Will Chancellor Osborne cripple the ‘makers’?

February 18, 2016

george osborneChancellor George Osborne closed his 2011 Budget speech by setting out his aspiration for “a Britain carried aloft by the march of the makers”.

In 2014, the Boston Consulting Group described UK manufacturing as a “rising regional star” in terms of the competitiveness of national manufacturing – despite setbacks, notably to steel producers, which could damage other areas of the economy. Mr Osborne please note.

Sukand Ramachandran sees moderate wage increases, offset by productivity gains and the UK’s direct-manufacturing cost structure improved by up to 10 percentage points relative to other leading Western European manufacturing export economies, according to the BCG Global Manufacturing Cost-Competitiveness Index:

“The UK has also improved its competitive position compared with Eastern European nations such as Poland and the Czech Republic, as well as with Asian economies such as China. As a result, manufacturers of everything from toy trains to fashion garments are reshoring production. In a recent Manufacturing Advisory Service survey, 11% of small and midsize manufacturers in the UK said they had brought production back from overseas in the previous 12 months—twice as many as said they were shipping work abroad”.

Mr Ramachandran recognises the strong advanced manufacturing ecosystems in the Midlands (engineering and components suppliers), Oxfordshire (automobiles), Bristol (aerospace), East London and Warwickshire for high-tech manufacturing.

But late last year it was quietly announced that the Business Growth Service, including the Manufacturing Advisory Service and the Growth Accelerator programme, is being closed down.

Should Osborne’s MAS decision be added to Luke Landes list of Pennywise – pound foolish actions?

david bailey 5It is said that the closure will ‘save the Government £84 million’, but Professor David Bailey (Aston Business School), who has written two articles in the Birmingham Post about this decision, pointed out that its substitute – an investment of £12 million per year into 39 local growth hubs led by local enterprise partnerships – is “peanuts”. He describes the BIS suggestion that MAS will effectively be replaced by local growth hubs as misleading:

  • “For a start, the £12 million across 39 LEPs works out at just over £300,000 a LEP. Peanuts.
  • “Secondly, while LEPs here in the West Midlands have prioritised manufacturing as one of their key sectors as part of their strategic plans. What about those LEPs that don’t prioritise manufacturing? In such cases, local growth hubs are unlikely to offer much support – if any – to manufacturing firms.
  • “Thirdly, the growth hubs are simply unready in many cases to take on the mantle”.

Professor Bailey says that the closure of MAS raises wider questions about the Government’s commitment to using industrial policy to support manufacturing, noting that ‘there’s effectively been radio silence from the BIS Secretary Sajid Javid since he came into office in May’.

He ends: “If the government was trying to end parts of the Business Growth Service that can now be delivered by professional consultants, then that might make sense. But in ending the whole service, the Government has effectively scrapped a range of unique expertise on manufacturing improvement that was highly valued and trusted by industry as impartial. ‘Throwing the baby out with the bathwater’ is the phrase that several industry experts have used.

“The Government needs to rethink this ill thought out decision”.

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Start-up Birmingham

June 12, 2015

startup britain

Startup Britain has released new stats about how many companies were started in the UK in 2014. They have analysed data from Companies House and produced an infographic.

  • Birmingham top performing city outside South East
  • High levels of growth in Yorkshire and Humberside, and the East Midlands

UK entrepreneurs created a record number of new businesses in 2014, according to new figures from StartUp Britain announced today/January 5.

Research from the national enterprise campaign, run by the Centre for Entrepreneurs think tank, shows 581,173 businesses were registered with Companies House, beating the previous record of 526,446 businesses recorded in 2013, and 484,224 in 2012.

startup britian 2014The StartUp Britain campaign is backed by Government but operates as a fully private sector supported venture. It was founded by eight individuals and business owners in 2011 and is run by the Centre for Entrepreneurs, the entrepreneurs’ think tank. Its role is to inspire, accelerate and celebrate entrepreneurship.

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For more detail contact Skye Robertson on email skye@startupbritain.org

 

 


Small & medium businesses are bearing the brunt of the tax burden

April 14, 2015

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Prem Sikka, director of the Association for Accountancy & Business Affairs (AABA), a not-for-profit organisation, discusses the problem of small businesses bearing the brunt of the tax burden. He outlines the UK tax regime (summary):

Historically, a company with annual taxable profits of up to £300,000 is considered to be small and pays tax at the small company rate. A company with profits of £1.5m or above pays tax at the main rate. And those with profits between between £300,000 and £1.5m are liable to pay the main rate but can obtain marginal relief, with the result that tax in the band is tapered.

In 2010, when the coalition government came to office, the main corporation tax rate was 28% and small companies were taxed at 21%. But in March 2015, the government announced it was aligning the two rates and as of April 1 2015 the rate has been 20% for all companies. The reduction in the headline tax rate for large companies has therefore been much bigger than the tiny cut for small companies.

Professor Sikka explains that large companies have other ways of securing tax advantages: “Parliamentary hearings have shown that large companies are adept at creating complex corporate structures to shift their profits through transfer pricing, royalty programmes, intra-group interest payments and management fees to low or no tax jurisdictions. They have the resources to hire large accountancy firms to craft novel tax avoidance schemes to reduce their effective tax rate. They can also second staff to HM Treasury working parties to influence tax legislation and secure favourable concessions . . . Small companies do not share this luxury. Their ability to avoid taxes is low and their effective tax rates are likely to be high”.

Sikka reflects that today’s small companies are tomorrow’s business giants. The conventional political wisdom is that they should be nurtured and supported, but instead their effective tax burden has increased. Labour may be able to help small companies by reducing their business rates, but that would not amount to a reform of business taxation in its various guises.

He ends by noting that no political party has put forward a coherent set of policies to address these injustices and adds that the difference in power between large and small companies cannot be addressed by piecemeal measures, ad hoc tax cuts or business rate subsidies.

Read the full article here: http://theconversation.com/corporate-tax-cuts-help-big-business-and-small-firms-pay-the-price-39828


Reshoring in the West Midlands

March 5, 2015

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As Peter Davies, chairman of Professional Polishing said on a sister site in 2013,it is great to see that there is a new buzz word around – onshoring!”

The reshoring trend, successes and possible pinch points, systematically explored and publicised by Aston’s Professor David Bailey since 2013, is the subject of new research from EY. Readers new to the subject could also turn to Bryan Luoma for his concise overview of out-sourcing problems.

mas reshoring graphic MAS in 2013

Examples of this trend in the region have reported on a sister site, including entry’s RDM Automotive and Birmingham’s Brandauer – both reshoring and multi-skilling. As Cathy Taylor, EY’s senior partner writes, reshored firms find that a ‘cluster’ in the appropriate sector will offer close proximity to key suppliers, infrastructure and a workforce with the relevant skills and these are to be found in areas like Coventry and Aston/Hockley/Newtown.

Cathy Taylor reports estimates that re-shoring could add £15.3bn of GDP to the UK economy and equate to more than 315,000 jobs across the UK. The West Midlands is one of five regions that offer the greatest re-shoring potential; others named are the East Midlands, North West, South East, Yorkshire and the Humber.

Encouraging last words from Professor Dr Michael D. Johnson, Department of Engineering Technology and Industrial Distribution, Texas A&M University, briefly in the FT:

“My colleagues and I have found that importing goods from China to developed countries (for example, the US) entails numerous increased costs: transportation, inventory carrying, and production and logistics oversight. The combination of these increased costs, just-in-time manufacturing needs, and increased developing country labour rates contribute to the economic viability of localised flexible manufacturing facilities serving developed country markets”.


Government payment strategies boosting the working capital of corporates but jeopardising the future of SMEs

January 8, 2015

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Andy Richardson, in the Northern Echo, reports on the findings of the government’s Public Accounts Committee, whose chair, Margaret Hodge, said: “Small and medium-sized enterprises have a vital role to play in the UK’s economy, yet Government is not getting the basics right when it comes to promptly paying SMEs, from which it directly buys £4.5bn of goods and services each year”.

Amyas Morse, head of the National Audit Office said: “There has been a disappointing lack of effort by government to check whether the implementation of the policy is actually helping SMEs. . .”. There was “serious concern” about the prompt payment figures publicly reported by four departments — business, defence and the home and cabinet offices — which it concluded were “overstated”:

“It beggars belief that government departments do not record the date when paper invoices, commonly used by SMEs, are first received, and that around a third of SMEs don’t get paid within 30 days by their public sector clients.

“This is despite government’s claim that it is committed to increasing the role of SMEs in providing public services rather than allowing large companies like Serco and G4S to continue dominating the market, often at the expense of the taxpayers’ interest.

THE Government is being urged to improve payments to small companies after an official report found delays across the public sector. in a third of cases, public sector clients took more than 30 days to settle up.

Mike Cherry, policy chairman of the Federation of Small Businesses, said, “It’s a scandal that thousands of businesses have gone under because of late payment, with numerous others struggling with their cashflow because of poor payment practices”.

The FT reports the NAO concluded that government practice could simply be boosting the working capital of its main contractors rather than benefiting SMEs further down the chain. A Government spokesperson responded: “The report recognises that we are making progress, but there is more to do. This year we will enforce payment within 30 days all the way down public sector contracts’ supply chains.”

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To read the report click here: http://www.parliament.uk/business/committees/committees-a-z/commons-select/public-accounts-committee/news/public-services-private-contractors-report/


Should policy makers continue to advocate “rebalancing” the economy by exporting?

September 2, 2014

sarah oconnor ft economicsSarah O’Connor, economics correspondent of the FT, reports Lloyds Bank’s findings that 58% of the 200 midsized companies surveyed (annual revenues between £25m and £750m) said the UK was their top priority and were not reliant on exporting. Just 7% planned to enter overseas markets in the next five years.

Obstacles named by companies include volatile exchange rates and a range of different legal and regulatory regimes.

Policy makers advocate “rebalancing” the economy towards exports and away from a reliance on domestic demand. Tim Hinton, Lloyds’ managing director for small and medium business banking, said midsized companies were “overlooking the benefits” of exporting. Businesses are focusing their efforts on their UK operations first, looking to reduce their costs and increase productivity before embarking on global growth opportunities” and UK manufacturing grew 0.9% in the third quarter, ahead of services at 0.7%.

The government and the Bank of England want to see the UK economy reduce its trade deficit – perhaps they should encourage import substitution which would also boost domestic manufacturing.

Another FT article agrees that the economy remains lopsided and too reliant on domestic consumption, disappointing policy makers who had hoped for an export-led recovery: “The trade in goods deficit rose from £9.1bn in May to £9.4bn in June as exports fell more steeply than imports. The overall trade deficit – which takes into account the UK’s services surplus – rose from £2.4bn to £2.5bn”.

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The IMF’s opinion: sterling is somewhat overvalued and its recommendation for manufacturing is to increase immigrant labour . . . no thought of educating and training our own unemployed.


A focus on family business

August 5, 2014

prof joachim schwassJoachim Schwass, Professor of Family Business at the International Institute for Management Development (IMD) based in Switzerland and co-director of the Global Family Business Center, mainly focuses on owner related issues, in particular from the next generation perspective. Before joining IMD, he was MD of several companies which were part of his own family’s business. He managed industrial manufacturing businesses in Australia and USA and an international trading business in Switzerland.

A few months ago Andrew Hill, who writes on global business, strategy and management for the Financial Times, stressed that maintaining ownership and management of a large family business “more often than not leads downhill into further confusion, uncertainty and internecine conflict” adding that drawing a line between family ownership and professional management is “do-able and may be their best bet”.

Professor Schwass replied:

“Professionalising leadership in a family business is certainly a good strategy. But 25 years of IMD research on globally successful and multi-generational family businesses has shown that the “family factor” can contribute important and meaningful value to the ownership and management of the business: entrepreneurial risk-taking, fast decisions, long-term views and socially responsible strategies.

“Well prepared and educated families can be a strong asset in owning and leading a growing family business. Seeing families as a liability to their business and unprofessional is not reflective of the reality”.

family business awards logo

On this site we have reported on the fortunes of several flourishing family businesses in the West Midlands region, including:

2012 West Midlands manufacturers Alumet and Professional Polishing Services received Midlands Family Business Awards; 2013 J8 Precision Engineering of Aston, Birmingham firm Fracino, Ecospin: zero-emission, three-wheeled Raptor moped, Lift Engineering, JCB, Essington Fruit Farm, Andel Plastics, Newby Foundries of Smethwick and Heritage Silverware of Small Heath.

Professor Schwass’ book “Wise Growth Strategies in Leading Family Businesses” was published in 2005, in German in 2007, in Spanish in 2008, and in Mandarin in 2012. He is the lead author of “Wise Wealth”, which was published in 2010, and in Mandarin in 2013.