Manufacturing Matters 94: Intervention need not be interference: Government involvement is essential to UK industry's future, argues Graham Mackenzie

THERE is a real danger that recovery from deep recession will be seen as evidence that the British economy is healthy and that no further policy changes are needed for it to grow stronger.

This danger is exacerbated by people who argue that government intervention equals interference and that it is neither ideologically nor practically desirable for the Government to take steps to boost industry.

However, the real argument is not whether government should be involved in industry, but how. It is involved. That is the nature of government.

Government necessarily regulates the markets in which we operate, especially in the case of the regulated utilities - gas, electricity and telecoms - in transport, including the non-privatised transport infrastructure, and in defence equipment. It sets and collects taxes. Government is also a big customer, directly controlling specifications and requirements in an increasingly customer-focused marketplace.

Disengagement by government has as much impact on industry as 'interventionist' policy changes. Foreign governments intervene to support specific industries in their technology development in export markets.

Support which is not matched by the British government puts us at a great disadvantage. If we sit back and accept the results of other governments' intervention our policy will result not in market forces deciding the shape of our industry but in foreign governments doing so.

Total disengagement could also result in the loss of industrial and technological capabilities crucial to long-term economic growth - a danger particularly acute in times, such as now, when other countries' governments are supporting their industries in particular sectors, while the British government does not.

Government alone can set the national scene, stimulating and co-ordinating strategic thinking and specifying its own medium- and long- term intentions so that firms can respond to the needs of their market through their own strategic decisions.

This places its role far above interference in day-to-day management and includes neither support for 'lame ducks' nor 'picking winners'. It also demands more than disparate 'initiatives'.

Large-scale infrastructure development - in such fields as transport, communications and energy - requires long- term planning and large-scale investment, which inevitably involves the close attention of government.

Even where infrastructure is planned and built in the private sector there remains the crucial factor of government regulation and legislation, which in effect determines how and where private sector investors and operators can act.

Government can also act to overcome fiscal factors inhibiting growth. The recent White Paper on competitiveness admits: 'A country's tax regime affects its competitiveness. While the prime purpose of taxation is to raise revenue to fund essential services, a burdensome regime can stifle growth.'

The existing tax regime inhibits savings and investment. Already Britain has the lowest level of investment relative to the size of the economy of any of the main industrial countries. Unless we increase our spending on investment for the future we cannot expect to achieve lasting economic growth rates that will provide high employment and prosperity.

For example, mainstream corporation tax amounts in effect to a tax on investment. It is a tax on profits reinvested in the business. The Government must recognise that investment is a legitimate business expense which should receive the same full tax relief as other business expenses such as wages, materials, advertising and maintenance.

Although the Government is unlikely to introduce the 100 per cent capital allowances for which the Engineering Employers' Federation has been asking for so long, it is important that the Budget acknowledges the burden corporation tax is placing on investment in industry.

To prevent inflation eroding the real value of capital allowances the existing capital allowances should be indexed to inflation, which means that when tax relief is given in future years it is allowed in full, not in 'devalued money'.

The first pounds 200,000 of plant and machinery expenditure should be allowed 100 per cent first-year capital allowance, primarily to boost investment by the smaller firms which are providing more jobs while larger companies are still shedding labour.

The Government is also uniquely positioned to act against short-termism. If the capital gains tax rate on longer-term holdings were reduced, investors would have a real incentive to take a longer- term view. Such an incentive is clearly needed to counter the short-termist culture that has become entrenched in almost all our financial and business decisions.

There is no doubt that the British economy is recovering from recession, that the recovery is increasingly based on exports and investment rather than consumption, that the investment climate is more favourable now than for many years and that companies operate efficiently only if they are free from day-to-day interference by government.

These factors alone are far from a sufficient basis for sustained growth and prosperity. What is needed is a strategic partnership between government and industry to create a national understanding of how technological progress can be harnessed to create employment and growth.

One crucial result of past failures by British governments of both main political parties to take a long-term strategic view is the inadequate size of our manufacturing base. Today's manufacturing industry is internationally competitive in quality and cost but too small to support our economy, as shown by our national deficit in international trade.

If we are to avoid yet another boom-bust cycle, industry and government must look beyond the immediate situation towards the challenges and opportunities of the 21st century. Industry cannot do this alone. Active support and partnership from government will be essential.

Graham Mackenzie is director-general of the Engineering Employers' Federation.

(Photograph omitted)

Susan Sarandon described David Bowie as
peopleSusan Sarandon reveals more on her David Bowie romance
Arsenal supporters gather for a recent ‘fan party’ in New Jersey
sportDidier Drogba returns to Chelsea on one-year deal
Arts and Entertainment
The Secret Cinema performance of Back to the Future has been cancelled again
Life and Style
Balmain's autumn/winter 2014 campaign, shot by Mario Sorrenti and featuring Binx Walton, Cara Delevingne, Jourdan Dunn, Ysaunny Brito, Issa Lish and Kayla Scott
fashionHow Olivier Rousteing is revitalising the house of Balmain
Arts and Entertainment
Christian Grey cradles Ana in the Fifty Shades of Grey film
filmFifty Shades of Grey trailer provokes moral outrage in US
BBC broadcaster and presenter Evan Davis, who will be taking over from Jeremy Paxman on Newsnight
peopleForget Paxman - what will Evan Davis be like on Newsnight?
Life and Style
fashionCustomer complained about the visibly protruding ribs
The new dawn heralded by George Osborne has yet to rise
voicesJames Moore: As the Tories rub their hands together, the average voter will be asking why they're not getting a piece of the action
Dejan Lovren celebrates scoring for Southampton although the goal was later credited to Adam Lallana
newsComedy club forced to apologise as maggots eating a dead pigeon fall out of air-conditioning
Arts and Entertainment
Jo Brand says she's mellowed a lot
tvJo Brand says shows encourage people to laugh at the vulnerable
Life and Style
People may feel that they're procrastinating by watching TV in the evening
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Senior Risk Manager - Banking - London - £650

£600 - £650 per day: Orgtel: Conduct Risk Liaison Manager - Banking - London -...

The benefits of being in Recruitment at SThree...

£18000 - £23000 per annum + Comission: SThree: SThree, International Recruitme...

Test Analyst - UAT - Credit Risk

£280 - £300 per day + competitive: Orgtel: Test Analyst, Edinburgh, Credit Ris...

Trainee Recruitment Consultants - Banking & Finance

£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

Day In a Page

Evan Davis: The BBC’s wolf in sheep’s clothing to take over at Newsnight

The BBC’s wolf in sheep’s clothing

What will Evan Davis be like on Newsnight?
Finding the names for America’s shame: What happens to the immigrants crossing the US-Mexico border without documents who never make it past the Arizona desert?

Finding the names for America’s shame

The immigrants crossing the US-Mexico border without documents who never make it past the Arizona desert
Inside a church for Born Again Christians: Speaking to God in a Manchester multiplex

Inside a church for Born Again Christians

As Britain's Anglican church struggles to establish its modern identity, one branch of Christianity is booming
Rihanna, Kim Kardashian and me: How Olivier Rousteing is revitalising the house of Balmain

Olivier Rousteing is revitalising the house of Balmain

Parisian couturier Pierre Balmain made his name dressing the mid-century jet set. Today, Olivier Rousteing – heir to the house Pierre built – is celebrating their 21st-century equivalents. The result? Nothing short of Balmania
Cancer, cardiac arrest, HIV and homelessness - and he's only 39

Incredible survival story of David Tovey

Tovey went from cooking for the Queen to rifling through bins for his supper. His is a startling story of endurance against the odds – and of a social safety net failing at every turn
Backhanders, bribery and abuses of power have soared in China as economy surges

Bribery and abuses of power soar in China

The bribery is fuelled by the surge in China's economy but the rules of corruption are subtle and unspoken, finds Evan Osnos, as he learns the dark arts from a master
Commonwealth Games 2014: Highland terriers stole the show at the opening ceremony

Highland terriers steal the show at opening ceremony

Gillian Orr explores why a dog loved by film stars and presidents is finally having its day
German art world rocked as artists use renowned fat sculpture to distil schnapps

Brewing the fat from artwork angers widow of sculptor

Part of Joseph Beuys' 1982 sculpture 'Fettecke' used to distil schnapps
BBC's The Secret History of Our Streets reveals a fascinating window into Britain's past

BBC takes viewers back down memory lane

The Secret History of Our Streets, which returns with three films looking at Scottish streets, is the inverse of Benefits Street - delivering warmth instead of cynicism
Joe, film review: Nicolas Cage delivers an astonishing performance in low budget drama

Nicolas Cage shines in low-budget drama Joe

Cage plays an ex-con in David Gordon Green's independent drama, which has been adapted from a novel by Larry Brown
How to make your own gourmet ice lollies, granitas, slushy cocktails and frozen yoghurt

Make your own ice lollies and frozen yoghurt

Think outside the cool box for this summer's tempting frozen treats
Ford Fiesta is UK's most popular car of all-time, with sales topping 4.1 million since 1976

Fiesta is UK's most popular car of all-time

Sales have topped 4.1 million since 1976. To celebrate this milestone, four Independent writers recall their Fiestas with pride
10 best reed diffusers

Heaven scent: 10 best reed diffusers

Keep your rooms smelling summery and fresh with one of these subtle but distinctive home fragrances that’ll last you months
Commonwealth Games 2014: Female boxers set to compete for first time

Female boxers set to compete at Commonwealth Games for first time

There’s no favourites and with no headguards anything could happen
Five things we’ve learned so far about Manchester United under Louis van Gaal

Five things we’ve learned so far about United under Van Gaal

It’s impossible to avoid the impression that the Dutch manager is playing to the gallery a little