Manufacturing and SMEs

Chris White Excerpts

Wednesday 4th September 2013 Westminster Hall

[Chris White (Warwick and Leamington) (Con)]

I thank my hon. Friend the Member for Carlisle (John Stevenson) for securing this important debate and giving us another opportunity to discuss this topic, as we have done over many years.

One of my concerns, given the welcome news about the upturn in growth in the UK economy, is that politicians—and we are politicians in this Chamber—may move away from a focus on manufacturing and the good results that it could produce for the rebalancing of the economy. We could move back to property booms and financial services, which I think all those present would agree would be a very bad thing. We have a window of opportunity to establish policies to get manufacturing growing strongly once more.

The key is small and medium-sized businesses. The Government need to take steps now to prevent manufacturing from being neglected as growth returns to the economy. They need to ensure that incentives are set up for lenders to support our manufacturers, rather than pouring investment into quick returns in sectors such as property or financial services.

One of the simplest and easiest ways to get support to those manufacturers is through changes to capital allowances. The Chancellor rightly increased the annual investment allowance, which will enable them to upgrade plant and equipment in the next two years. However, if we are to attract more significant manufacturing activity, and enable small and medium-sized businesses to integrate into supply chains, we need to make the capital allowance structure more competitive, and encourage larger manufacturers to base themselves in the UK, which will in turn help the small and medium-sized businesses.

According to the Oxford university centre for business taxation, the present value of capital allowances as a percentage of cost for capital investment is just 46.5% in the UK. That is lower than in Japan, Germany, the United States, Turkey, France, South Korea and virtually all our major competitors. It makes investing in the UK far more expensive for manufacturing businesses than it is elsewhere, and we should not be surprised that, despite a strong skills base and depreciation in sterling, manufacturers are still not flocking as quickly as they might.

Like the rest of the economy, manufacturing is an ecosystem that requires diversity. To increase the number of small and medium-sized manufacturers, we need to increase the number of larger manufacturers in the country, to create resilient supply chains that can weather global economic storms. That, I think, is the key to what has happened in Germany and the United States. We should not ignore small and medium-sized manufacturers while we go about it, but we will need to continue a generous regime of investment allowances for the businesses in question, so that they can compete and provide a base on which large manufacturers can build supply chains.

Another area where we can help businesses is through the availability of skills and apprentices. There has been a fantastic, massive surge in apprenticeship applications in the past 12 months, but manufacturing and engineering are still not the main destination. Business administration, child care and customer service are still the three most popular areas. Perhaps that has something to do with the image of manufacturing in society, which those present for the debate are trying to help to promote.

A way to combat the current situation might be through the creation of apprentice training agencies, similar to those deployed in Australia. Apprenticeships are advertised by the agencies, which then hire them out to small and medium-sized manufacturers. The agencies take on the burden of administration, payroll support and supervision costs, and merely charge the manufacturers something similar to normal agency costs. That will hopefully boost the supply of labour to SMEs and potentially attract young people to work with the companies in the long term.

We need to put policies in place in the next few years so that we have an economy that does not just return to business as usual but is robust, creates sustainable jobs for the future and has manufacturing as one of its key pillars.