncompetitive globally.

We achieved this. But in the longer-term, we need a clear plan from Government to help develop new energy sources while keeping industry’s costs under control.

And the third area where change is urgently needed is in R&D.

In 2014, government’s contribution to the UK’s total R&D spend was the lowest of the G7 economies – just 0.49% of GDP.

And in 2013/14 Innovate UK’s budget was just 0.03% of GDP.

Is that really the best we can do? Numbers so small they round down to zero?

This investment matters.

The UK’s catapult network – including the High Value Manufacturing catapult at Warwick Manufacturing Group - is funded one third by government, one third by universities and one third by business.

We’ve already seen how the catapults have helped firms make the leap from ideas to invoices.

And raising government investment will help achieve our long-term target of a combined government-business R&D spend of 3% by 2020.

reasons

What can we do to reverse this?

So these are three priority areas to help revive UK manufacturing.

The government is doing a lot of things right.

As I already mentioned, it has exempted the most energy intensive firms from the policy costs added to their energy bills.

And it has shown welcome commitment to lifting productivity and protected R&D spending on aerospace, aviation and automotive in the Autumn Spending round.

But beyond these cross-sector solutions, we also need long-term systematic change.

We need to focus on specific areas where the UK is globally competitive and work with Government to find specific, industry-led solutions.

So today, business stands ready to commit to a long-term strategy for manufacturing

Now we’re calling on the Government to do the same.

To reaffirm its commitment to this partnership, which has worked so well in the past.

And which can work so well in the future.

We need a modern Industrial Strategy.

In many ways, our recent history is a ‘tale of two sectors’.

Steel provides a sharp example of where we didn’t think long-term.

Where the answers didn’t come until it was too late.

Yet the automotive industry – on the other hand – provides the evidence that a clear, collaborative approach works.

The industry came together, identified barriers to raising exports and investment and  put three main ‘asks’ to government.

Invest in people.

Invest in new technology.

And enhance the competitiveness of automotive supply chains.

Government acted and deserves great credit for doing so.

The results have been astounding.

Productivity in this sector is now twice the national average.

Last year, UK new car sales hit a 10-year high.

Jaguar Land Rover – a strong and thriving presence here in the West Midlands – saw its production rise by 9%.

In the North East – Nissan’s plant in Sunderland produces more cars than the whole of Italy.

It just goes to show that where there is a clear and proven case of market failure – government intervention is both legitimate and crucially important.

It sends a signal to global investors that the UK is committed for the long-term.

But what about other manufacturing sectors?

Industrial strategy needs to be by sector because that is how the world thinks and acts. That is how our competitors in other countries are thinking and acting.  

The economic rationale is sound. Markets are not perfect – they fail in known and identified ways, particularly in the areas of skills, infrastructure and R&D investment.

Modern industrial strategy isn’t about ‘handouts’ for business.

It’s an investment in our future competitiveness which will pay dividends in sales, exports, jobs and livelihoods.

So the most important ambition we can have is this.

Let’s enable other sectors to do what we’ve already seen in automotive and aerospace.

Let’s scale-up this approach.

And deliver long-term results by 2030.

Every manufacturing sector should have a plan for its future. Many already do. And we would suggest that each plan addresses three questions.

First, is the sector strategic for the UK?

Second, is the sector currently globally competitive, and if not why not? Does the UK have a competitive advantage?

Third, what actions could government and business take to make it more competitive?

Solutions may be about enhancing competition to encourage new disruptors to enter, further actions on skills, getting the right infrastructure in place, targeted R&D, support with digital transformation.

Of course, because government funding is scarce, all proposals need ruthless prioritisation based on their impact on UK prosperity.  That’s the world we live in.

And the solutions at the end of the day may well be cross-industry. 

But the building blocks are sector strategies - modern industrial strategies.

The Business Secretary has talked about an “open door” policy on government and industry working together.

I’m sure firms – including our great manufacturers – will be queuing round the block.

reverse

Conclusion

Ladies and Gentlemen,

We have so many remarkable manufacturers in the UK.

You are the bedrock of the UK’s industrial history and vital to its future.

We at the CBI are fully committed – and I am personally committed - to supporting you every step of the way, with three main priorities:

  • First, like today, we will bring together peers and experts from other sectors to explore opportunities and share ideas – in digital, in exports, in supply chain optimisation, in productivity enhancement, in skills development and building diversity. You will see us stepping this up. We have an extraordinary network and intend to use it in ways that are most relevant to the questions you are facing.
  • Second, we will make your voice heard by government on the issues that matter. We will be working with our new manufacturing member group to make sure we do this even better in the future. Taking forward our call for a revitalised industrial strategy, which we have heard from so many of our members.
  • And third, we will repeat until we are blue in the face how much manufacturing matters for the prosperity of our country – in the future measured better and defined more broadly – and showcasing your extraordinary achievements in all the work that we do, in the UK and abroad.

I hope you have an excellent day exploring the opportunities for digitisation and robotics to transform your businesses, and thank you very much indeed for your time this morning.

conclusion

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