News
January 2002
Major revamp will make DTI ‘more competitive’
Trade and Industry Patricia Hewitt has announced a range of measures aimed at making the Department of Trade and Industry (DTI) more streamlined and more business-like. Ms Hewitt has described the DTI as the "strategic partner" of the Treasury. However, the department has come under increasing fire from business leaders for its perceived lack of focus and it is seen as lacking influence within Whitehall. Following a six-month review of its operations, Ms Hewitt’s plans will transform the DTI into a flagship department with a leading role in boosting productivity and enterprise.
Business leaders will be given a central role in defining strategy. The plans call for three prominent business figures to sit on a seven-strong strategy board chaired by the secretary of state which, according to DTI permanent secretary Robin Young, is designed to make the department run more like a business. Other business leaders will sit on boards serving four new directorates-general charged with delivering departmental policy, giving the business sector an unprecedented role in setting UK government policy.
The department’s work will be divided into four main areas: enterprise, innovation, competitiveness and core services. The business support and regional policy directorate will oversee enterprise and in particular will serve the needs of small businesses. Under it, the Regional Development Agencies (RDAs) will be given authority over Regional Selective Assistance (RSA) grants up to $14 million, leaving only the largest awards to be set centrally.
The new science, technology and innovation directorate will put knowledge transfer of technological advances to industry at the top of its agenda, while a new competitive frameworks directorate will strive for greater consistency of regulation. The DTI’s current 150 grant schemes will be "ruthlessly culled" and the surviving schemes organised into five main groupings that will be managed like investment portfolios, with assistance from outside advisers. DTI economists will be given a higher profile, and will be asked to conduct sectoral analyses to identify competitive opportunities, particularly for smaller companies.
Graham Hall, chairman of RDA Yorkshire Forward, said: "We believe the ability to directly influence and manage what happens to RSA will assist greatly our support to businesses in terms of their competitiveness and help us to improve the economic base of the region."
The ‘organisational transformation’, due for implementation in April, will be the biggest shake-up at the DTI since the department was created in its present form in 1983. Its history dates back to 1696 when it was established as the Board of Trade, a permanent committee of the Privy Council, under King William II. It first became a government department in 1786.
Tax breaks offer incentives to business
The government is to reward large companies for their commitment to research and development by granting them tax credits based on the total volume of R&D they carry out. Chancellor Gordon Brown introduced a similar tax credit for small companies in 2000 and in March 2001 promised to extend this to all companies. In granting credits on the basis of volume he has responded to the wishes of the business community, which was overwhelmingly in favour of this approach rather than an incremental one.
A further consultation paper was launched in December to fine-tune the details of the scheme, which Mr Brown wants to include in the 2002 finance bill. The plan was welcomed by science-based industries, particularly the pharmaceuticals sector, which accounts for one-third of all corporate R&D in the UK. The Association of the British Pharmaceutical Industry said it would encourage further R&D investment.
Large companies are also to benefit from improved measures relating to capital gains tax (CGT) and from a reform of taxation on intangible assets such as intellectual property. The government plans to abolish CGT on the sale of shareholdings in trading subsidiaries in which the parent company has a stake of at least 20 per cent. For individuals the rate will fall from 20 per cent to 10 per cent after the asset has been owned for two years. The government is also to introduce a system of tax reliefs on the purchase of intangible assets, or non-financial fixed assets, reflecting their growing importance.
The Enterprise Management Incentive Scheme meanwhile, which allows small and growing companies to offer tax-efficient share-option schemes to their employees, is to be extended from companies with gross assets of $21 million up to those with assets of $42 million. Companies are allowed to award share options to a total value of $4.2 million, and employees are eligible for tax breaks on shares with a market value of up to $140,000. The scheme is intended to increase share ownership by employees in high-risk small companies and to foster a US-style spirit of entrepreneurship.
Other new measures proposed by the government include an extension of the 10 per cent corporation tax rate to small companies; the introduction of a flat rate scheme for VAT to reduce the burden on small businesses; a new $70 million risk capital fund aimed at helping small businesses; capital allowances for investment in environmentally friendly technology; and financial incentives to encourage companies to file payroll returns online. The law on the protection of designs has been tightened up to give design-based companies greater protection against the unlawful copying of their products.
The government has also put a high priority on improving the skills of the workforce. A proposed scheme will offer workers paid leave to learn new skills, with the government reimbursing employers’ costs. A $56 million pilot scheme is slated for September 2002. The government also plans to introduce a new apprenticeship scheme that would offer a place to every 16- and 17-year-old who wanted one by 2004. Education and skills secretary Estelle Morris wants 175,000 young people a year to take up apprenticeship places by then, compared with 140,000 today.
Land Rover puts its faith in Solihull
Ford subsidiary Land Rover has chosen its Solihull plant in the West Midlands as the production site for its new Discovery model, to be built there from 2004. The decision represents a major vote of confidence in Solihull, which was chosen in preference to other plants at Genk in Belgium and Ohio in the US. Productivity at the plant has risen sharply since Ford acquired Land Rover from BMW in July 2000. The new investment will raise its output from 170,000 vehicles a year currently to its maximum capacity of 300,000.
Over the next five years Land Rover plans to spend $2.8 billion on product development and a further $700,000 on new plant and equipment, with most of the investment destined for the UK. This is in addition to the $1.4 billion already being spent worldwide on the launch of a new Range Rover model and seems to confirm speculation that the company is moving towards a five-model range that will include a small luxury four-wheel drive vehicle modelled on the Range Rover. Although Solihull will not necessarily build all new models in future, the investment strengthens its position as Land Rover’s main manufacturing facility and as a centre for integrated manufacturing by Land Rover and two other Ford subsidiaries, Aston Martin and Jaguar, also based in the West Midlands. Although it is still losing money, Land Rover was expected to halve its losses to $238 million in 2001 and to move into profit in 2002.
At Honda’s plant in Swindon, South West England, a major deal has been struck that acknowledges the right of workers to be represented by a trade union in the workplace. Nearly 75 per cent of workers who voted in a ballot backed representation by the Amalgamated Engineering and Electrical Union (AEEU), and the vote means that the plant’s 4,045 employees will gain collective bargaining rights. There have been many union recognition deals since the government introduced new legislation strengthening workers’ rights in 1999, but this is the biggest to date. The AEEU will have sole recognition rights at the plant, as it does at Nissan’s and Toyota’s UK factories. Relationships between unions and employers remain good: the car industry has seen virtually no industrial unrest in recent years and workforces have maintained their flexibility.
Manufacturing sector in the spotlight
Science minister Lord Sainsbury has announced government funding of $84 million to help set up 12 new Innovative Manufacturing Research Centres at academic institutions around the UK. The centres will be led by teams of academics and research specialists and will work in partnership with industry, supporting all areas of manufacturing, from aerospace to bio-pharmaceuticals. They will be based at universities in Cambridge, Loughborough, Salford, Liverpool, Reading, Warwick, Nottingham, Bath, London and Cranfield.
Regional Development Agency Yorkshire Forward and UK Coal, the UK’s biggest coal producer, have entered into a public-private partnership to develop an Advanced Manufacturing Park on a UK Coal site at Waverley in Rotherham, South Yorkshire. The government agency will put $16.8 million into the scheme, which has the potential to create up to 7,000 high-technology jobs. Plans for the first 20-acre phase of the project are already well advanced and are centred on investment in the advanced engineering and metals industries, two of the key ‘clusters’ in the Yorkshire and Humber region. Talks are under way with major manufacturers who may invest in the site; Boeing has already confirmed its intention to establish an Aerospace Manufacturing Research Centre there, in collaboration with the University of Sheffield.
The Department of Trade and Industry (DTI) and the RDAs are in the process of setting up a national Manufacturing Advisory Service (MAS), with the intention of offering advice and support to companies in the manufacturing sector. Each RDA will have its own MAS, forming part of a national network. Typically, the service will be based on a regional centre of excellence, with real and virtual links to centres of expertise across the region. Academics and leading companies will be involved, and troubleshooting teams of experts will be available to offer advice and hands-on experience. The aim is increase competitiveness and productivity across the manufacturing sector.
Leeds internet quarter focuses on digital development
A pioneering new internet quarter is being developed in the city of Leeds, Northern England, with the aim of making the Yorkshire town a centre for e-commerce. The $21 million ‘e-HQ’ initiative, supported by local inward investment agencies and developers, will see the 3.5-acre site of a former engineering foundry in the Holbeck area developed into an ‘urban village’ featuring shops, apartments, cafés and restaurants.
It will also provide almost 28,000 sq ft of incubator space for high-technology businesses, together with the city’s first dedicated live/work accommodation which, it is hoped, will help to attract e-businesses and entrepreneurs. Local RDA Yorkshire Forward will provide a range of business advice and access to professional services. The first phase of residential units at the Round Foundry site, on Globe Road, will be completed by spring 2003. It is hoped the development will provide a focus for the digital industries, which have been identified as key to development in Leeds and the Yorkshire region.
High-tech links in the spotlight
A pioneering new business centre in Hammersmith, west London is set to develop stronger ties with South Korea, making the UK the leading link in Europe for one of the world’s most techno-competent nations. The iPark incubator complex, set up by the Korea IT Industry Promotion Association (KIPA), will provide small and medium-sized Korean companies with a fully-serviced working environment from which to launch their European operations. Once established, companies will move out to larger premises, allowing new entrants to benefit from the support of the centre.
Four Korean companies are at present involved in the iPark project, covering areas such as multi-player internet and Wap games, data compression and transfer technology and software for website construction; this number is expected to grow quickly to at least ten. The centre is also expected to act as a focus for collaboration between UK and Korean high-tech companies. In early December Secretary of State for Trade and Industry Patricia Hewitt signed a memorandum of understanding with her Korean counterpart stating that the two countries would work together to develop and facilitate e-commerce.
In Northern Ireland, Northbrook Technology, a subsidiary of the Allstate Corporation of Chicago, has announced a $15.4 million expansion that represents one of the biggest ever software investments in the province. Allstate, one of the world’s largest property and casualty insurers, set up its Northern Ireland operation in Belfast in 1999. It already employs 250 people; the expansion will see a further 300 taken on in Belfast and 250 at a new centre in Londonderry. Northern Irish exporters meanwhile have banded together in a new internet database that provides an overview of the products and services they offer, with a particular focus on small and medium-sized companies. More than 800 companies are represented on the ‘cyber signpost’ which can be accessed at: www.idbni.co.uk/keyexport.
The R&D expertise of UK companies will be highlighted at CeBIT, the trade show for the high-technology industries which takes place in Hannover, Germany on 13-20 March 2002, in particular research that is at present developing the next generation of information and communication technology. All the UK’s regional and national development agencies will be supporting the UK@CeBIT initiative, and academics from 16 leading UK universities will deliver presentations on subjects ranging from new communications architectures to self-timed circuit techniques and hybrid semiconductors. A large group of companies from the UK’s Computing Services and Software Association (CSSA) and the Telecommunications Industry Association (TIA) will also be attending the show. For more information, call Claire Nettley on +44 1275 850900.
Commercial property market holds steady
The commercial property market remains stable, according to the latest quarterly market report from property consultants Healey & Baker. The events of September 11 have affected sentiment and in some cases led to delays in decision-making, but so far have not had a material effect on demand or pricing. The market is delicately poised, however. Growth in rentals across all sectors in the 12 months to September 2001 was 3.6 per cent but in the third quarter this fell to just 0.3 per cent. Although demand for prime property remains high there have been some minor falls in rents at the top end of the market, and Healey & Baker expects to see increased interest in lower-cost areas into the new year.
However, it most cases it remains "business as usual". There has been an increase in availability in the central London office market and in the Thames Valley, but some shake-out was inevitable after the exceptional year of 2000. In most provincial markets office rents are holding firm. There is more caution in the industrial market, but demand in the distribution and warehousing sectors remains strong. It is a good time to buy property, with base interest rates at their lowest level since 1964. Fears of recession have also receded, and the UK is expected to be one of the world’s strongest-performing economies in 2002. GDP growth is forecast at 2-2.5 per cent, accelerating to 2.5-3 per cent in 2003.
Property agents have welcomed Chancellor Gordon Brown’s abolition of stamp duty on transactions of up to $210,000 in 2,000 of the UK’s most deprived wards. The government plans to abolish, or significantly reduce, stamp duty on all business properties in these areas during the course of 2002.
Airports to cash in on expansion plans
One area where land values could be in for a sharp rise is Heathrow Airport, following the government’s decision to give the go-ahead for a fifth terminal there. Among the conditions for the new terminal were extensions of the Piccadilly underground line and the Heathrow Express rail link. The scheme could also kickstart an extended CrossRail scheme running to Reading in the Thames Valley and a proposed Airtrack link to nearby Staines and Woking and then onwards to the South West of England. Estate agents in the area predicted an upsurge in demand similar to that which accompanied the construction of Terminal Four.
Meanwhile Stansted Airport, in Eastern England, is to capitalise on its recent rapid expansion with a new $5.6 million hotel development. BAA Lynton, the commercial property arm of airport operating group BAA, is to work with Radisson SAS (part of the SAS Airline group) to build the 500-bed, 4-star facility. Work will be carried out in two phases on a five-acre site next to the terminal building and is scheduled for completion by the end of 2003. The hotel will offer direct pedestrian access to the terminal and will feature restaurants, bars, gym, a swimming pool and conference and banqueting facilities. In the meantime, Stansted’s $84 million terminal expansion is on course for completion by March 2002, after two years’ work. In the year to end October 2001, some 13.5 million passengers passed through the airport.
EU invests in regional venture capital funds
The European Union, via the European Investment Fund, has put more than $70 million into nine UK regional venture capital funds set up by Chancellor Gordon Brown two years ago. The investment was delayed by a six-month EU investigation which questioned whether the funds breached EU state aid guidelines as a mechanism for channelling funds to small businesses. Its approval was welcomed by David Irwin, head of the Small Business Service, which oversees the funds, as "an overwhelming vote of confidence". It follows an investment of $92.4 million promised by Barclays Bank in September 2001.
The funds are intended to provide up to $700,000 of venture capital at a time for small firms. Fund managers are yet to be appointed but the first fund was due to be launched in the East Midlands in December. The value of the funds is expected to vary from around $21 million in North East England to $70 million in London.
Port traffic up, road duty down
Traffic at UK ports rose by 1 per cent in 2000 to reach a record 573 million tonnes (Mt), according to Maritime Statistics 2000, a report from the Department for Transport, Local Government and the Regions. Inwards traffic rose by 3 per cent to 316 Mt while outwards traffic fell by 1 per cent to 257 Mt. Bulk fuels accounted for 54 per cent of all traffic at major ports, other bulks for 17 per cent and container and ro-ro traffic for 24 per cent.
The leading port was Grimsby & Immingham, with 52.5 Mt of cargo. Both Grimsby and Tees & Hartlepool (with 51.5 Mt) overtook London (47.9 Mt), the busiest port last year, while Forth (41.1 Mt) and Sullom Voe (38.2 Mt) were fourth and fifth. Felixstowe was the busiest container port, handling 1.9 million containers, a rise of 5 per cent. Dover was still the leading ro-ro port, although it recorded a 2 per cent fall in the throughput, to 1.6 million road goods vehicles and unaccompanied trailers.
On the roads, transport minister Sally Keeble has endorsed a local government report recommending measures to relieve traffic congestion between Huntingdon and Cambridge in Eastern England. The Cambridge to Huntingdon Multi-Modal Study recommends the widening and realignment of the A14 trunk road to form a dual three-lane carriageway, including a southern bypass at Huntingdon, together with associated junction and local road improvements. Other proposals include a guided bus route, based on a former rail corridor between Cambridge and St. Ives, and measures to encourage public transport, cycling and walking.
A new system of Vehicle Excise Duty (VED) for goods vehicles came into operation on December 1, 2001. The new system, announced in Chancellor Gordon Brown’s 2001 budget, introduces seven simplified tax bands, reflecting the environmental impact of vehicles, which replace the previous structure or more than 100 different tax rates. As well as being more transparent, the new system will also make many road hauliers better off: the owner of a 40-tonne, five-axle lorry (the most commonly used type), for example, will pay up to $1,540 less VED each year.
New Edition Now Available
January 2002 sees the publication of the latest edition of the most indispensable handbook for inward investors -
Invest in the UK. If you are thinking of setting up office, manufacturing, distribution or R&D facilities in Europe, then go to the More Information page and request a copy NOW to find out why you should choose the United Kingdom. A new addition this year is eight pages of sector reports featuring key industry sectors in the United Kingdom.Invest in the UK
Web Site - www.Invest-in-the-UK.com - also goes from strength to strength. The number of hits on the site has reached 418,000 since its launch in October 1996. While the monthly average is now 12,810, showing an annual increase of 34 per cent, and the interest shown from the United States is back above pre-September 11 levels.
Around the regions
Maple Optical Systems of San Jose, California has opened a European software design facility in Nottingham in the East Midlands. Maple Optical specialises in multi-service networking systems that enable carriers to upgrade their core infrastructure. The UK facility will develop software that will allow European carriers to integrate Maple’s first-generation networking systems into their telecommunications infrastructure.
With a $5.6 million renovation programme at the former Manton Colliery in north Nottinghamshire now complete, the East Midlands Development Agency has appointed property specialists King Sturge to market the site. The development, extending to 50 acres, is targeted to attract significant amounts of inward investment and could create up to 1,000 new jobs.
On a smaller scale, an $80 million grant from the South West of England Regional Development Agency has enabled the owners of a former dairy farm to convert redundant buildings into business units. The buildings at Pineapple Farm, near Bridport in Dorset, offer 12,500 sq ft of space which will be converted to provide seven to ten workshops and offices.
CreditSafe of Oslo is to invest $2.6 million in a new online telesales operating centre in Caerphilly, South Wales. The Norwegian company specialises in credit information for small and medium enterprises (SMEs), using internet database technology to deliver information to emerging markets such as IT, e-commerce and B2B. The first phase of its UK operation was launched in September 2000, when it opened a headquarters in London. The second phase is expected to create up to 60 new jobs.
US-owned JL French, based in Witham, Essex in Eastern England, has completed a $21 million expansion that will create up to 100 new jobs. The company, a supplier of machined vacuum die-cast components to the automotive industry, has opened a new 200,000 sq ft production facility that features the latest foundry and machining technology.
Food producers from Lincolnshire, Yorkshire and Humber attending the Anuga 2001 food trade show in Cologne, Germany in late 2001 reported record numbers of enquiries from overseas companies. Inward investment professionals received seven firm enquiries and held talks with 25 others, mainly from North America, looking for tie-ups with local food businesses. Lincolnshire has one of the biggest food ‘clusters’ in Europe and is home to many of the UK’s top food producers, along with packagers, labellers and distribution companies. It is a major vegetable-growing area, with other specialities that range from wine to sausages.
It’s not all food in Lincolnshire: the county town of Lincoln also has fast-growing service, ICT and software sectors. It is aiming to attract more new-economy companies with the refurbishment of a historic building on the River Witham to serve as a waterfront business centre with space for incubator units and start-ups. Oak House will offer 10,000 sq ft of space divided into 21 units, available on short-term leases with reception and secretarial services.
PerkinElmer Life Sciences of Boston, Massachusetts has opened a European technology centre in Cambridge, Eastern England. The company specialises in drug discovery, research and clinical screening products and services and technologies for the life sciences industry.
Verizon Global Solutions, based in New York, has opened a European office in central London. Verizon supplies advanced voice, data and IP communications solutions by interconnecting leading commercial centres around the world.
Investment bank US Bancorp Piper Jaffray, a division of US Bancorp of Minneapolis, has launched a new office in London, which will offer a European investment banking and merger and acquisition service. It aims to provide financial advisory services to companies in a variety of sectors, including manufacturing, communications, consumer, finance, healthcare and technology, and has its eye set on expansion.
A new telecommunications network linking institutions in the City of London to a data back-up centre near Heathrow Airport has been launched to help protect computer systems against terrorist attacks. The high-bandwidth system, developed by Guardian iT, offers back-up and recovery in the event of disaster. It was already under development before September 11, but concerns since then have led to a speedier deployment.
MJ Maillis Group of Greece has acquired United Packaging of Cleckheaton, Yorkshire and Humber. The Athens-based company has manufacturing units in Greece, Spain, Italy, Germany, Poland and the UK, where it produces packaging material, strapping tools and machines. The UK firm specialises in automated stretch wrapping machines, film, tape and twine.
AWD Holding AG of Germany, a leading independent financial group, has acquired London-based financial services provider Thomson’s for around $51 million. Thomson’s, one of the ten largest providers of financial services in the UK, specialises in private and company pensions and has about 25,000 customers, along with 21 representative offices and 140 advisers. This is AWD’s first acquisition outside Germany.
Johnson Wax Professional, based in Racine, Wisconsin, is to acquire DiverseyLever, a division of London-based Unilever. DiverseyLever is a leading provider of cleaning products, equipment and services for the institutional and industry (I&I) market and the consolidation of the two companies is the largest ever seen in this sector. Unilever has valued the transaction, due to be completed in early 2002, at $1.6 billion.
The Ascott Group of Singapore, Asia-Pacific’s largest serviced residence company, is to invest $30 million in a 50-50 joint venture with London-based residential developer Crown Dilmun. The new company, Ascott Dilmun, will take over Crown Dilmun’s six serviced residences, with a total of 461 units, and Ascott Group’s 56-unit Ascott Mayfair in London. The portfolio has a combined value of around $208 million and Ascott hopes it will serve as a springboard for expansion into the UK and major European cities.