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Work & Prosperity (Deep End)

The Deep End doesn’t usually feature corporate reports, for the very good reason that most of them are boring. Today is an exception. Understanding the economic contribution of the Foundation Industries is produced by Tata Steel / PwC – and concerns an often overlooked, but vital part of the economy:

“The Foundation Industries are distinctive because they supply materials to multiple, strategic manufacturing and construction supply chains.” 

Iron, steel, non-ferrous metals, chemicals, glass, cement and so on: nothing can be made or built in this country without these foundational products. And yet while we fret about the security of our energy and food supplies, we simply assume the availability of these materials.

The sector is also a major employer – especially outside London and the South East:

“In 2012, nearly 31,400 businesses employing 487,000 people formed the Foundation Industries in the UK. These employees represented 20% of total UK manufacturing employment. Together, the turnover of these businesses was close to £69bn and they generated Gross Value Added (GVA) worth £24.6bn, which was 17% of GVA arising from manufacturing and 3% of the UK economy as a whole. GVA per employee was 36% higher than the UK as a whole (excluding financial services).”

Do you remember all that talk about ‘rebalancing the economy’ – about reducing our reliance on finance, property and the public sector? Well, the materials sector is a prime example of what we were supposed to be rebalancing to. The problem though is that these industries were badly shaken by the recession:

“The Foundation Industries have seen the greatest fall in active firms (23%). This has been driven by 40% fewer births in the Foundation Industries compared to 2008 and 44% more business deaths…

“Overall, the Foundation Industries experienced a steeper decline in employment from 2008 to 2010 (11%) than manufacturing as a whole (9%).”

Labour politicians still hark back to the fate of British industry in the 1980s, but they conveniently forget about the damage done by Gordon Brown’s boom-and-bust. Of course, now that it’s a wholly-owned subsidiary of the public sector unions, the Labour Party needn’t bother much with its old power base in heavy industry.

There’s a key opportunity here for the Conservative Party to step into the breach. Conservative ministers need to go well beyond the usual warm words – and make it clear that they regard manufacturing as foundational to the rest of the economy.

This mean repudiating the now discredited notion that advanced nations can simply offshore their manufacturing capacity without suffering long-term economic and social harm. It also means addressing the issue of energy costs:

“Although international comparisons of differences in energy costs can be difficult to make, there is some evidence that the costs faced by UK firms in the Foundation Industries are higher than those facing competitors operating in other countries.”

The report cites research to show how “base electricity prices for Energy Intensive Industries in the UK” compare to other countries:

“[Costs are] higher than in France and Germany but lower than Italy and Denmark… significantly higher than in Russia and USA, similar to China and India, slightly lower than Turkey… significantly lower than Japan.”

It’s a mixed picture, but Tata Steel – an international company that can pick-and-choose where it puts its investment – is clearly sending out a message here.

If only Britain had a competitively priced and comparatively clean source of energy, conveniently located in those parts of the country where the energy intensive industries are of particular importance.

49 comments for: The foundations of British industry are crumbling

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