Britain needs to create hundreds of large manufacturing companies if our economy is to grow, according to The shape of British industry: growing from strong foundations, a report by the EEF (as the Engineering Employers’ Federation now styles itself) and the Royal Bank of Scotland. (The report can be downloaded from www.eef.org.uk/publications.)
Big companies support supply chains, drive product development and invest in skills, the report says. The largest 1 per cent of manufacturers account for half the jobs and two-thirds of turnover.
The report, though, identifies a structural problem: “The UK has relatively fewer large manufacturers – those employing more than 250 people – than our closest competitors.” Only 1.2 per cent of British manufacturers employ more than 250 people, compared with 2.1 per cent in Germany. In the USA, companies with 500 or more employees account for 2.9 per cent of manufacturers, compared with just 0.6 per cent in Britain.
The bosses think that part of the solution will lie in attracting more foreign-owned manufacturers to Britain. In fact, that would just make an unbalanced situation even worse, though: foreign-owned manufacturers such as Siemens and Toyota already make up two-thirds of the largest manufacturers here. We need more home-grown companies. We need to direct support to high-growth sectors such as nuclear energy, electric cars and high-speed rail.
Access to finance needs to improve, through providing alternatives to equity finance and merging government-backed schemes into a single source of funding.
Manufacturing, which employs 2.5 million workers, can create jobs, in spite of having lost nearly 4 million since 1980. It created 165,000 in the five years after the previous recession in the 1990s.
But the sector has so far regained only a third of the 15 per cent drop in output it suffered during the current recession – it is down 10 per cent since 2008 – and its growth could be held back by having far fewer large companies than competitors like Germany and the USA.