Growth engine now running but need clarity on where we are driving

The outlook for growth has improved but there is still a long way to go to create a more sustainable recovery according to new analysis published today (13 September) by EEF, the manufacturers’ organisation. 

Despite making some progress, the government needs to be clearer about its economic priorities and get every part of government behind achieving them, if it is to translate the latest round of positive data into long-term growth and improved living standards.

The assessment comes a year after EEF published its industrial strategy and recommendations in The Route to Growth. It set out the case for an over-arching, cross government growth strategy that contained four key ambitions and ten measurable indicators which had to be met or, be in train by 2015, to achieve sustainable growth.

Twelve months on EEF warns that, although the government has taken a number of positive steps to encourage investment in new equipment and research and development and to support exporters, there is only limited progress in creating a more balanced growth, In particular the analysis shows that:

• here has been little improvement in the contribution of investment or net trade to growth in the UK.
• Despite a favourable exchange rate, exports in the UK have made less of a contribution to growth than in France, Italy or Spain and that business investment has made a stronger contribution in the United States, Canada and France. 
• Only one of EEF’s Four Growth Ambitions – relating to Innovation – has clearly been met, with progress particularly on the Ambitions relating to the Cost of Doing Business and Creating a Skilled and Flexible Workforce 

It also warned that insufficient progress was being made in creating a joined up approach across government needed to ensure that its policies are consistent and that the issues most important to growth are adequately prioritised.

David Ost, North West Region Director of EEF said: “We’re seeing more signs that the growth engine is up and running but, we still need clarity of where we are driving. Industry is feeling more confident and is in better shape to deliver the investment and exports we need for a stronger economy and the government has taken steps to help it deliver this.

“There are, however, still a number of risks of the economy being knocked off course. What we need now is absolutely clarity on where we are seeking to get to and, all of government pulling in the same direction to get us there.”

The review, Industrial Strategy – One Year On finds:

The government has made positive steps forward but it lacks an over-arching strategy, ensuring coherence of policy across all departments. Lack of consistency in delivery risks sending the wrong signal to potential investors.

Progress has been made in measures to encourage investment in new equipment, research and development and to support increased exports. But these are in danger of being undermined by limited advances in improving the availability and cost and getting more businesses to re-engage with banks.

The government is starting to develop the right approach to support employer investment in skills, but real progress in addressing skill shortages will be impeded unless more is done to improve the pipeline of appropriately skilled young people leaving the education system.

The latest Spending Review addressed transport infrastructure priorities but the challenge is to secure faster delivery, develop a more strategic approach and increase the prospects of UK firms winning contracts.

Although there has been a commitment to address the exposure of energy intensive industries to rising electricity prices, a growing number of medium-sized energy users face rising costs that are out of line with their competitors.

The government has set out its commitment to cut red tape but progress has been slow, particularly in the climate and environment area and it has been undermined by unnecessary additional measures or an overly complex approach.

In response, EEF has made the following recommendations for government priorities:

Get competition in business banking going and get more businesses engaging with banks by measures to improve full account portability, increase incentives to switch accounts and reduce barriers to entry for Challenger banks.

Develop a more strategic approach to Infrastructure investment by accepting the Armitt Review recommendations for a National Infrastructure Commission

Take action to improve the competitiveness of electricity prices paid by business through tight control of support for low carbon investment, making a long-term commitment to support for energy intensive industries and, addressing unilateral costs imposed by Carbon Price Floor

Speed up progress on deregulation, particularly in the areas of employment and climate and environment

Develop plans to secure greater commitment across the EU for reduced regulation and for implementing EU regulation in a lighter touch way

Build consensus to reform public funding of skills investment to put money in the hands of the customer.