SME Manufacturers in state of "puzzled euphoria" find answers in Parliament

5 April 2011

Puzzled Euphoria…

SME manufacturers were characterised as being in a state of "puzzled euphoria", as their representatives joined MPs, Peers and the civil service in looking for solutions to better financing manufacturing, at the first seminar of the Associate Parliamentary Manufacturing Group (APMG) last week.

At a time when UK productivity appears to be increasing, manufacturing continues to out-perform other sectors across the economy1,2, and there was a ten-fold increase in George Osborne’s mentions of manufacturing in the Budget since 2010 – manufacturers have good reason to be euphoric. But their puzzlement comes from a lack of understanding as to why things are going so well, or indeed how manufacturers can build on such success.

Solutions for Success

Yet answers were reached at the APMG’s meeting. Chaired by Chris White MP, panellists came from the asset financiers Lombard, the Department for Business Innovation and Skills and the Technology Strategy3. The two main findings, reached by the 18 cross-party parliamentarians and sector representatives present, related to how the sector could build upon its success:

1. Asset financing. From both the private sector and government, there is a consensus that providing Asset Finance is the preferable way to support manufacturing businesses. In funding new plant and machinery in particular, banks are financing an asset that will lead to increased productivity and sustainable business growth; such financing could be achieved through equity finance, credit, or mezzanine financing (a combination of the two). But banks need to get better at advertising their willingness to lend to manufacturers, and if ‘asset finance’ is their model of choice, they need to do a better job of explaining why this is in both their and the manufacturers’ interests.

2.Public Sector sources of information about where and how to find finance need to be simplified. Currently many and varied, sources of information, particularly about government funded schemes, need to be accessible to manufacturers first and foremost (rather than financiers or civil servants) and centrally consolidated. MPs specifically found the scattered nature of information a problem; to remedy this, the APMG will shortly be publishing a guidebook for MPs on the range of financing options for their local businesses.

Uncertain Futures

Another interesting, yet thorny issue raised by the meeting was how to ensure that SMEs have greater confidence in the long-term future of their own sectors. Investment in plant and machinery, essential to growth as demonstrated by the examples of Germany and Japan, is only possible because of these nations' high confidence in their business activity. Meanwhile, the UK was 18th in Machine Tool Investment in 2010, below Russia, Mexico and Turkey – surprising for a nation which can still pride itself on being the world’s seventh largest global manufacturers. But to make such investment, SME manufacturers need to feel more secure in their business futures; a complex problem which the APMG will investigate in greater depth at a later date.

The full report from the meeting, including the APMG's full set of recommendations can be viewed online here.

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