The Business Magazine staged this roundtable at The Royal Berkshire Conference Centre, Reading with Southern Manufacturing 100 sponsors Shoosmiths, MHA MacIntyre Hudson, Taylor Made Computer Solutions, global insurance brokerJLT along with invited business representatives
Journalist John Burbedge reports the Roundtable highlights
Give us decisions, future certainty, and get on with it
The business world won’t stand idle while politicians debate, dither and decide the future Brexit deal details. Many companies have already made contingency arrangements, some have announced potential relocations, and reduced foreign student and job applications tell their own story.
However Brexit negotiations turn out, the business world will tackle the opportunities or challenges and progress as best it can – that’s the nature of commerce. But, boardroom strategic decision-making on investment, growth, M&A, and employment needs the foundations of future certainty and good timing to build sustainable successful businesses.
That undercurrent ran throughout this lively discussion.
David Murray highlighted that manufacturing contributes £6.7 trillion to the global economy, represents 45% of UK exports, and the UK is the 9th largest manufacturer worldwide. Interestingly, 84% of UK manufacturers were ‘Remainers’, positive about the EU business environment.
Currently, the market was fairly buoyant – with exports boosted by the weaker pound, but import pressures now feeding through as inflation.
Brexit reaction? We haven’t left yet
Martin Strutt of EEF* described the general business view: “It’s not what we wanted, but let’s get on with it. We’ve been through world wars and recessions – we’ll survive.
“It makes me cross when the Press or people say ‘Look, we voted Brexit and everything’s alright.’ We are not experiencing Brexit; we haven’t left yet.”
Wyndham Lewis, who consults with global equipment business Altrad, noted the UK construction market seemed to be moving from purchase to hire. “It’s a political situation rather than commercial at the moment. The world will carry on, but it’s uncertainty that’s killing everybody.”
Richard Cooper agreed. SMEs were hedging their bets on growth plans or fresh business links. “They’re not sure what to do.”
Andrew Knott: “Everyone is trying to second-guess, and while positive, they realise the current atmosphere could be short-lived.”
Roundtablers agreed with Murray that a clearer guide from government was required.
Stephen Lane revealed that Xtrac, with 80% of exports, had seen the impact of weaker sterling, but so far no negative Brexit consequences. He feared “politics may get in the way of our commercial world”. The next two years would be the acid test – with perhaps inflation increasing, real wages falling, etc, flowing through into consumer demand, which has kept the economy fairly buoyant. “Then we’ll see the true Brexit impact.”
Brexit campaigning created some misleading ideals, fake promises said Philip Ryan, adding: “The Government seems very much ‘pen-behind-the-ear’, sucking its teeth, unsure of costs, not having sized up the quote yet.”
* EEF provides business briefings to help manage the likely Brexit impacts: eef.org.uk/campaigning
Regulations and standards
Could manufacturing become less regulated post-Brexit, queried Murray.
Ryan: “Operating on a global basis it can’t be.” While post-Brexit UK could adopt its own regulations, he felt the Government had little idea of the scope and scale of EU legislation “to either bring across, or leave behind.” He feared the UK would suffer a double burden, a “two-speed regulatory system” covering Europe and the rest of the world world, if we failed to get any consistency after Brexit.
Nick Bion doubted Ryan’s regulatory burden. “I haven’t seen it so in the past 40 years.”
Lewis felt UK ‘ownership’ of standards was critical for globalised trading. “Post-Brexit we are going to have to adhere to product and trading standards, and hopefully they can be British standards, which are already well-recognised worldwide in many business sectors. If we lose that control over standards it could render our products irrelevant.”
Strutt: “It’s also about mutual recognition. We need to be an active partner in establishing, recognising and controlling standards.” EU regulations were a beneficial harmonisation, not burdensome.
Howard Clarke recalled pre-EU years with 20-page border-post carnets and “the absolute nightmare of trading with different European countries with their individual and incompatible standards. I would rue the day of going back there.” Staying within an EU-standard regime would enable greater freedom to trade.
Lane felt the focus should be on good parts of the UK’s EU involvement and “not going backwards to a more difficult world to trade within.”
Patrick King saw nothing changing immediately, “but a steady divergence over time, taking on more or less regulation as it suits us.” First up might be taxation and funding legislation to boost the UK economy and incentivise inward investment.
Common sense and the Eurovision Song Contest
Clarke highlighted EU funding for UK R&D projects. “Where will that come from post-Brexit? Worryingly, he had evidence that UK participants were already being excluded from joint applications for EU grants.
Lane stressed that current R&D incentives were very beneficial for high-tech industries, which fuel the economy. The overall UK tax regime needs to ensure such industries remain supported if such EU funding ceased.
While accepting this risk to the UK’s scientific R&D specialism, Ryan commented: “Let’s not forget that the EU trades with us too. We have market leaders, industry standards and national specialisms that are recognised by the EU and the world, plus a large consumer market for EU products.
“Don’t forget that balance. Maybe we are getting more worried about Brexit than the EU is? There will be brinkmanship, but in the end I think common sense will prevail and Brexit negotiators will agree common standards.”
King pointed out that both Brexit parties were starting from a common position – the EU Treaty. A fresh agreement wasn’t needed, merely negotiation on the level of UK divergence. “Once all the political posturing is over, we may well end up with much the same, but our own agreement.”
Strutt noted that non-EU countries such as Norway do still participate in EU projects. “Deals can be done.”
Smiling, Lewis added: “Australia now competes in the Eurovision Song Contest, doesn’t it?”
Will the future UK be the right place to manufacture?
“It depends upon the type of manufacturing,” answered Lane, suggesting a focus on UK’s world-leading design and engineering of high-value niche products, probably not “volume manufacturing of relatively low-tech and low-value products.”
Murray wondered if UK car manufacturing would continue as a net exporter – “618,000 cars every year to the EU, more than they export to us.”
“I think we will,” said Lane, citing the disadvantageous costs of closing and moving a car-making plant to Europe.
King agreed, highlighting that Nissan has decided to stay. Brexit would also enable fresh UK incentives for inward investors. However, some clients had already asked for feasibility studies on setting-up a European footprint.
Ryan: “We shouldn’t assume that everyone would go to Europe. They may stay put, go to the Far East or elsewhere.”
Bion pointed out that today’s manufacturing is increasingly reliant on large international supply chains – Europe provides roughly a third of the UK’s car components – “So, if we deter EU importing we could end up without a UK car industry.”
Because of such risks, Strutt urged that frictionless trade, avoiding potential border delays, should be key in Brexit negotiations.
Lane agreed, but also stressed the need to focus on quality UK manufacturing “As long as people watch and support motorsport there will be a demand for Xtrac’s product.”
Will Brexit bring worrying skills shortages?
UK manufacturing already lacked skilled people, stated Strutt. Even an immediate boost in training and apprenticeships would take years to bring talent through.
Brexit could exacerbate the problem. “Our members tell us that, whatever the Brexit deal, they want to be able to fish in the European talent pool.” EEF would be lobbying hard, because employment worked both ways. Some UK employees go to Europe for broader development training, experience, and collaborative reasons.
Murray mentioned that UK manufacturing employs 185,000 EU nationals. “That doesn’t seem very high?”
Seasonal agriculture, hospitality and retail sectors would have more need of EU labour, suggested Ryan. His worry was established EU workers leaving the UK because of Brexit. Attracting them back could be very difficult.
Foreign student visa restriction was the chief concern for Lewis. Reductions in European students coming into UK higher education would significantly impact future skilled job applications, particularly for UK hi-tech and research-based industries.
“Adherence to 100,000 net migration will be absolutely disastrous for our commercial base going forward. And, if we will lose students, our HE structure will decline.”
Have we taken in the ‘Welcome’ mat?
Bion’s workforce is 20% eastern European – “motivated, intelligent, flexible, knowledgeable and hard-working people who have work-values above other applicants.
“We are recruiting, yet they are not applying. Our pay is above the national average, so it’s not to do with pay. We have foreign nationals who have been with us 10 years, made their lives and homes here, pay their taxes. I feel our country is not doing well by them.”
Clarke agreed: “People want to work here, but today they are worried their residential security is not assured.”
Lewis, noted that their earnings, often sent home, are also now worth 20% less. “The UK is losing its sheen. It is absolutely clear that unless policy changes very quickly the UK will not be seen as a place for those high-value individuals to come and work, and other countries will gain them.”
A rational non-political discussion was required, which businesses had to demand of government, or the country would be held back. Knott agreed: “We are in a void at present.”
The dangers of political posturing
“During Brexit negotiations, we are going to see stuff that scares the daylights out of us. It’s happening already, but after all the political posturing, I don’t think it will end up like that,” said King.
Ryan agreed that many politicians were making ‘newsworthy’ statements to further their political careers – ‘they need to be seen saying certain things.’
The UK has to be careful about the post-Brexit environment it creates, said Cooper. “For example, any extra doubt, paperwork or cashflow delays could kill startups.”
Cooper noted that many university startups have European founders, who choose to locate close to London and within UK’s strong economy. “I suspect that will change and they will now choose Berlin, Amsterdam, or Paris.”
Ryan: “Many English-speaking businesses come here to avoid language barriers.” Ireland could benefit from Brexit as the next closest English-speaking link to Europe.
As one Roundtabler added: “We need to put commercial and economic reality ahead of all the political shenanigans.”
Shout louder and adopt a Singapore-lite strategy?
“Is the manufacturing sector not lobbying loud enough?” asked Murray.
Lane: “We are saying a lot, but whether it is being listened to is a different matter.”
The EEF was lobbying strongly for frictionless trading and unrestricted employment of skilled people, said Strutt. “I think that message is heard, but it’s now about how effective our negotiators can be in securing that deal, and at what cost.”
Lewis suggested UK manufacturing and exporting could become vitally important post-Brexit. In a few years, with companies relocating and inward investment declining, the UK economy, and any companies not exporting, “could be in real trouble.”
Lane: “Unfortunately, UK manufacturing is often not especially high-profile in the public perception. Yet, if a major City financial institution moved to Frankfurt that would be on newspaper front pages, and would be profoundly impacting government policy.”
Lewis: “Brussels cannot make Brexit a success or the EU initiative could end. The UK won’t get all the EU benefits it wants. Our only strategy is to set up as a low-tax, business friendly, offshore location – a ‘Singapore-lite’ environment.”
Lane: “We are still working on our post-Brexit UK re-definition, and unless our politicians are clear in what we want our country to look like in a few years time it might be forced upon us and we may wake up when it’s too late and realise we want to be doing XYZ not ABC.”
Bion: “Every other European country is trying to escape their past by being in the EU; we are trying to reclaim our past by leaving it.”
Other than Brexit, what are your main ‘UK plc’ concerns?
Lewis suggested: “How do we market our innovative businesses better than leading nations like America? How do we find global supply chains to which we can add value?
“How do we encourage a ‘build-a-global billion-pound-company’ attitude rather than ‘create and sell’?”
Knott: “The challenge of looking beyond the EU to grow international business and trading alliances.” Clarke’s company is already targeting South America – “but breaking into new markets is not easy.”
Lane: “Despite our UK manufacturing excellence how do we boost our productivity, compared to the G7?
Comparisons were only relevant within discrete company sectors, commented Strutt.
King noted that much UK manufacturing is located in the South East where productivity levels are good. One reason for the government’s ‘Northern Powerhouse’ focus, suggested Ryan.
Bion queried the usual ‘turnover divided by staffing’ productivity calculation, suggesting ‘average added-value per person’ would be a better comparative.
Other Roundtable concerns?
Government growth grants generally require increased employment, yet increased productivity levels can be achieved with fewer employees.
SMEs can receive beneficial R&D tax credits, but unhelpfully don’t get the cash benefit until 15 months after their expenditure.
Innovation: Are we ahead or behind?
Cooper and King agreed that the manufacturing sector produced very good innovation that could help drive UK economic growth, but sold its innovation too early. Foreign investors were prepared to take more risks. “Our mindset needs to change if we are to see billion-pound UK companies.”
Lewis highlighted how the UK’s biggest competitors in many global supply chains were now businesses or nations that the UK helped to set-up with its innovation, systems and manufacturing processes.
Software and systems design was now a major UK strength, highly valued throughout the world, “but we are not owning it, developing the commercial platforms for our innovation.”
China has its own Chinese competitor to the global tech giants such as Google and Amazon, he noted. Where are the UK competitors? “Our innovation is behind, because we don’t have a global commercial outlook.”
Brexit could facilitate that global mindset shift, supported by a strong government-led business-friendly environment.
Strutt added: “We have examples of brilliant UK innovation across all sectors, particularly within the fourth industrial revolution of the digital age.”
Lewis exampled graphene discovered at University of Manchester and revolutionising the composite materials world. “I believe in 2012 the UK had 54 patents for it, compared to China’s 2,200.”
Bion: “It’s a cultural mindset. We value owning our own houses in this country, but owning our own businesses? We applaud inward investment, and selling one’s business. The UK is an experiment to see if we don’t need to own businesses.”
A ‘Buy British’ campaign too far
Bion: “According to Mark Carney, we depend on ‘the kindness of strangers’. We are still trying to balance our UK plc books: £6 out of every £100 spent is borrowed from abroad. And, how much inward investment actually helps the UK economy? Isn’t it just buying up stuff already here, changing the ownership, which then takes dividends out of the country?”
Clarke noted that other EU nations readily bought their own home-manufactured products, but ‘Buy British’ campaigns had not been very successful. And, too often, major UK Government contracts had gone to foreign manufacturers.
Bion: “At some stage the party has to stop, and maybe then manufacturing and exporting will be seen as vitally important to this country.”
Nick Bion: Perforation specialists Bion, Reading
Howard Clarke: Morgan Innovation & Technology, Petersfield
Richard Cooper: Investment and growth advisers Oxford Innovation
Patrick King: Tax partner, MHA MacIntyre Hudson
Andrew Knott: Partner, specialist insurers JLT Group, Reading
Stephen Lane: FD, motorsport engineers Xtrac, Thatcham
Wyndham Lewis: 180 BPM, sales and marketing for manufacturers
Philip Ryan: Partner, Shoosmiths
Martin Strutt: Regional director, EEF
David Murray: publisher of The Business Magazine, chaired the discussion