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Manufacturers are increasingly turning away from banks to fund investments and instead relying on internal finance. Almost half of manufacturers surveyed during August by the EEF about credit conditions said that they do not want or need to borrow money from banks and other finance providers, up from around 40% of companies earlier this year.
Lee Hopley, chief economist at the EEF, said that for a proportion of these companies that do not want credit, economic uncertainty is to blame. But an increasing number are limiting growth plans because of a reluctance to talk to banks, she said.
She explained: “There is a group of companies that do have investment plans but really only want it within the constraints of their internal resources. They may have had a bit of a battered relationship with their bank, or they have not been able to easily switch to find another external finance provider.”
She added that it is not possible to quantify the proportion of companies that do not want or need to borrow that fall into this category, but the situation may have become “more acute” over time.
Hopley warned that companies delaying investment risk losing competitiveness over the next two to five years. “Our competitors might be investing to bring new products to enter new markets, and if UK companies are not doing the same they will lose ground in terms of their future competitiveness.”
The government has introduced several credit-easing schemes to encourage borrowing. The latest of these is funding for lending, which is designed to lower the cost of credit for small to medium-sized businesses looking to borrow money while offering incentives to banks to increase their lending.
The EEF said that if these schemes are to succeed in encouraging companies to borrow again, more work needs to be done to promote them.
Hopley said: “Government must stop hiding behind Whitehall marketing bans and start aggressively challenging banks and other finance providers to show
our SMEs what they’re prepared to offer under the new Funding for Lending Scheme. We need our credit-worthy firms to bring forward each and every investment that
they are contemplating to help support growth.”
Meanwhile, in separate policy activity, the EEF has urged the government to consider additional regulatory changes to encourage small and medium-sized engineering firms to take on more youngsters.
The call for action follows revision to the criteria for the Apprenticeship Grant for Employers, which is aimed at encouraging companies to take on apprentices aged 16 to 24.
The £1,500 grants, issued by the Department for Business, Innovation and Skills, will now be delivered as a single payment rather than the current two, and employers will be able to claim grants for up to 10 apprentices, rather than the
current three.
The scheme will also be opened to employers that have not hired an apprentice in the past year, rather than 36 months, and the grant will be made available to businesses with up to 1,000 employees, rather than being restricted to firms employing 250 people.
Tim Thomas, head of employment and skills at EEF, said that while manufacturers would welcome the relaxation of criteria for the Apprenticeship Grant for Employers, it was vital that the government went further. “The manufacturing industry has a long history of investing in apprenticeship programmes, but had been disadvantaged by the requirements of the Apprenticeship Grant for Employers scheme. We should now look to government for tangible progress, which has to date been too slow.
“Relaxing the requirements will allow businesses to take on more apprentices. Although the grant is relatively small in comparison with the overall cost of delivering manufacturing apprentices, it will go some way to incentivising employers to take on an additional young apprentice.”
Thomas added that other issues came into play when companies were considering offering apprenticeships. “The government must address issues such as careers advice, the status of vocational education, and the regulatory burden that still prevents many small businesses from taking on apprentices.”