Regional grants threaten UK manufacturers' plans

EAMA warns that tbusiness advances based on sound investment strategies, developed by well-run companies are threatened by the UK's approach to regional grants.

Old habits may die hard, but UK SME manufacturers, helped by a big increase in property values, are adapting to international competition from low cost employment countries like China according to a new survey by the Engineering and Machinery Alliance (EAMA).

Businesses see sales opportunities overseas, and want to invest to win market share there, as the best way to grow now that the UK market is relatively small in world terms.

Some are already reporting business returning to the UK from the Far East.

However, EAMA warns that these advances based on sound investment strategies, developed by well-run companies are threatened by the UK's approach to regional grants.

Graham Hayes, EAMA's chairman: "The UK is simply too small for regional funding not to be anti-competitive for some companies based in other regions serving the same customers." Typical of the survey, the managing director of a component manufacturers in the South East said: "If there's one thing that Government could do, it would be to give all companies investing in new technology proper financial incentives, where-ever they are located and do away with these regional grant schemes.

If a competitor gets support that enables him to collapse a five-year investment scheme into two-and-a-half years in one part of the UK, how can we compete with that?" According to Investment Property Databank's 2004 index, industrial property returns grew 12% annually over the five years to 2003, with income averaging 8.3% and capital values 4% growth, which is better than the retail and office sectors.

EAMA says its manufacturing members have found it easier to get finance for investment because this increase in industrial property values means that firms can offer banks bigger cover of their loans for high tech investment, training and IT.

Summarising the survey's conclusions, EAMA observes that all the companies had a better year in 2004 than in 2003, and most had invested heavily in at least one of the last five years.

Hayes: "Most companies remain fairly bullish about the first half of 2005 but are much less confident about the second, with most putting further investment on hold, until they are confident that business demand will remain positive and that there will be no nasty post election tax shock.

And it's still just too much for SMEs, with all the other things that they have to attend to in terms of new regulations, to keep up with the ever-changing sources of finance, tax breaks, and how and where to apply for them.

We believe that Government could make better use of trade associations to publicise that sort of thing to their members, particularly SMEs." Along with what is mostly good feedback on initiatives like the R and D Tax Credit, the survey records little change in manufacturers perceptions of Government's policy and the banks attitudes to manufacturing.

Government doesn't have a big influence on SME investment policy at the moment, because in the words of one respondent: "Government doesn't understand that the future of the country should have manufacturing deeply embedded in it.

When it does, its policies will have a positive impact on our operations and policies." Apart from the increase in property values, few companies had seen an improvement in the UK banks' traditional approach to manufacturing, with on the other hand respondents from companies of all sizes saying that they used cash to finance investment, which of course reduces their recorded profits line.

EAMA decided to undertake the survey in December last year after the Government released figures showing that manufacturing investment fell 37% between 1998 and 2003, the last full year for which data is available.

Graham Hayes: "We felt that the facts behind the data needed to be explored, before we made our recommendations to the Chancellor." * GTMA: The GTMA strongly supports the findings of a recent EAMA survey, showing manufacturers were being hit by the regional focus of Government's industry funding.

GTMA Chief Executive, Julia Moore, commented, "Supporting one region against another simply doesn't make sense.

Manufacturing industry isn't confined by regional boundaries - our members and their clients operate on a national basis - it is essential that Government strategy reflects this." Combating the current lack of national support, GTMA is now forging links with major OEMs to create national supply chains within the membership, to supply the aerospace, medical and automotive industries.

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