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Stephen Radley, chief economist, EEF

Chris Shaw speaks with Stephen Radley, chief economist at the EEF – the engineering and manufacturing support organisation. Radley will be hosting a seminar at this year's DSEi in which he will be evaluating the economic crisis and the effect it is having on the defence and manufacturing industry.

CS: There's a lot of talk about skills shortages in design engineering, will the recession mean that less companies are willing to make this investment? What are the implications and how do you see this being resolved?
SR: Generally, the issues of skills shortages in manufacturing that we've found in previous recessions, are that companies are under immense pressure to reduce costs. In doing so, skilled people are lost and they often find it a struggle to get back into the industry. When the upturn finally comes, companies no longer have the skills to support them or push orders forward.

Companies will certainly cut back on recruiting apprentices and training as a short term measure – but the long term impact is that when you have a recession generating bad news on a daily basis, people won't want to consider manufacturing as a career option. If all they're reading about is negativity and job losses, why would they want to consider this industry?

On the positive side, there are two encouraging points. Firstly, a lot more companies have had success in striking deals with their workforce, whether it be in the form of pay cuts or more flexible hours. While it is questionable as to whether these measures can be sustained, at least these steps are ensuring that companies are retaining crucial skills.

Secondly, public funding also helps. Training schemes, such as the Train to Gain scheme, support adult apprenticeships as well as the traditional younger recruits. The Train to Gain scheme is a national skills service that supports employers of all sizes to improve the skills of employees as a route to improving business performance. The Service offers skills advice on everything from Investors in People, basic skills through to leadership and management training.


CS: What do you see as the main factors that will pull the manufacturing industry out of the current slump?
SR: Obviously the markets need to recover, but although we've all endured a severe downturn, there are already signs of things stabilising. However, it's vital that companies stay prepared for the market to recover and minimise cuts where possible.
A number of banks are making it worse for many companies. There is a great deal of frustration that banks are taking extremely short notice on lending or credit insurance without looking at the circumstances of individual organisations.

Looking long term, there is going to be enormous pressure to start taking action on high levels of borrowing. It's vital that spending isn't cut until recovery is here or it will simply push the UK back in to recession. Because the economic outlook is so uncertain, it's difficult to predict where growth will come from. It's hard to see a bounce back in consumer spending. And it's unlikely that business investment will lead us out of recession. Exports could help on the back of a weaker pound. While many exports go to EU countries which are also weak, we will see benefits from China and USA recovering faster, but this will still not be enough to establish fast UK recovery.


CS: How closely should manufacturers and Government be working to survive the economic situation?
SR: Design engineers can play a significant role. We want to see them play a greater part in advising the Government how to use its spend more efficiently. With budgets under so much pressure, there's an urgent need for the £175billion the Government sets aside to invest in the industry, to be spent wisely. Closer dialogue is needed between Government and businesses – at all levels - to come up with long term solutions. We need to deliver better outcomes for customers and also for businesses to promote innovation.

The problem is that whoever is in power is pressured to save public spending and to prioritise the best value for money. So the Government needs to move away from a slash and burn approach, which generates positive headlines, but does not leave us better off in the long term. Such moves would require a massive culture change from Government. This isn't helped by the fact that a recession is the most difficult to time do it.


CS: Will the defence industry emerge as a different beast once the economic slowdown has recovered?
SR: In the short term, it is inevitable that the defence sector will look different. It will certainly be leaner. But until we get better clarity, it's difficult to see the long term impact.

What is clear is that Government budgets are under immense pressure, but hopefully we'll see a positive approach to security needs – resulting in a knock on effect on the defence industry. It's vital that Government takes a strategic view and sends a strong signal to the private sector – then companies can make informed investments rather than guesses.

Author
Chris Shaw

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