With all the obstacles facing UK manufacturing at the moment, nothing is dimming Stephen Phipson’s belief in the ability and resilience of the sector. Energy price increase is just one of the many challenges impacting the sector, but Stephen Phipson remains confident in the sector’s ability to overcome these hurdles.
It’s fair to say that the mood music around the manufacturing sector at the moment isn’t great: increased costs to employers via tax hikes; record high energy costs; low growth; threats to inward investment; actual and potential job losses in the sector; PMI falling and business optimism at a two-year low – none of it would seem to incline one to unalloyed positivity. Given which, one could forgive Stephen Phipson CBE for being somewhat downbeat when we meet ahead of March’s National Manufacturing Conference. However, that would be to underestimate the enthusiasm and regard the man who has been chief executive of Make UK since 2017 holds for this sector. “The manufacturing sector is a very resilient and pragmatic group of people,” he says. “So, they will always find a solution.”
Challenges Facing the Sector
None of this is to suggest that he is merely ‘whistling in the dark’. He is acutely aware of the challenges facing the sector at the moment. “Obviously, cost increase has been a big challenge,” If we look at where we are with our latest survey results, there's no doubt that people are very concerned about the rise in employment costs that we're seeing through what happened in the Budget…I think everyone's very cautious at the moment because of the increase we're seeing in employment costs in particular, and a number of other things, all hitting around the April time, national living wage, etc. And people are rightly cautious about how they're going to pay for that, and that's going to be a dampener on investment and growth for this year.”
The other big constraint on growth, of course, is the cost of energy. The UK is currently burdened with the highest electricity costs in the OECD and there is little immediate prospect of them falling. On the need for this, Mr Phipson is clear: “If you look at where you are seeing growth in other countries’ manufacturing sectors, it tends to be those countries where they've got lower energy prices. There's a direct correlation between, stimulating growth in your manufacturing sector and having competitive energy prices. It's come off the radar screen recently, but we need to get it back on that radar screen again, because we're still operating at more than 50% higher energy costs in the rest of Europe, and when we're looking at attracting human investment for new factory construction or capacity expansion, one of the main things now being considered by many of those large corporates is the cost of energy.”
The Need for Energy Market Reform
So, what does he want to see from government? “Energy price increase market reform is something we'll be pushing for really hard to get. There's no reason why we can't have a reform programme that gets our industrial energy costs in line with the rest of Europe. It's one of those things that we need. I know the Government's created things like GB Energy, etc, but I think there's a, there's a need to do this quickly. Otherwise, the investment won't be coming to the UK.”
Does he believe this sense of urgency is understood by the Government? He says: “Talking to the current Government, they understand that this is absolutely important, and they would come back and say they've created things like GB Energy and National Energy System Operator [NESO] and are put in place new structures to really accelerate this. They're investing more in wind, and they'd say they've started the process, but we, of course, are impatient. We need to get that done quicker. For instance, the previous Government did a good thing with the Supercharger [The British Industry Supercharger, a UK government policy aimed to help energy-intensive industries by reducing their electricity costs] where we took some of the tariffs off the industrial energy crisis for the energy intensive uses. We could go a lot further with that sort of programme.”
A National Industrial Strategy for Advanced Manufacturing
As a long-time advocate of a National Industrial Strategy, he feels the ‘Invest 2035’ Green Paper released in November offers some benefits but still leaves considerable room for improvement. “The industrial strategy is the government describes consists of eight different pillars of which one is advanced manufacturing. So, this is really more about a national growth strategy, so if we zoom down a little bit, the part I'm interested in is that advanced manufacturing pillar, the bit that's really relevant to our sector.”
The issue that must the heart of any true industrial strategy, he believes, is skills and in particular how this relates to implementing Net Zero strategy. “We know where we're going on this net zero stuff,” he says “but how are we going to fill it? How are we going to provide the engineers of the future, the hundreds of thousands of new jobs we are going to need to do this are really, important. So, so I think one of my challenges is to DBT [Department for Business and Trade], how across government is this industrial strategy, because we need the DfE [Department for Education] to be a lot in lockstep partnership with DBT about delivering such an industrial strategy.”
Also key to this policy, he believes, is political consistency. As he puts it: “The investment cycles in manufacturing are between seven and 30 years… so you can't change policy every four years. I mean, you won't get people to invest in that. So, I’m very pleased that the industrial strategy is on a 10-year footing and a statutory footing so it doesn't get chopped and changed every time we have a Parliament change. That's really important.”
He continues: “One of the key things I want to see from this industrial strategy is about how we are tying those government causes together. So, we need clarity in the long-term on the 10-year programme; clarity on the priorities; make it investable for the large corporates to come in and build factories in the UK; do more production here and make sure we've got the workforce to do it.”
Government’s Understanding of Manufacturing Needs Improvement
On the question of whether government really ‘gets’ manufacturing, Mr Phipson is unequivocal. “No, they don't,” he says. Part of my job – part of our job as a team – is to constantly educate them about the manufacturing sector and about what it is.”
The problem, he believes, is the persistently outdated understanding of what manufacturing is. He says: “The perception thing is, is very important, and we spend a lot of time taking ministers or government officials to factories, showing them what the thing looks like and talking to the actual people doing the job so that with when we get policy through, it's got some realistic base to it, rather than something that's just based on a wrong perception of what our sector is.”
The Role of Manufacturers in Securing Their Future
Having addressed the questions of what government can do to help manufacturing, what does he believe manufacturers can do themselves to improve their lot? One area, he believes, is strengthening and securing supply chains. He says: “The word ‘resilience’ is going to come up time and time again over the next few years. And so, we start thinking about supply chains, and we start and so for manufacturers, this is about localisation. How much of our supply chain work can we localise now? A lot of them are starting to go down that route and measuring localisation rates. And of course, this creates a great opportunity to extend what we're doing in this country in terms of manufacturing but is also the way to cope with increasing protectionism.”
The implications for companies who wish to be part of these more local supply chains, of course, is that they will have to invest. Says Mr Phipson: “If you look at UK manufacturing, I always like to describe it as about 800 large companies and 250,000 SMEs. And in the SME community, we need to provide them support and incentives to invest, because we're lagging behind the investment in the supply chain. So very often, I'll have a discussion with some of the big companies about localisation rates and increasing them, and they'll say, ‘Yeah, but the supply chain is not investing, I can't give them the new technology because they just want to make all the old stuff’. And so, with government, we need policies that help them invest.”
Looking Forward Despite Challenges
He is keen to make clear that it is not all about obstacles, however, saying: “I'm very optimistic for the medium term. I think we've got some really good opportunities here. The energy price increase continues to be a significant factor, but there are ways to adapt and thrive.”
