Reshoring could add £15 billion to UK economy

17 February 2015

Reshoring some industries could add £15.3 billion to the UK economy and create hundreds of thousands of jobs, according to research.

EY’s report Reshoring – Time to seize the opportunity says there is a “once-in-a-generation” chance to add billions to GDP and rebalance the UK’s economy.

Looking over a 10-year period to 2025 it estimated the aerospace, defence and automotive industries would see the biggest benefit.

Regionally, the North West would benefit the most with the creation of an extra £2.4 billion GDP, with the South East outside London next with a £2 billion boost, followed by the West Midlands with £1.8 billion.  Yorkshire and the Humber and the East Midlands would also benefit, and more than 315,000 jobs would be created nationwide, EY said.

Mark Gregory, EY chief economist and author of the report, said the economics behind the pattern of declining UK manufacturing in favour of service industries was changing.

“Offshoring in the 80s and 90s saw a dramatic reduction in British manufacturing and a shift to services industries that resulted in a fundamental restructuring of the British economy,” he said. “While some regions saw rapid growth and wealth creation others suffered from high rates of unemployment.

“But the economics underpinning this trend appear to be reversing and presents the UK with a once-in-a-generation opportunity. While increasing wages in developing countries are eroding their labour cost advantage, there are many more factors driving business to choose British shores. The desire to guarantee quality and the imperative to reduce time to market are increasingly important drivers of location decisions.”

EY said although the cost advantages of manufacturing in the developing world were decreasing, reshoring across the board was unlikely, as wages were still significantly lower than in the UK.

But it added capital intensive sectors such as aerospace, defence, automotive, petroleum products and clothing, serving the European market, were most likely to benefit from reshoring with the right incentives.

Steve Wilkinson, UK & Ireland managing partner, markets at EY said: “They will be businesses where quality and brand are important and consequently the supply of a highly skilled workforce is imperative.

“When firms do choose to reshore to the UK they will tend to cluster in regions that best serve their business, in close proximity to key suppliers, infrastructure and an able workforce.”

But the report also warns the government needs to do more to make the UK more attractive.

“While steps have been taken to make the UK more attractive to businesses looking to reshore such as reducing the headline rate of corporation tax to the joint lowest in the G20, providing competitive reliefs for innovative and high tech industries, and UKTI’s ‘Britain is Great’ campaign, more can be done,” Gregory said.

The report concluded reshoring would create a better economic balance between regions and sectors and make the UK economy more robust.

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