This executive survey of 76 senior manufacturing executives provides a focused look at current attitudes and concerns regarding climate change and environmental policy in the UK.
At a time when we are challenging government on their ambition to have both a sustainable and growing economy, we show that currently, government policies to meet these objectives are conflicting and causing unintended consequences.
While seeking to increase investment in the UK and make the leader in producing low carbon technologies, 75 per cent of our respondents feel climate and environment policies at the moment will damage UK competitiveness.
UK manufacturing is at the heart of the shift to a 'green' economy. We need support from government to ensure this happens.
Manufacturers are already taking steps to reducing the environmental impacts of their production; 80 per cent of companies have invested in energy, resource or waste efficiency. And they want to go further than just complying with regulation; they want to be part of this emerging 'green' economy, with 22 per cent using the green credentials of their products as their unique selling point on the market.
However, the policies in place at the moment are having the opposite effect by raising the cost of being green - 75 per cent have experience an increase in environmental policy costs in the past two years. However, this is increased cost has had little effect on emissions reductions. In fact, there is no tangible link between high energy prices and a subsequent reduction in energy use.
This makes the UK an unattractive place to invest, 50 per cent of our respondents believe there are better investment opportunities for efficiency and low-carbon technologies abroad. Surprisingly, considering another goal of government is to support medium-sized firms, it is these companies that are feeling the effects of poorly-designed policies that pull them in different directions, but ultimately raise their costs to unreasonable level; 95 per cent has seen a cost increase compared to only 82 per cent of large firms and 52 per cent small firms.
Making the UK an unattractive place to do business and to invest will drive innovation and skills to other countries. You can download the full survey report here.
The 'Red Tape Challenge' (RTC) is an opportunity for business like yours to get involved and start addressing the issue and shape a better business environment. It's a government initiative that invites businesses to tell them which regulations are not working and how they could be improved.
Manufacturing will get out of this exercise what it puts in. We can see it as a gimmick and sit on the sidelines or get involved and generate ideas. We will be taken most seriously if we submit a considered and focused body of evidence.
EEF wants to do its bit. Our Chief Executive, Terry Scuoler, is acting as the 'sector champion' for manufacturing. In this role he is promoting participation in the RTC and working to ensure that manufacturers' views are taken seriously.
We are pulling together issues from across our membership and beyond to demonstrate the breadth of regulations weighing down on UK manufacturing. A consolidated body of evidence will help give maximum impact to the industry's concerns.
If you are a manufacturer whose business is being undermined by regulation, let us know and we will champion the issue on your behalf. Send a description of the issue and the regulation causing it to redtapechallenge@eef.org.uk
]]>The situation is set to deteriorate further. Green policies already account for approximately 20% of industrial electricity prices and a series of significantnew measures are scheduled to be implemented over the next few years. EEF estimates that one of these measures alone, the 'Carbon Price Floor', could increase the price manufacturers pay for their electricity by another 10% by 2020.
We need to face up to this issue. Tackling climate change by relentlessly pushing up energy prices for the industries we are reliant on to build a low carbon economy will be counterproductive. Not only will it weaken our industrial base and put jobs at risk, it will deliver little or no environmental benefit. Global emissions will be unaffected. Rising demand for energy-intensive products will simply be met from elsewhere as investment switches to more competitive locations.
The Government has said it will address the issue and the dilemma can be resolved. We only have to look across the Chanel for inspiration. Many of our European neighbours are forging ahead in the development and deployment of low-carbon technologies without putting their industrial bases at risk.
Countries like Sweden and Germany, for example, combine high levels of renewable energy and strong green industrial bases. A critical factor behind this enviable position has been shielding the most energy-intensive industries from the price impact of climate change policy.
We should learn from their example. A well-designed compensation package can safeguard the competitiveness of our energy-intensive industries without undermining efforts to cut carbon emissions or overburdening taxpayers. Compensation should be targeted at those industries most at risk and focused on offsetting costs arising from the highest impact unilateral policy measures.
First, compensation should be targeted at the most electro-intensive industries. These include electric arc furnace steel production, aluminium smelting and chlor-alkali production.
Second, it should be focused on offsetting the cost of the policies which will have the most detrimental impact on competiveness. These include the unilateral Carbon Price Floor, the impact of the European Emissions Trading Scheme on electricity prices and the consumer levy likely to be introduced to fund investment in low-carbon energy as part of the recently announced electricity market reforms.
By keeping the scope and scale of compensation tightly focused, the competitiveness of the UK's energy-intensive manufacturers can be safeguarded for a relatively modest amount of money. For example, exempting the entire iron and steel industry from the Carbon Price Floor would cost about £14m a year when it is introduced in 2013. In the same year, this tax is expected to raise £740m in revenue.
Levelling the playing field for energy-intensive industries, like subsidies for renewable energy, is a down payment on our low carbon future that will reap significant dividends in terms of jobs, green technology and emissions reductions.
The Government's ability to deliver an adequate compensation for energy-intensive industries under threat will dictate whether we end up with best or worst of both worlds. Failure would result in uncompetitive prices and reliance on imported technology to cut our emissions. Success, on the other hand, would see competitive energy prices for UK manufacturers and a thriving industrial low-carbon industrial base.
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The UK's flexible labour market is also an important factor in compensating for other areas of economic concern for manufacturers - both short-term and more structural - such as access to finance, skills shortages and weakness in supply chains.
Manufacturers across Wales tell us that they achieve the flexibility that they and their employees are seeking by working increasingly closely with them. But they are concerned that the constant churn of new regulation and the complexity of new laws are putting these positive relationships at risk.
EEF has this week published a report on the Modern Manufacturing Workplace which highlighted the importance of flexible working which allows companies and employees in Wales to find their own broad based solutions. As the government's own consultation on Modern Workplaces draws to an end and it launches the manufacturing stage of its Red Tape Challenge, EEF is calling on the government to look harder at alternatives to regulation and, to avoid complex and prescriptive regulations that get in the way of increasingly productive relationships between employers and employees.
]]>The most significant known unknowns are the outcome of the EU debt crisis where all eyes have recently been trained on the unfolding events in Greece. Despite the parliament pushing ahead with further austerity measures the prospect of default has not diminished. If any of the rescue measures fail, the Greek economy could run the risk of a disorderly default. Under this scenario, Greece would be unable to borrow, sending its economy into a tail spin where a crisis of confidence could follow, knocking global growth.
In addition, we face the prospect of a potentially stagnating US economy and increasingly frothy emerging markets. The global recovery could shoulder any one of these problems, but together the economic issues in the EU, US and China would be a perfect storm that could make life for welsh companies far more difficult.
The extent to which these events pose a potential risk to the UK's recovery will become clearer in the coming months. In the meantime, the Bank of England will continue to sit on its hands throughout this year. The question for MPs heading back to their constituencies across the North West for the summer is whether the challenge of generating sustainable private sector growth will have become that bit harder as a result of events beyond these shores. This makes it ever more important that efforts are clearly focused on sweeping away the barriers to creating jobs and more balanced and sustainable economic growth in which manufacturers can play a key role.
Despite this, there is a notable shift in thinking in some key areas. Whereas in the past government's focus has been predominately focused on household waste, there is a welcome new focus on improving business waste collections. EEF has long argued that a lack of cost-effective, accessible waste facilities has undermined attempts by smaller manufacturers to manage their wastes more sustainably. The work underway to encourage local authorities to open up their facilities to manufacturers is long overdue and welcome.
There are other pledges which we will need to consider in more detail. Potential bans on the landfilling of wood waste sound sensible, but we know that some manufacturers can struggle to find buyers for their wood unless it has been through some labour-intensive preparation. Textiles and biodegradable wastes may also be banned in landfill sites in future. Clearly this can only happen once a national network of facilities is in place to divert these materials to.
The need for regionally relevant waste infrastructure is an issue EEF has pushed government to consider in the past. It is no secret that our waste infrastructure is yet to be fit for purpose. It is therefore welcome that the government has confirmed that there will be a new duty on local authorities "to cooperate" on in the Localism Bill. This may go some way to address concerns about the impact of scrapping Regional Development Agencies on regional waste infrastructure planning.
Landfill tax is also set to further increase. A new base rate of £80 per tonne has been announced for 2014-15. Other commitments include potentially increased packaging targets on packaging producers in the next few years and the promise of a new Waste Prevention Programme sometime in the future. We will also need to monitor plans to drive waste prevention through product design and standards. The government can go further to help manufacturers improve their resource efficiency and make it easier for you to manage your waste more sustainably.
]]>EEF, the manufacturers' organisation and UK Trade & Investment (UKTI) are giving North West manufacturers a unique and rare opportunity to tap into expert advice which will help them take greater advantage of exports to emerging markets and the USA.
The two organisations are holding joint seminars led by the Heads of UKTI's Advanced Engineering Commercial Teams and Commercial staff actually based overseas in the Brazilian, Russian, Indian, Chinese (BRIC) and US markets. As well as UKTI expertise, delegates will also meet companies doing business in these markets who have grasped the opportunity and overcome the challenges.
The seminars will feature experience relevant to all areas of manufacturing, with a focus on engineering, automotive and aerospace and assist UK manufacturers understand the scale of the markets along with the challenges and opportunities. There will also be an opportunity for companies to have one on one sessions to ask specific questions and identify the steps and practical tailored advice needed to move successfully into these regions.
Specific areas that will be covered in interactive clinics running throughout the day will include project finance, international business law and IP protection. Attendees will also be able to learn about the range of assistance available from UKTI and EEF to help companies take the next steps in realising their exporting potential.
This is a rare opportunity to tap into expertise rarely available. Visit eef.org.uk/export2011 for further details
However, for manufacturers, it is often easier said than done.
It can be difficult for a manufacturer - from both a machine and existing expertise perspective - to suddenly diversify and manufacture a different product from those they have originally set up to make!
So the answer for a manufacturer with expensive machinery and familiarity with their own product area is to consider diversification in the market-place itself.
One potential market-place open to all manufacturers in the North West is the nuclear supply chain - new build, existing and decommissioning, as well as the main suppliers to them.
"But we know nothing about uranium!"
You don't have to!
Nuclear facilities, whether existing , new build or old sites for decommissioning, and the main suppliers to them all, need widgets, valves, fencing, coat hangars, piping, pathways, sandwiches, work-wear - in fact the list is endless, there to be exploited by small and medium manufacturers in our region who are prepared to go out and get the business.
The Manufacturing Advisory Service (MAS) NW is the national lead-body for SME participation in the nuclear supply chain. They are holding a free conference on the subject at the Energus campus in Workington, Cumbria on Wednesday 20th July.
Don't miss this great opportunity - please telephone the free MAS help line on 0800 093 9077 to either register for the conference or for more details on the funded help available to get you into the nuclear supply chain.
A key driver of growth remains robust demand from overseas markets. The balance of responses has been considerably higher than the long term average for over a year as companies capitalise on strong growth in world markets. Official statistics show that emerging Asian markets and the Middle East have been significant sources of export growth over the past two years.
However the pattern of exports to Europe reflects the two-speed recovery, with demand holding up in France and Germany compared with a much less positive outlook for exports to periphery economies. While the gap between export and domestic orders balances widened further over the past three months, responses on UK orders are still elevated compared with long term trends.
While manufacturing and its contribution to export growth remain one of the bright spots in the UK economy, challenges to growth that many companies have been navigating since the end of the recession are unlikely to recede in the coming quarters. In addition other challenges remain closer to home, in particular the ability of companies to access finance at competitive rates. For the first time since the recession ended, manufactures are reporting improving access to finance which provides a glimmer of hope the situation may be easing. Hopefully, this will translate into better news on new lending in the coming months. But availability is only part of the story and we also need to see costs coming down.
Ensuring companies have access to the finance needed to invest and grow is critical for the recovery. We need to see a sustained improvement before concluding that the actions taken by banks and government are bearing fruit and that no further measures are required
Overall manufacturers remain optimistic about output and order books in the short term, but some downside risks have increased. For example, commodity prices are likely to be high and volatile for the time being, access to credit remains difficult or costly for some small companies and the path of the global recovery could yet hit a bump in the road. Nevertheless, 2011 has got off to a solid start and we should see above trend growth in the sector this year and next.
Perhaps more important than this overall balance however, is that small companies in particular - those with up to 100 employees - are showing an even balance with as many small firms reporting an increase in availability as a decrease. This is a change as until now small firms balances for availability have been consistently negative. Access to finance has until now been very much a two-sided story. Larger companies, which also happen to have more options available anyway, have consistently found it easier to access finance.
Smaller firms on the other hand have struggled. They rely on accessing credit through banks. Since the financial crisis banks have been less keen to lend to SMEs, at least partly because the banks needed to wind back their exposure after having over-extended themselves.So an even balance for small firms is potentially a key breakthrough.
The next announcements to watch on credit conditions will be the Bank of England and BBA lending trends figures for April and May coming out in June.
But before we break open the champagne and pat the banks on the back, we need to recognise that the cost of credit continues to rise.The availability of finance, on existing credit arrangements, shows a balance of -7.3 overall, falling to -13.3 for small firms in particular.
This backs up what we hear from talking to firms that when they are refinancing with their bank, they're finding the costs and conditions tougher.
And further, unfortunately, 2011q2's survey showed a continuation of the trend in place over the course of the recovery, with a persistent balance of companies reporting an increase in the cost of credit.This is virtually unchanged with a negative balance of 28.3 for all companies reporting an increase in the cost of new lines of borrowing, decreasing further to -30.2 for small companies.
The fact that some small companies must be entering their second round of refinancing since the financial crisis implies that margins are persistently lengthening from the finance providers.The cost of finance issue, particularly if we consider costs outside of headline rates, is suggestive of the need for higher competition in the UK banking sector.
And the two speed finance recovery between small and large firms continues; suggesting a greater variety of sources of finance is very much still a relevant concern for SMEs.
We've welcomed the intent to address the growth capital gap, identified most recently in the 2009 Rowlands Review, that is holding back some promising UK companies from growing.
Even though this is funded by the banks, it does go towards supporting an increase in sources of finance outside of traditional bank lending - especially important for fast growing companies where bank lending is not appropriate.
This is an area where we have previously called for progress. And we're further encouraged by positive noises about the BGF's board including people with real business (even manufacturing!) expertise, again something we've been looking for in the financial sector.
However, the launch of the fund again highlights the limited progress being made in increasing the provision of mezzanine debt finance that the Rowlands Review recommended as the best way to address the growth capital gap. This is important because often growing SMEs have an aversion to giving up an equity stake in their business and the control that goes with that. The BGF will take a seat on the board in the companies it invests in with stakes ranging from 10-50%.
How much this impedes the progress of the Business Growth Fund i.e. by discouraging take up will need to be closely monitored. With the launch of the BGF all 17 of the Taskforce banks' commitments set out in October are underway. And of course we have the government's 'Project Merlin' agreement with the banks to increase lending to UK businesses.
However, signs of an improving landscape, particularly for SMEs have been slow to emerge following the financial crisis. So now we get to the point of all this - improving access to finance. We need to see it happen - and sooner rather than later. And we need to start hearing from the government what that improvement looks like and by when.
The Prime Minister said on Tuesday that Merlin was very much his. While I couldn't follow his logic on gross v net lending targets, I do agree with him that, so far, results in lending trends have been disappointing. Cable said this morning there's PwC analysis out on Monday looking at performance so far, my hunch is that this too will disappoint.
However, the PM believes the performance of banks needs to judged over the full year of the agreement not off partial data. Fair enough.
But the clock is nevertheless ticking for the actions of both the banks and the government to deliver results. And the benchmark isn't some number on gross lending, which could turn out meaningless if net lending is withdrawn from the economy. The benchmark is meeting the government's own ambition set out in the Plan for Growth to see 'more finance for start ups and business expansion' and inadequate access to finance no longer holding back growth.
With the actions announced so far we're hopeful of seeing access to finance improve but progress is far from guaranteed. We need to be thinking now about what more could be done if present measures prove insufficient. Growing companies looking for credit and the UK recovery more generally cannot afford to wait.
And wait.
And sometimes wait some more.
And then you ask Mrs Miggins in accounts to make a phone call.
And before you know it, it has run into three months.
Wouldn't it be lovely to get three months' free credit at your local supermarket or petrol station for your weekly shop.
One of the standard methods employed by debtors is to pay invoices at the end of the month following invoice. This means that if you supply and invoice, for example, on the 4th of the month, you are left waiting up to eight weeks for payment. And if you pay your suppliers promptly yourself to take advantage of an early settlement discount, this discount is eroded as you try and make up those weeks while you in turn wait to be paid.
Whether it is interesting or disturbing that Debenhams announced recently that those who offer the biggest discounts will get paid more quickly by the group, remains to be seen.
Should you be obliged to offer a discount just to get what is rightly yours in the first place, namely, settlement of invoice? You've decided the price you want for your goods, you've supplied them on time, the client can then use those goods you've provided, so why should your price be eroded by having to offer a discount?
If you went inot a pub and told the landlord that you want 7œ% discount otherwise you'll pay him at the end of the month following your drink, he'd say you were barmy!
Factoring - where you engage a third party to invoice on your behalf, they pay you immediately and then do the chasing if they don't get paid - is not the most ideal solution. Yes, perhaps for large conglomerates who purposefully delay processing your invoice and who have a relatively faceless accounts department well-used to being continually chased by creditors.
But if you are dealing with small companies that are in the same cash-flow boat as yourself, factoring can be mildly off-putting. And sometimes off-putting to the extent that your client will go elsewhere to avoid being hassled. And then there's the commission you have to pay to the factoring company.
So do you need to think about, pardon the pun, factoring-in a product discount at the outset in order to guarantee a speedier payment?
The other alternative is to have Mrs Miggins hassle your client to the extent that they become upset and go to another supplier anyway?
The one way to try and speed things up is to simply mention at the outset that, as a small manufacturer with goods to pay for and salaries to fulfil, you would appreciate if your customers might be able to follow prompt payment guidelines laid down by Prompt Payment Code to which you are a signatory (http://www.promptpaymentcode.org.uk), as you in turn respect the code when paying others and don't wish to appear to break the chain.
But whatever you do, do not change your rules with a client in mid-supply.
Communicate with them and explain. It is surprising how understanding many can be!
There is a wide range of options beyond renewable energy to cut emissions. These include nuclear power, capturing and storing emissions from fossil fuel-based power generation, a plethora of energy efficiency options and travelling more by train and other forms of public transport.
Yet for fear of being unfairly tarnished a climate sceptic or anti-renewables, few dare broach the question of whether we should be putting so many of our eggs in one basket. Perhaps it would be better to have ambitious emission targets (which we do), strong incentives to invest in low-carbon energy (which we do) and let the market select the best mix of technologies?
And this where the CCC report comes in, there is a very good reason why we should be questioning the wisdom of the 2020 renewables target - cost. A key finding of the report is that the majority of renewable energy technologies are likely to remain considerably more expensive than alternatives forms of low-carbon power generation for several decades.
For example, it predicts that in 2020 offshore wind, the technology many are pinning their hopes on delivering the lion's share of the renewables target, will still be 60% more expensive than new nuclear power stations and, surprisingly, as much as 20% more expensive even than carbon capture and storage. The cost picture for earlier stage technologies like wave and tidal power is even less encouraging.
So should we be pushing so far and so fast with renewable energy? The potential consequences of avoiding the cost issue are significant. We run the risk of piling unnecessary costs on hard-pressed consumers and undermining our competitiveness for no environmental gain. More dangerously still, we could weaken the widespread support for addressing climate change which currently exists.
The previous government committed the UK to the 2020 renewable energy target without any obvious consideration of the alternatives. The CCC's report provides the Coalition with the perfect opportunity for a considered reappraisal of its merits.
]]>This man, wishing to remain anonymous, runs a small manufacturing unity providing bespoke accessories for motorcycles, from ski holders to sidecars. He started his business some nine years ago, supplying one of the franchise motorcycle dealer networks, but became a little 'upset' that he had to wait until the "end of month following date of invoice" - which he found invariably always seemed to stretch to 90 days plus phone call reminders - yet the work he was delivering to the franchise was being billed and collected same day by the franchise from their customers.
So he struck out on his own. He works hard and employs six people. He has set up a reliable and relatively local supply chain, but the unknown quantity in his business is always the customer requirement. And the recent recession has not been kind to him, although in the meantime, he has kept his head above water.
During the two week Easter/Royal Wedding period, he had two customers wanting sidecars built. Ordinarily not a problem. And a nice revenue earner for the firm.
However, he found that a pivotal three of the five companies he needed to buy bespoke (ISO-rated) components from were all but closed during the period, and he and two of his staff members had to spend time (and money) scouring the region looking for suitable replacement parts to enable him to get on with the business.
To cut a long story short, he spent a lot of time and money up front securing parts from alternative suppliers spread around the region. And this seriously affected the smooth running of his business - not his fault because his suppliers hadn't told him there might be issues during the bank holiday "fortnight".
So the message here is for manufacturers to examine their own supply chain/s and identify any weaknesses - time, cost, alternative sources - that may affect the running of the business to ensure that they in turn don't get caught out by Wakes Weeks, holiday periods or silly seasons
It espouses, in garish lettering in between the rust, some ostensibly meaningless statement without any proven qualification that they are "the total delivery system for our customers". Somewhat similar to recruitment advertising where the agency's 'client' is the country's 'leading' something or other.
Prove it, without me having to make a phone call!
Is this the perception you give your potential audience?
It shouldn't be. You should be able to offer some form of tangible proof at your initial point of marketing. For example, "the total delivery system for our customers as rated in our customer satisfaction surveys."
Now this is of course easier said than done, and showing you how to achieve the best van décor is far beyond, as civil servants would say, the 'remit' of this blog.
But don't we all love to hate the fast-food outlets. We complain about the excess packaging they use in increasingly environmentally conscious times, the amount of fat and salt they use, yet these establishments are as popular as ever with customers.
We complain about the price of popular word-processing software from a certain world-dominating software company, yet there is the perfectly adequate and feature-laden Open Office suite alternative, not only available free and for nothing, but totally compatible with the aforementioned expensive one!
We complain about reality TV shows and how much the owners make from the premium-rate telephone lines people cast their votes through, yet we keep on voting.
My point here is do what you can at your first point of marketing to hook in the potential client with something that is truthful, honest and believable, and don't appear, or become, a brand that brings out the cynicism in your audience.
And it makes no difference whether you are the "S" or "M" in SME.
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