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21 December 2020

Has Brexit killed British manufacturing?

For employment and investment that relies on complex supply chains, the situation looks inescapable.

By Richard Gardham

On 18 November Ashwani Gupta, the chief operating officer of Nissan, told Reuters what would happen to the UK’s largest factory in the case of a no-deal Brexit. Nissan’s giant Sunderland plant employs 7,000 workers and can produce more than 1,000 cars in a single day. “If [no deal] happens without any sustainable business case…” said Gupta, “obviously our UK business will not be sustainable, that’s it.” Nissan has been issuing this warning for four years, and received “assurances” from the government that it would be protected from the impact of Brexit. The 30,000 workers whose jobs depend on the Sunderland site and its supply chain will very soon find out how real this threat is.

Other companies will be making similar calculations, and the government cannot pay them all to stay. But is the picture that simple?

British manufacturing, and reports of its demise, have been a political football for decades. In the 1970s Eurosceptics maintained that the UK’s membership of the EEC was choking Britain’s once-proud industries, while those rallying behind the newly appointed Conservative Party leader, Margaret Thatcher, blamed the strike-happy unions. In the early years of Thatcher’s premiership, output dipped, but it rose from her second term until her resignation. Nevertheless, her focus on financial services as the economic engine of the UK led to the accusation that her government saw the country’s manufacturing industry as a secondary concern.

Investment Monitor: Who killed British manufacturing? Part of New Statesman Media Group

The same accusation was levelled at Tony Blair, as both the left and right accused him of putting the interests of the services and financial sectors above those of manufacturing. Manufacturing jobs did take a hit under the Labour governments of 1997-2010, and the growing anti-EU movement on the right was once more blaming Brussels for the loss of British manufacturing jobs to low-wage countries in eastern Europe. But in 2007, the year Gordon Brown replaced Blair in No 10, British manufacturing output rose to its highest level to that point.

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The real issue was that while politicians talk about British manufacturing jobs, in a globalised economy multinational businesses see them as essentially portable. The UK’s manufacturing sector has the highest level of foreign ownership outside the services sector. While many have watched China’s rise as a low-budget manufacturing hub and assumed that a manufacturing job gained in Shenzhen is one lost in Sheffield, output data has told a different story.

 

The lost dream of British manufacturing, in which any product with “Made in Britain” on its underside began on the top floor of a local factory and was completed on the bottom level as grateful workers tugged their firelocks at their benevolent managers, is nostalgia for an age that never was. The idea that the UK can ”stand on its own two feet”, as Michael Gove says, in a highly complex global economy has obviously been effective politically, but it is demonstrably a fiction.

Investment Monitor: Which countries are most vulnerable to manufacturing decline? Part of New Statesman Media Group

As our data shows, membership of the EEC/EU hasn’t done damage to the UK’s manufacturing output. In fact, it was at one of its highest levels historically in 2016 – just as the country was voting to leave the EU.

What has changed, however, is the nature of manufacturing. Taking part in the economic growth if the Eurozone has not been a simple trading relationship, but a broad co-operation involving thousands of companies. Within the EU, the question of where a product is manufactured has become almost a moot point.

When we say something is manufactured in the UK, what is often meant is that the product has been assembled in the country, or finished there. Let’s take a BMW Mini as an example. The car is “made” in Oxford, but any single part – its crankshaft, for example – can cross the English Channel multiple times during production, as different elements are added by specialist companies. This kind of production is done seamlessly when both countries lie within the EU, with no tariffs bumping up costs or causing delays during transportation.

To attempt to produce a high-tech product such as a new car entirely in the UK post-Brexit would be prohibitively expensive. Even the Ineos Grenadier, the beefy, blokey, nostalgia-drenched 4×4 named after the pub in which the Brexiteer Jim Ratcliffe came up with the idea for it, is to be built in France. For BMW, which already has plants dotted across the EU that won’t face the logistical and cost issues with which the UK will now be burdened, the idea is laughable. This is a scenario that will be played out across numerous companies and sectors in the coming years.

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In the event of a no-deal Brexit, the only way the government will prevent companies moving manufacture out of the UK will be by spending huge sums on continued “assurances” until a deal is eventually struck. This was an unaffordable idea even before the £210bn cost of stabilising the economy in a global pandemic.

Is British manufacturing – declared dead many times when it was actually in good health – doomed? Massive change does now seem inevitable.  

But the UK has reinvented itself many times in the past, and there are signs that it is doing so again. Hubs of advanced manufacturing are cropping up in cities such as Manchester and Sheffield. The UK remains one of the largest economies in the world, and a country noted for its innovation and invention. There is solace to be taken from that all the things politicians said were killing British manufacturing in the past occurred during a period of increasing output.

Blind faith won’t see UK manufacturing through its post-Brexit era, but investment (be it public, private, domestic or foreign) and education will give it a chance. Political opportunists will continue to write its obituary, but they have already done so at every opportunity. No one can truthfully say what lies beyond the coming disruption.