Budget must set out vision for growth
Next week, the government will set out its latest thoughts in its March Budget on the economy and the measures it is taking to encourage stronger growth. Just ahead of this, EEF will be hosting its first Manufacturing Conference, where we will be looking at what should be done to create the environment for manufacturers to invest in the UK rather than a growing range of locations around the world. I strongly recommend that the Chancellor picks up the messages coming from industry at our conference and uses his Budget to send a clear message to manufacturers that the UK is the right for them to make their next major investment.
After a poor period for our economy, the outlook is looking a little better with surveys of business confidence and activity painting a more positive picture. This mirrors the results from our own Chief Executive's survey from the start of the year which found manufacturers focussing opportunities for growth from developing new products and services, breaking into new supply chains and expanding exports to emerging economies. Industry wants to invest - the challenge for government is to overcome the barriers it faces and give it the confidence to make these investments.
One of the most positive measures that the government could take would be to temporarily increase capital allowances to 100%. This would provide an immediate boost to cashflow and send a clear signal to firms that they should invest now to maintain their competitive positions. Past experience shows that modest moves in allowances make very little difference - only a significant change will have an impact, particularly at a time when access to credit remains a problem.
Regarding credit, we now have seen a welcome change in focus from government, away from lending targets and towards the real issue of the cost and terms and conditions attached to much bank lending. The National Loan Guarantee Scheme, under which the government underwrites the cost of bank lending to SMEs could make an important difference. However, it is vital that the government learns from past experience and takes an active role in ensuring that National Loan Guarantee Scheme-backed loans are understood and promoted by the banks in the regions.
Looking beyond immediate measures such as these, the government needs to do a lot more to spell out its ambitions for the UK economy and how it will achieve them. In doing so, it should look to its own Fiscal Mandate. This set our clearly the government's aims for reducing its level of borrowing and debt and how it would achieve it. Our economy has benefited from this clarity and industry now needs to see a similarly strong and focused strategy for growth. Though the current Plan for Growth has some strengths, it does not provide this. The government should address this by spelling out its ambitions for the economy and how it will achieve them over the next three years.
We believe that the government should focus on four key ambitions for our economy: more companies bringing new products and services to market; more globally- focussed companies expanding in the UK; a lower cost of doing business in the UK, and a more productive, more flexible labour force. These ambitions need to be backed with metrics of how the government would judge its success over the rest of this Parliament, with particular reference to how we are doing relative to our competitors.
Such an approach would resonate with business which is looking for greater long-term certainty over policy from government and to see real evidence of the steps that it is taking to improve the business environment. With public finances tight, these ambitions should guide any future reprioritisation of public spending and any increases in public spending when resources are less scarce.
The overriding importance of achieving these objectives should be also drive the government's programme for reforming our economy. This means prioritising the areas where our business environment needs most improvement such as taxation, access to finance, regulation, skills and the infrastructure. But it also means that government needs to judge whether its existing or planned policies are consistent with these objectives. For example, will its approach to climate change help to deliver competitive energy prices and reduce the cost of doing business? Will its policy on migration help to provide industry with the skilled flexible labour force it needs?
None of this will be easy but we now need to see government combine the ambition and drive of our innovative and dynamic manufacturing companies with a refocused plan for growth to deliver the most competitive business environment that it can provide. Only when it does this will the Chancellor's reference in last year's Budget to the 'March of the Makers' become a reality.