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EAMA - Engineering & Machinery Alliance Press release

Wednesday 17 January 2007

 

Engineering alliance working to increase manufacturing investment

 

One of the priorities for the Engineering and Machinery Alliance (EAMA) in 2007 is working to reverse the fall in UK manufacturing investment.

EAMA’s chairman Graham Hayes says that UK manufacturing has fallen by over a third since 1997 according to the government’s own data. “The latest annualised report in the Annual Business Inquiry shows manufacturing investment falling every year since 1998, with a 43% decline for manufacturing as a whole, or 37% if you allow for the drop in number of manufacturing companies in the UK over the period. It is often said that the UK is on the same path as the USA, but the US figures are a much more modest 12% per company.”

With productivity high on the government’s agenda for the country, Hayes says that it is surprising not more attention is paid to manufacturing investment as a direct means of raising the economy’s productivity overall. “One of UK manufacturing’s key priorities competitively is to nullify low wage producers’ cost advantage. Investing in automation is one way of doing just that.”

EAMA says the problem is exemplified by data reporting UK investment in robots compared to other countries. This shows that the UK has 44 robots for every 10,000 workers. France and Spain have twice as many, Italy three times, Germany four times.

Even in the car industry, which is the UK’s best sector for automation, Sweden and the UK score around 600 per 10,000 workers. Spain has 50% more robots, Germany twice as many and Italy 1,600.

SME manufacturers typically use cash to fund their investment, so EAMA believes that is one area where government policy could provide incentives. Another area where there’s an SME bottleneck is in the skills available to take on the new ways of working when automation is introduced.

Graham Hayes: “Under the current system, the capital cost of assets cannot be treated as an allowable expense to be set off against taxable profits. A company has to claim a ‘capital allowance’ (CA), which is then set off against the company’s profits like an allowable expense. This prevents 100% depreciation of costs in the first year. In most cases capital allowances allow a percentage of the capital cost to be offset against profits over several years. CAs range from 0% to 100% depending on what you are buying.

“The problem from our perspective is that current 100% allowances are typically for equipment that may be included in a building to provide a perfectly laudable environmental benefit, rather than increasing the productivity and competitiveness of UK manufacturing’s performance.

“We believe that it follows that capital allowances can be used to directly promote investment in productive capacity, since HM Revenue and Customs are already used to classifying different allowances, such as enhanced capital allowances for energy conservation equipment, water conservation equipment and low emission cars.

“Granting 100% allowances would have two benefits. They would boost productivity of industries buying the equipment and increase the cash turnover of the engineering sector, which generally increases prosperity and employment opportunities.

EAMA says that there is evidence for example in the USA of how effective 100% capital allowances can be. But to take full advantage of investment in new technology and automation a company needs to have staff with the right skills.

Graham Hayes: “Lack of skills and the costs involved in ‘up-skilling’ an employee alongside an investment in new technology are complicated decisions for any company, but all the more so for SME manufacturers.

“Many companies have resolved the problem, at least temporarily, by employing immigrants from countries like the recent accession states that were part of the former Eastern Europe.

“Our view is that the problem remains and as long as it does, the skills scarcity is another drag on SMEs, stopping them using new technologies in the way they could and should if they are to succeed in raising their productivity.”

(ends)

Notes to Editors:

  1. EAMA’s nine member associations are: British Automation and Robot Association (BARA), British Paper Machinery Suppliers Association (BPMSA), British Plastics Federation (BPF), British Turned Part Manufacturers Association (BTMA), Confederation of British Metalforming (CBM), Gauge and Toolmakers Association (GTMA), Manufacturing Technologies Association (MTA), Printing, Papermaking and Converting Suppliers Association (PICON), Processing and Packaging Machinery Association (PPMA).
  2. UK mechanical engineering comprises approximately 13,000 companies with a combined turnover of £35 billion and has run a positive trade balance each year for the UK for the last ten years of around £4 billion.
  3. Statistics on investment and robotics:
    • UK investment taken from the Annual Business Inquiry published by the Office for National Statistics
    • US investment taken from the Annual Survey of Manufactures published by the US Census Bureau
    • Robot data from World Robotics 2006, published by the International Federation of Robotics in conjunction with the United Nations

    ANNUAL BUSINESS INQUIRY – 11 NOVEMBER 2006

    Manufacturing
    Computations
    Year
    Number of enterprises
    thousands
    Total net capital
    expenditure sector
    £ million
    Change
    1997-2005
    Total net capital
    expenditure per company
    £
    Change
    1997-2005
    1997
    169.7
    20,314
    120,000
    2005
    153.39
    11,650
    - 43%
    76,000
    - 37%

    US CENSUS BUREAU ANNUAL SURVEY OF MANUFACTURES

    All Manufacturing Establishments
    Computations
    Year
    Establishments
    thousands
    Total capital expenditure sector
    $ million
    Change
    1997-2005
    Total net capital expenditure per company
    $
    Change
    1997-2005
    1997
    362.8
    151,511
    418,000
    2005
    350.7**
    128,325
    - 15%
    366,000
    - 12%

    Note: **Number of companies according to latest available data is from 2002 census (if number of companies was smaller, decline per company would have in fact been smaller)

    WORLD ROBOTICS 2006

    (Robots per 10,000 workers)
    UK
    France
    Spain
    Sweden
    Italy
    Germany
    All manufacturing
    44
    84
    89
    117
    130
    171
    Automotive industry
    610
    1120
    950
    630
    1600
    1180