Speaking at the government's 'Jobs Summit' last week, business secretary, Lord Mandelson pondered where new jobs are going to come from, particularly as job creation has all but hit a brick wall in recent months. In answering his own question, he didn't exactly come up with anything outstandingly original. Lip service was paid to that old chestnut about expanding the UK's knowledge-based industries and (as if seeking a crumb of comfort in these straitened times) 'climate change and the environment' was identified as the saviour of the jobs market.
All cynicism aside, he does have a point. The global market for low carbon and environmental goods and services is pretty huge; it is currently estimated to be as large as £3 trillion and this figure could well soar over the next decade or so. The UK's environmental goods and services sector is, according to Lord Mandelson, the sixth biggest globally. If the UK takes advantage of the sector's opportunities and expected growth, then it will be rewarded by an additional one million jobs by 2015. So, could this presage a manufacturing renaissance for Britain?
Yes, the creative and services sectors are important, as Lord Mandelson suggested in his speech at the London Science Museum, but a substantial proportion of those one million new jobs will also have to create 'things' as well as 'ideas'. The challenge for UK manufacturers (and not just manufacturers of environmental goods) is how to spot weaknesses in the global manufacturing supply chain and take advantage of them.
Charles Maltby is a chartered engineer and technical and commercial director of Ely, Cambridgeshire based Shearline Precision Engineering. He believes that increased shipping costs and local wage rises have narrowed the price gap between Far Eastern and UK-based manufacturers, and that many companies are looking to return to manufacturing in the UK.
"The main issues appear to be uncertainty in supply, delays in shipping, increased inventory in the pipeline, and quality control - or potentially the lack of it - in the finished products,” he argues. “Increasingly there also appears to be a minimum order quantity necessary to secure the low prices of recent years, and for many of our customers this is higher than their annual production requirements. Customers are also realising that the intangibles of reputation, trust and clear, credible communication are more important than ever, as worries about the global situation bite." Shearline has effectively put its money where its mouth is and will shortly open a new, dedicated design-for-manufacture facility at Ely to pursue these opportunities.
But while the timing of Shearline's investment decision, apropos its design-for-manufacture centre, appears to be spot-on, many specialist SMEs looking to do similar things have been finding it exceedingly difficult of late to negotiate the necessary credit line to meet payroll obligations, let alone capital investments. During a week of relatively intense government activity and within 48 hours of the Jobs Summit, Lord Mandelson threw a lifeline with the announcement of a £20bn pot of guaranteed, short-term bank loans to SMEs.
The government proposes guarantees on 50% of these loans to businesses with a turnover of up to £500m, and in addition will establish an Enterprise Guarantee Scheme that will secure up to £1.3bn in additional bank loans to companies with a turnover of up to £25m. However, there is some doubt among opposition parties and venture capitalists that £20bn is going to be anywhere near enough to meet the needs of the present crisis.
Commenting on the proposals, EEF chief economist Steve Radley, said that the package goes some way to kick-starting credit markets and helping business access the finance they need. By underwriting loans, the government scheme could provide welcome breathing space for firms faced with cash flow problems after credit markets dried up.
With a framework soon to be in place, he said, businesses will expect banks to follow the government's lead by restarting the flow of finance. However, as business waits for credit markets to thaw, the government needs to ensure that vital parts of the supply chain are not lost amidst this maelstrom and quickly put in place support for trade credit insurance and measures to protect skilled jobs.
Federation of Small Business (FSB) national chairman, John Wright said he was pleased to see the introduction of this fund, which he believes mirrors the FSB’s Small Business Survival scheme that was proposed to Government before the Pre-Budget Report in November. “It is sad to see that since we proposed our package in October, small business closures have risen to around 85 a day, meaning over 6,000 have closed while waiting for this fund,” he said.
"The onus is now on bank branch managers to actively promote this money to its small business customers to ensure their survival and the revival of the economy. The banks now have no excuses and we will be encouraging our members to apply for these funds."
The Forum of Private Business (FPB) is also calling on the banks to increase lending to business customers without delay, following the government’s announcement. The FPB believes that the measures must form part of a broader economic stimulus in order to protect more small businesses and boost the UK’s faltering economy, as FPB chief executive Phil Orford explained in his response.
"This package is certainly welcome and is likely to address some of the credit restrictions that our members are facing. However, it must be followed up by longer-term measures to support small businesses and stimulate the economy, including tax cuts and similar strategies to boost struggling sectors such as the housing and automotive industries. With the government underwriting bank lending to this level, more businesses considered to be at higher risk will still be able to secure much-needed finance if they can prove they are viable concerns. But it is important to note that many vulnerable small firms will continue to face difficulties when applying for loans and overdrafts in the coming months. This package is a welcome step, but only the next step in a longer process of freeing up credit and stimulating the economy."
Les Hunt
Editor