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Richard Harrington MP: UK manufacturing: is there hope for small and medium businesses?

Harrington Richard August 2011 Richard Harrington is MP for Watford.

Last Thursday I attended the Backbench Business Debate on Manufacturing. During the lengthy debate many members of both sides lamented Governments both past and present on the way they allowed British Manufacturing to fail. 

Whilst these points were well intended they ignored what I believe to be one of the main contributing factors to the decline in manufacturing; the negative attitude of Britain, both in terms of capital markets and the status in society of  manufacturing industry. These factors led to a lack of capital to reinvest, poor management and an uncommitted labour force.

I speak on this matter from experience, as the son of a manufacturer. My father had a small clothing factory in Leeds that eventually failed, due to the cheap price of imports meaning it was no longer financially viable. Like many of his generation, he found that the value of his factory as a property rescued him. The last thing he ever wanted was for mw or my siblings to go into his business. This is a familiar story for manufacturing businesses in the UK.

Turning firstly to the basic matter of capital, inevitably, anybody wanting to invest capital is looking for the best return on their money. For start ups, in particular,a short to medium term return is sought for equity investment and the return on investment has been significantly increased by adding a slug of bank debt. Until 2008 nearly anyone could raise capital for property deals. For manufacturing the banks had far tougher lending criteria, requiring complex business plans and often personal security. Very few young people started in manufacturing whereas property was a route so many entrepreneurs took. Linked to this was the desire of many a caring father, to get his children educated and 'professionalised', so that they did not have to have the stresses of a factory for their generation.  

When considering the  demise of manufacturing it is crucial to look at the industries that have replaced it. My constituency of Watford is a prime example of this, where the town once expanded on the back of heavy industry primarily engineering and printing, the majority of people in Watford now work in the service industry or the public sector. When I visit the sixth forms in my constituency and ask them what they want to do when they leave school the answer is invariably to be an accountant, lawyer or doctor. If they are commercially minded it tends to be the City.

It was certainly true when I went to University, that people looking to make money headed to the City whereas in my parents generation and before they would have looked at heading into Industry. Other countries have not had this problem, the brightest students of the best American Universities look favourably on joining the big American firms such as Ford and IBM just as much as Goldman Sachs or Citigroup.Similarly in Germany young people make the active and positive decisions to attend manufacturing colleges instead of more scholarly subjects. Family businesses as seen as prestigious for the future, rather than something to get out of.

If we are to have a Manufacturing industry in the UK to be proud of, as a country we need to start taking pride in it. Young scientists, engineers and entrepreneurs should be looking to improve existing manufacturing or starting their own company. We have fallen into the trap of glorifying a golden age of manufacturing without displaying any such pride or hope for the future of the industry.

The reluctance to engage in this industry is as prevalent at the top as it is at the bottom. In a town with around 3000 people on Jobseekers Allowance, manufacturing companies in Watford tell me that they just cannot get British workers to join their companies, with jobseekers often citing that they are unwilling to work night shifts or do mundane factory work. In many cases they are left to employ Poles who are happy and willing to perform these tasks.

The answer lies in changing the equation for capital, management and labour. Capital rewards lie in big tax breaks for investors whose projects provide employment as opposed to those who don't as well as inheritance tax free transfers for such businesses. Management needs to be rewarded, again perhaps by tax breaks if they go into this sector compared to others both in terms of income and the treatment of share options. As for incentivising labour, the governments benefits changes may help, making it pay to work, but the main thing will be showing people security in a good working environment.

Above all, greed, in a good way has to be the motive. It is only the incentive of high returns in terms of income for management and labour and dividends for shareholders that will shift the balance. The sector deserves it because the rewards are there for our whole economy if they get it right.


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