‘UK risks losing place in eco hierarchy’

While appreciating the efforts made by the government to formulate a strategy for growth,Chairman of Caparo Group Lord Paul said that “manufacturing industry has seen little progress despite much talk.”

Lord Paul said: “Many of those involved in UK manufacturing sometimes wonder whether the Government has a strategy for growth,given their enthusiasm for austerity. It is a tribute to the continuing efforts of both the workforce and management of British manufacturing that so much has been achieved in the face of economic adversity – our car industry is a shining example.

“Yet,my overall sense is that this cornerstone of our economy and our future has been neglected in Britain for far too long.

“This must now change if we are to reassure those involved in manufacturing industry of their worth and ensure that our most able engineering graduates are not tempted away by the bright lights of the City and the financial markets. Manufacturing is still a solid activity providing stable jobs and long-term careers that can embrace the latest thinking in design and technology.”

Noting that the cuts in new infrastructure projects for roads,schools and hospitals of recent years cannot be quickly reversed,Lord Paul said: “recent moves to restart many of these projects,although welcome,will take too long in the planning process to be of much help in getting the economy growing again in the near term.”

Instead the government should focus on the backlog of infrastructure repairs and maintenance,he said.

“This would also engage the severely depressed construction sector,in a streamlined and accelerated tendering process to rapidly generate jobs with manufacturers and contractors,” he said.

Lord Paul also cautioned that manufacturers who have worked for years to achieve world class competitive standards for the UK now face not only a dramatically weakened Eurozone,but also a strong pound. Profitable exports to continental Europe are thin on the ground,he said.

“By adopting policies that will increase real demand for UK manufactured products,the government could enable UK manufacturing to play a full part in leading an economic recovery,” he said.

Lord Paul said: “a keystone of recent government strategy has been quantitative easing by the Bank of England. While it may have aided money supply problems and some have questioned this it has backfired on British business.

“Quantiative easing has helped to ‘artificially’ depress UK government gilt yields – the rate which the government has to pay to borrow money. They are now at their lowest level for over 300 years. This may seem like a good thing; then why is it a problem for business? Indeed,it is a good thing for the wider economy.

“However,the problem is that same rate is also used to calculate today’s cost of future pension promises. The lower the gilt yield,the bigger the liability that is calculated. So,extremely depressed gilt rates have hugely increased pension scheme liabilities,and the deficits,of many UK companies.”

The way that pension liabilities are increasing,many manufacturers can’t help wondering whether their business is a pension fund with a manufacturing company bolted on instead of the other way around: or the tail wagging the dog,he noted.

According to the Government’s Pension Protection fund,over 85 per cent of the 6,432 private sector pension schemes in the Pension Protection Fund index were in deficit at the end of May,to the tune of 312 billion pounds. Many of those schemes are supported by manufacturers.