Future productivity will rely on manufacturing, says EEF22 June 2015

Chancellor of the Exchequer George Osborne can help solve Britain's productivity crisis by targeting Government spending in areas that support growth in high value manufacturing, business leaders have claimed.

With the right policies in place, manufacturing is poised to deliver 40% of Britain's productivity gains over the next decade, according to a report from EEF, the manufacturers' organisation.

It has urged the Osborne to focus his attention on areas that will deliver the biggest wins over this parliament and prioritise tax, spending and deregulation towards the sectors of the economy that have a strong track record on productivity improvements.

In the report, Manufacturing a Solution to the Productivity Crisis, British manufacturers are shown to be more productive than other parts of the economy and, as such, hold the key to improving the UK's poor record on productivity. In the past five years, output per hour in manufacturing has grown four times faster, on average, than that across the whole economy.

The report also "shatters the myth" of an underperforming sector by showing in the years running up to the financial crisis UK manufacturers were increasing rates of productivity growth in line with the best in the world. "Since 2007 the sector has remained ahead of most EU competitors, including Germany, in some cases by a significant margin," said the EEF.

However, it warned: "Government and businesses must work together to close the productivity gap, if the economy is to enjoy long term growth. Investment in skills, science, research, and infrastructure all act as key spurs to improve productivity according to the report on Britain's productivity conundrum."

EEF director of policy, Paul Raynes (pictured), said: "Ministers' welcome commitment to improve productivity requires their forthcoming policy paper to focus on further investment in innovation, skills and infrastructure and avoid flat-rate across the board cuts for investment and public services indiscriminately. It will be tempting for the Chancellor to swing the axe equally across all unprotected departments, but instead he needs to cut with a surgical laser to make sure government's real contribution to future productivity growth can be preserved."

He added: "Ultimately, the private sector, and manufacturing in particular, will deliver the lion's share of the UK's productivity improvements, but the state can be a crucial partner. Manufacturers already lead investment in research and innovation and want to carry on working with universities and innovation hubs such as the catapult centres as well as their supply chain. Manufacturers must also be fully involved with developing apprenticeships and engaging with young people about industrial career opportunities."

The report says many of the critical contributors to stronger productivity growth are evident in manufacturing, including exports, research, technology and skills. In response, EEF calls on Government to work with business to improve productivity with policies underlying three key principles including:

  • The levelling up of performance between the strongest and weakest performing businesses.
  • A greater focus on the most productive sectors and reduction to barriers to growth.
  • Using proven areas of government spending which spread good practice.

Ian Vallely

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