First memorandum by the Engineering and
Machinery Alliance (EAMA)
I am writing to you in may capacity as Chairman
of the Engineering and Machinery Alliance (EAMA) a powerful new
grouping of eight trade associations (launched on 1 November 2001)
with a breadth of cross-sectoral interests for the engineering,
production machinery, components and tooling manufacturing sectors
in the UK. The Alliance represents an annual turnover well in
excess of £20 billion, over 4,000 companies and more than
The member trade associations are all closely
linked with high technology capital investment both as suppliers
and as users and therefore offer a timely barometer of what is
happening at the sharp end of industry. We strongly believe that
modern CNC machinery and associated CAD/CAM technology are the
key to improving manufacturing productivity and competitiveness.
Unlike organisations such as CBI and EEF we
are in the unique position to represent the small and medium size
companies, many of whom form the supply chain to sectors such
as aerospace and automotive, and who have been hit extremely hard
in the past year and particularly since the events of 11 September.
I feel that it is important in any inquiry on the productivity
and competitiveness of British manufacturing that these businesses
views are taken into consideration.
The Alliance would argue that the long-term
under-performance of UK manufacturing investment relative not
only to the United States but also our European competitors is
due to a culture of short termism that has grown up not only through
Government but also from the City and the Banks. There has also
been an unwillingness in British culture to recognise the value
of manufacturing to the economy and to society more generally
and this has led to its general decline in terms of a percentage
of GDP. We believe that the under investment in areas such as
modern high technology machinery has seriously dented our productivity
and therefore our competitiveness.
This situation has been exacerbated in the past
three years when our manufacturers have been competing with an
uncompetitive exchange rate, especially in relation to the Euro,
making our exports expensive and imports to the home market cheaper.
Thinking that this was a short-term situation, many companies
took reduced margins and even losses to maintain their customers
but this has weakened their balance sheets so that they are unable
to invest either from retained profits or borrowings. This further
depletes their ability to be competitive. It is a spiral that
needs reversing urgently. The lack of confidence felt in many
key markets through the economic downturn was exacerbated by the
terrorist attacks on 11 September and the result was a dramatic
decline in capital investment intentions. Figures from Oxford
Economic Forecasting estimate the impact on UK GDP was two or
three times that from foot-and-mouth and, to the extent that different
sectors have been hit, investment goods seem to be the worst affected.
We believe that confidence needs to be restored
but it will take a concerted effort by the Government and the
City. We need to cut the cost of investing by:
accelerated capital allowances;
making it easier for pension funds
to invest in venture capital;
encouraging the retention of profits
reducing the cost of finance;
improving advice and support for
reducing the regulatory burden.
Whilst the government cannot directly influence
the exchange rate or the global economic downturn, it can take
measures to help manufacturers to cope with a situation which
comes as an external shock to the economy (just as foot-and-mouth
was to the tourism industry) and to prepare to meet the eventual
upturn from a position of strength.
EAMA will provide you with more detailed evidence
at a later date. However, I would request that we could appear
before the Select Committee to give our unique view both from
being more representative of SMEs and from a more business focused
position. I would be willing to discuss this with you further.
30 January 2002
British Fluid Power Association (BFPA).
British Gear Association (BGA).
British Plastics Federation (BPF).
Gauge and Toolmakers Association (GTMA).
Machine Tool Technologies Association (MTTA).
Mechanical and Metal Trades Confederation (METCOM).
Printing, Papermaking and Converting Suppliers
Processing and Packaging Machinery Association