At a Real Business debate in Sheffield yesterday, Vince Cable gave three reasons why Britain should be confident about its future – and why it must put manufacturing at the centre of the economy.
Real Business: The UK is now expected to expand by just 1.1 per cent in 2011. It's hideous out there for business owners. Give UK manufacturers three reasons for optimism.
Vince Cable: During the week, I was widely quoted as saying that Britain is facing the economic equivalent of war. But this isn't something you can fight with bullets and soldiers. It will be fought by the private sector, entrepreneurs and innovators, who are setting up businesses, promoting exports and getting investment going.
We're struggling as an economy but there are good things happening.
1. At the beginning of this week, we had a fantastic vote of confidence in Britain from Tata, committing to 20-30 years of investment in the UK's steel and automotive sector with a new engine plant for Jaguar Land Rover. That is really good news.
2. This morning, the UK car manufacturing sector recorded ten per growth. There are a many great UK manufacturing companies expanding, training people and exporting.
3. There's now a real enthusiasm from young people to get into manufacturing. This sector used to have a bad image. I grew up in York next to the railway works. My image of industry was what I used to see through the walls: the big flames from the forges; the workers coming out covered in oil. But if you go round a production line today, it's high-tech, it's fairly gender neutral and it's modern – it's a pleasant environment in which to work. We're getting rid of that old nonsense about Britain not being very good at making things. We are.
Real Business: Are we finally seeing a shift back to UK manufacturing?
Vince Cable: Yes. And this is happening for a number of practical reasons.
First, costs are rising in Asia.
Second, exchange rates. We're now 25-30 per cent more competitive on manufacturing where price is an issue.
Third, manufacturers have started to realise – particularly after the tsunami in Japan – that you don't want to be stuck with your components on the other side of the world, waiting for three months for them to arrive. There are advantages to sourcing locally.
We're beginning to see a "re-patriation" of the supply chain to Britain and I think that's where a lot of the economic growth is going to come from.
Real Business: One of our readers, Mike Burton who runs Sheffield-based Anchor Magnets, wants to know why the Annual Investment Allowance is due to reduce from £100,000 to a paltry £25,000 in April 2012? How is this helping UK manufacturers? What real tax incentives are there to make products here?
Vince Cable: The corporate tax rate has been reduced year on year. The Annual Investment Allowance has been tightened a bit to pay for the corporate tax cut – but we've done it in a way that the Engineering Employers Federation (EEF) feels is reasonable.
Most of the companies I talk to are glad they're operating in a lower tax environment.
I went up to Teeside a few weeks ago – one of the most depressed parts of England – and the steelmaking tradition there has been revived. Teesside Cast Products has been saved by Sahaviriya Steel Industries (SSI). They are reopening the blast furnaces and many of the workers who were made redundant are going to be rehired.
That kind of story is happening around the country.
Real Business: What would you say to business owners such as Emma Killilea, founder of Delicious Alchemy, who wants to make products here in the UK (in Emma's case, gluten and wheat-free food) but can't because of the sheer expense and the fact that banks just aren't lending.
Vince Cable: Bank lending is critical. You've heard me going on about this for the past year and a half. I've been accused of bank-bashing but this is a very real issue.
It's easy to understand how it happened. We have the biggest banks in the world – RBS, Barclays and HSBC – each with a balance-sheet bigger than the whole of the British economy. One of them collapses. One of the others almost did. Their whole behaviour has had to change: they have lurched from being very reckless, in some cases, to being ultra conservative.
Part of the so-called Merlin Agreement is to get banks lending more to SMEs. Meanwhile, we're seeing new banks, which are more customer friendly and creative, entering the market. Look at Swedish bank Handelsbanken, for example.
Bank credit is important but SMEs also want equity from business angels and access to genuine risk capital. That's why the Business Growth Fund has been established in Birmingham.
Good things are happening.
We interviewed Vince Cable as part of a Real Business panel debate at the MADE Entrepreneur Festival in Sheffield. Stay tuned for footage.