The UK manufacturing industry is unrecognisable almost three years on from the country’s exit from the EU. Once known as a logistical hub in the heart of Europe (importing parts from across the region and assembling products within its borders), with an efficient just-in-time manufacturing practice, the UK’s self-imposed divorce from its nearest trading partner has changed everything.
Stephen Phipson, CEO of Make UK, a body that represents UK manufacturing, says: “We are really seeing the end of just-in-time manufacturing in the UK. There has been massive change for the industry and ‘just in time’ has virtually stopped.”
In 2022, UK manufacturers have had the ongoing waves of Brexit implementation, a cost of living crisis and mounting global concern over energy costs to contend with, and many companies are struggling to survive.
“Manufacturing overall in the UK is flat to slightly down in terms of output and it feels like we have entered a phase of stagnation,” says Phipson.
As the UK manufacturing industry continues to adapt to this ever-changing landscape, the call for answers on where growth might come from, how talent can be attracted to manufacturing and why the government isn’t doing more hang heavy over the industry.
Inflation looms large for UK manufacturing
The need for meaningful solutions to the UK’s manufacturing problems is becoming acute, with the Confederation of British Industry (CBI) issuing a report that called for the Chancellor of the Exchequer, Jeremy Hunt, to address the business rates “cliff edge” and to extend the Industrial Energy Transformation Fund – a government initiative to support businesses with high energy use to cut their energy and carbon use – beyond 2025.
The CBI report stated: “With business rates set to increase in line with inflation by 10% in April 2023, the CBI is urging the government to address rates before a significant number of manufacturers face a tax cliff edge – one that could damage their business and stunt growth across the UK economy.”
Phipson adds: “It is those pre-profit taxes that hit manufacturers quite hard, it eats into margins. In terms of the inflationary pressures, we have reached the end of [manufacturers] being able to pass that cost on to customers.”
Can the UK incentivise like the US?
David Bailey, a professor at Birmingham Business School and a senior fellow for the UK within the Changing Europe programme, believes that tax lessons could be learned from the US when it comes to keeping British manufacturing afloat. “The US government in particular is doing a lot through the tax system to attract manufacturing investment,” he says. “We saw Arrival, the van company, shifting production to the US rather than the UK.”
Phipson agrees and highlights the US’s Inflation Reduction Act as being particularly effective.
US President Joe Biden has championed US manufacturing as a key issue since being elected under his ‘Made in America’ programme, which has seen billions of dollars in investment across key manufacturing subsectors, including semi-conductor chips and electric vehicle batteries.
Confusion surrounds British industrial policy
For UK manufacturers, the delayed fiscal plan announcement on 17 November will set the tone for how (and if) Prime Minister Rishi Sunak’s government will support the country’s manufacturing industry.
Phipson says: “I keep saying to government, we need an industrial policy. What is the long-term investment for these businesses? What is the government’s role going to be? We need to have a cohesive plan to help invest. It feels like we are treading water.”
As just-in-time manufacturing strategies are now out of reach in many areas of UK manufacturing, what kind of industry opportunities are left in the country? Both Phipson and Bailey point to onshoring.
The impact of the Covid-19 pandemic on supply chains means that the lengthy and nuanced process of restructuring operations is still ongoing, which gives the government announcement on 17 November added significance.
“We need to incentivise that investment in the UK to bring manufacturing back to the UK,” says Phipson. “We could have a great boost if we did that, we could be up to 15% of GDP instead of 10%.”
There is hope that if a more robust investment incentive programme is put in place by Sunak’s government, UK manufacturers could take advantage of the ongoing disruption in supply chains. Yet even if these investment incentives were put into place, another key concern plaguing manufacturers could act as a roadblock to progress – the labour shortage.
Where are the workers in British manufacturing?
While retraining existing workers and creating talent pipelines are important long-term solutions to the future of work in manufacturing, Phipson and Bailey both express the need for a more immediate solution.
“We need immigration,” says Phipson. “[The Conservative government] is going to have to come up with a way to sell it publicly. They believe their manifesto is in stopping European immigration to the UK, but without people we are not going to grow.”
With four out of every 100 manufacturing jobs sitting vacant and the average age of a UK manufacturing worker being 52, the need for workers is both immediate and critical. A potential quick fix that Phipson advises is changing the shortage occupation list – a skilled worker visa that aims to fill in-demand job vacancies – to include manufacturing roles.
“Government talks about the need for growth and yet its immigration policy is not going to support that,” says Bailey. “Previous predictions for growth were based on high levels of immigration. Within the governing party it is kind of red-line, isn’t it? So that is a very difficult circle for the government to square, but it is putting an extra cost on manufacturers, and it will detract from growth.”
UK manufacturers, much like the rest of the country’s population, are feeling deflated by mounting bills and an uncertain future. As the country awaits a fiscal plan, expected to be laid out on 17 November, manufacturers are holding their breath in the hope that this iteration of the UK government will not ignore their very pressing needs.