It came with the sort of hype usually only found on trailers for the latest Hollywood horror movie. Yet, the comprehensive spending review (CSR), for all the talk of slashing, axing and cutting, has not been quite as harrowing as manufacturers first feared.
In fact George Osborne's £83billion raid on the public purse delivers a number of direct windfalls for the sector. The government will inject nearly £500m into tackling the skills gap over the next four years. The chancellor promises a 50% funding boost for apprenticeships alongside £200m for new Technology and Innovation centres to foster links between universities.
The move is likely to be warmly received by an industry that has long warned of a dwindling skills base. But there is also a sense of caution over how far the cash can go. One manufacturer told WM: "This is one of the areas of that as a country we haven't done enough for the last three decades. You can't correct 30 years of neglect overnight."
However, the government has at least made a start. New Technology & Innovation centres offer a potential route to closing the gap between research and the private sector. The centres are billed as knowledge banks where manufacturers can tap into skills, equipment and funding. The government cites a partnership between the University of Sheffield, Roll Royce and Boeing where all parties pooled resources to develop products and develop new technologies as a role model.
Green manufacturing is another big focus of the CSR. The government pledges £200m towards boosting low carbon technologies and £60m for supporting investment in offshore wind ports. Almost £1billion will be spent on creating a Green Investment Bank.
The commitments have reaped early dividends. Global engineering and technology firm Siemens announced the construction of a wind turbine manufacturing plant on UK shores just days after the CSR. While green concessions could have been greater says Siemens UK managing director Juergen Maier, ministers have delivered enough of a carrot to kick start the sector. "It's not enough when you compare the sums to what we poured into the financial sector. If you're going to rebalance the economy you'll need more. But it's a start. I think it's enough to grow green manufacturing. " Even a handful of new investments could spread a feel good effect to other areas, he predicts. "It's not just 700 jobs we're creating with this site. It will give the potential to a whole new supply chain."
Others, while backing the government's intent, want to see more about how green initiatives will work in practice. Peter Hindle, general delegate of construction materials manufacturer Saint-Gobain says: "While we welcome the emphasis placed on investment in green energy and infrastructure, we believe that more work is needed to ensure that initial plans can be successfully implemented." For example, explains Hindle, while the cash for a Green Investment Bank is a positive step, discussions must take place over how funding will be sustained over the longer term.
Indirect impact
For now it seems that some of the details surrounding the headline CSR figures are shrouded. What is clear cut though is that Westminster will throw its lot behind high tech or green manufacturers who can deliver rapid growth. The government has also made a very public commitment to the manufacturing sector as a whole.
Yet, champagne corks are unlikely to be popping on production lines. While there are a number of supportive measures in this spending review, but it's the indirect consequences of the cuts that matter most. The real fear ahead of the spending review was the risk of cuts sending the UK back into recession. Job losses in the public sector will undoubtedly have a fallout on manufacturing predicts Graeme Allinson, head of manufacturing transport and logistics at Barclays Corporate. "Clearly manufacturing will be impacted because it will take purchasing power out of the economy," he says.
However, the CSR hangover will cause a slowdown in manufacturing growth rather than its reversal, he adds. "It doesn't mean manufacturing will go into decline but I do expect a leveling of growth. I'd see the growth stabalising at 3-4% next year." The figures echo the predictions of Juergen Maier of Siemens. "My gut feeling is that we will survive over the next year," he predicts. "It won't return manufacturing sector into a huge recession but I think it will be a wobbly one for a few years."
One big factor behind the bullish outlook is a thriving export market. British firms have been making hay during a prolonged period of weakness for the pound. The CSR has done little to dampen the mood says Mark Soden, commercial director of ERP specialist IFS. "The positive attitude is because the currency exchange is favouring exports. Also, I think the manufacturers who were going to suffer from this most like those in consumer goods have already lost out to low cost economies."
A booming international market should stand UK manufacturers in good stead even if the domestic economy falters. Graeme Allinson of Barclays Corporate says. "Clearly a significant amount of demand will be removed the UK economy. But let's look at the positives. Global trade in 2010-11 will be up, a lot of countries are growing with near double digit growth and Europe is responding. It could be a good period for UK exports."
So the spending review leaves manufacturers with mixed emotions. Hope that the government has made the first steps towards rebalancing the economy. Fear that public sector cuts could trigger a damaging double dip recession. But the overriding sentiment might just be relief that things might have been a whole lot worse.
The spending review at a glance
Skills/business
- 50% rise in funding for apprenticeships in bid to attract 75,000 new apprentices by 2014
- £200m to develop Technology and Innovation centres to share best practice and resources between universities and manufacturing
- Simplified funding for colleges and reduction in bureaucracy
- Train to Gain scrapped
- Extra lending to be offered to small businesses through Enterprise Finance Guarantee Scheme
Green manufacturing
- £1 billion funding towards a Green Investment bank
- £200m investment in manufacturing facilities at port sites to support development of off shore wind power
- Extra incentives for low carbon energy through the Renewable Heat Incentive.
- Carbon Reduction Commitment scheme allowance sales to be paid to government rather than distributed among participants
Transport projects
- £10 billion towards road improvements including widening the M25 at ten junctions and improvements to the M1
- Funding made available to Crossrail project
- £14 billion funding pledge to Network Rail to support station upgrades and improvements to East Coast mainline
Defence
- 8% cut in MoD budgets
- contracts for new helicopters, armoured vehicles, strategic lift aircraft and communications kit
- savings to be made from contract renegotiations with the defence industry
The industry verdict
""The manufacturing sector has not been hit as hard as anticipated with some sensible measures introduced for the industry. It is pleasing to see that the government recognises that in making public sector cuts they need to grow the private sector, which manufacturing plays a major part in," Raistrick, UK manufacturing leader at Deloitte.
"There will be some relief for manufacturers that the cuts were not as bad as feared with some positive announcements in the protection of the science and education budgets and support for low carbon technologies." EEF Chief Executive, Terry Scuoler
"What is clear is that the main economic drivers, government and consumer spending, will be non-existent. I'm surprised by the level of confidence some people are expressing. There's a feeling the manufacturing recovery will continue and we're detecting a cautious optimism," Paul Massey, managing director, IFS.
"We were surprised and disappointed with the announcement about the withdrawal of the cashback incentives from the Carbon Reduction Commitment Energy Efficiency Scheme. Essentially this means that it has become another tax instead of an important driver to help businesses to improve their energy efficiency," Peter Hindle, general delegate Saint-Gobain
"Changes in the Spending Review mean red tape and bureaucracy will be reduced across the skills system. We welcome any improvements to the system that will make it easier for our employers to find the support they need to train their employees," Terry Watts, Chief Executive of Proskills, the Sector Skills Council for the process and manufacturing industry
"Manufacturing has exceeded expectations so far this year with a small recovery, supported by growth in world trade and a relatively weak pound. However, there will be concern within manufacturing over the effect these public spending cuts will have on companies whose production is reliant on government projects," Simon Macpherson, senior director business development & operations, EMEA, Kronos Systems
"Thankfully the government has maintained the Green Investment Bank so organisations willing to invest in energy saving programmes can obtain funding, but at the same time it is only allocating £1 billion, instead of the £4 billion to £6 billion that is needed over the next four years – a massive shortfall," Steve Ruddell, Division Manager – Discrete Automation & Motion, ABB Limited
"The CSR was inevitably going to be tough for everyone, but there are some positives for UK manufacturing. The MoD is facing cuts of 8%, but the CSR referred specifically to new equipment. Equally there is still money available for transport projects. All of these require top level manufacturing companies to make these products, who in turn will rely on a whole host of manufacturing suppliers," Julie Hughes, Finance Director, Dawson Precision Components
"I think that the private sector could help significantly with how to get the efficiency gains in the public sector. Maybe there should be some sharing of industry best practice from private into public areas to enable the public sector to improve operational efficiency at a faster rate, as let's face it, funding consultants to improve process efficiency is going to be difficult to justify with the spending restrictions." Cathy Humphreys, UK country manager at INFORM
