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Emergency Brexit: engineering community divided over best way out

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The Brexit vote was arguably a revolt of the masses against a London-centric elite in which the EU was a drive-by victim. Now, as well as somehow rebalancing an economy away from finance and towards manufacturing, Britain has to bear the enormous hassle of disengagement from Europe. The engineering community is divided.

Marine Le Pen probably doesn’t think about E&T magazine on a daily basis, but if the French ‘far right’ presidential candidate wins this spring’s election she will upset the whole basis of this article. Le Pen is odds-on to win the first round at the end of April and is touted to come second in the run-off second round on 7 May, whether her opponent is Francois Fillon or Emmanuel Macron.

However, if the Brexit result is anything to go by, polls are no longer reliable where anti-establishment opinions are measured. People simply don’t want to tell pollsters what they perceive is the politically incorrect option. So, who knows? There is an outside possibility that the next French President will be devoted to taking France out of the EU. This would make Britain a lot less lonely and quite probably even end the EU itself, which would of course change the premise of this article.

In contrast to UK right-wing cheerleader Nigel Farage, who has always cut a prankster-like figure, lacking perhaps that coherently stated vision of what he is for, as opposed to what he is against (i.e. Europe), Le Pen can be said effectively to wield robust populist arguments against Europe. In her understanding, she perceives the EU as a conduit of globalist and neoliberal trends – ideas that had an Anglo-American provenance before they commandeered Brussels.

Her policies have comprised border control, economic patriotism, intelligent protectionism and re-industrialisation. She said recently to the BBC that the Brexit vote was a British expression of ideas that she’s been pushing for years. Of course, her anti-globalist policies are sometimes obscured by the mainstream media who prefer to highlight her intolerance of Islam. She has said that Islamism, along with globalisation, represent two forms of totalitarianism that threaten France.

“What is at stake in this election... is whether France can still be a free nation,” Le Pen said at her campaign launch rally in March. “The divide is not between the left and right any more, but between patriots and globalists.”

Her father, National Front founder Jean-Marie Le Pen, was much more on the xenophobic side of the equation rather than presenter of coherent philosophies. He once described the gas chambers as a “detail” of the Second World War and for many years, Marine Le Pen has laboured under the label “daughter of the devil” (fille du diable) – one she has worked to shake off. For all his negative views or tactics, her father still managed to come second in the 2002 presidential elections. With a better package, the very cogent-sounding Marine Le Pen – who has ditched lots of her father’s skinhead stuff – could do better than her father in a France that, like Britain, finds its confidence tottering.

The British engineering community seems split about Brexit. According to a survey called ‘Engineering the Future Alliance’ by 38 engineering organisations, including the IET, about 39 per cent of engineering firms polled could not identify any advantages to Brexit. Yet 31 per cent saw potential benefits, including the possibility of greater global business engagement and less red tape.

To know where you’re going, you have to know where you’re standing. Brexit represents for Britain – whether or not the EU will continue to exist after the French elections – a once-in-a-lifetime chance to remake the country’s direction where the EU or globalism may be a complication, but not the whole problem. The Brexiteers’ “taking back control” slogan was brilliant, but it was the right answer to the wrong question; therein lay the sleight of hand. Many of Britain’s problems are British political class problems. Since the public was not allowed to vote on whether to turf out the political class, they chose the second-best thing by severing the connection with the EU. The EU was a drive-by victim and thus performed its final role as a shock absorber for domestic disaffection.

Charles Grant, director of the Centre for European Reform, told the Financial Times that “much of the establishment has no idea what working-class people outside London think.

“Our parliamentary class is treated with contempt, so when the establishment says ‘vote for this, we know what is good for you’ that has little effect. And the same is true for the City of London. The financial services industry is pretty unpopular.”

The ERA Foundation, an organisation that supports engineering skills development, has identified some structural problems in British society: who the winners and losers are. On its reading, banks are the main villains. ERAF argues in a recent report that the City of London has been lining its pockets for years by selling out British industry for a commission to foreign hands. This boosts the pound – thus hitting British manufacturing exports – while giving a falsely positive gloss to the British balance of accounts, but in reality, removing Britain’s control of its own economy in the long term.

Executive control has moved to foreign centres and, despite promises of maintaining R&D and jobs in the UK, when it comes to the crunch, foreign owners will in all likelihood prioritise their own and make cuts at the British end. 

Britain received a lot of foreign direct investment (FDI) in the last 15 years, says the ERA, but that has been to buy out British assets, rather than make new productive investments in manufacturing, which would benefit the bottom half of British society. The ERA shows how the deficit in the UK trade of goods provided by a struggling manufacturing economy has not been offset by Britain’s surplus in service exports. However, this permanent problem was obscured for a while by the fire sale of assets to foreign buyers, masked as FDI. It has resulted in “loss of ownership and management control to overseas owners of UK ports, airports, utilities (electricity, gas and water), banks, property, football clubs and the greater part of the large manufacturing industry”.

British entrepreneur John Mills wrote in ‘Britain for Sale?’ published by the Smith Institute, that “when a British company is sold to a foreign owner, after purchase, the business is controlled and operated in the interests of those people who are living abroad – rather than for the workers, and other stakeholders, based in Britain.

“The focus of management of a foreign-owned company is inevitably in their home territory. That is where, for example, they will be keen to base their high-level add-on services, such as R&D, which will produce the best-paying jobs and create one of the larger boosts to their own national economy.”

The authors of the ERAF report conclude that approximately two-thirds of all foreign direct investment is devoted to purchasing existing UK assets rather than new investment. The City of London has its own agenda since it takes a commission from brokering sell-offs. They write: “It could be said that the UK is on course to become not a ‘Service Economy’ but rather a ‘Servant Economy’, with overseas owners positioned to dictate major decisions affecting the nation’s domestic conditions and prospects for the future.”

This asset-stripping has led to a rise in the pound, which further suppresses manufacturing, only partially compensated by the post-Brexit decline against the euro, while the position of the UK as a safe haven for property investors (Russian oligarchs and the like) has also kept the pound high.

Yet the ERAF’s criticism of the City of London – which is the sort of epitome of the neoliberal Europe Le Pen rails against – doesn’t end there.

Banks have been engaged in the casino economy – basically financial speculation, which is a zero-sum game – on the international markets. Apart from attracting the best British graduates away from entering truly useful professions like engineering and teaching, this activity reduces the banks’ appetite to lend for small business and manufacturing investment in the real British economy. The ERAF authors – all luminaries of the engineering community – note that the deficit in trade of goods since their near-identical warning eight years ago, has doubled to more than £120bn.

The ERAF has several ideas, some good and, perhaps, some not. Decent ones include encouraging the government to restructure the tax system to make investment in UK manufacturing more attractive, with banking facilities for the SME sector. It calls for a throwback to an industrial strategy almost à la Le Pen – and lending to productive sectors, especially those outside London. One could take the taxpayer-owned RBS and transform it into a network of local banks, each with a public-interest mandate to promote local economy and breathe life into disenfranchised communities.

Parts of Britain have a quality of life not much better than depressed parts of Eastern Europe. Social and economic inequalities actually got worse during the years of the Blair government. Further development of a British business bank along the lines of German official lender KfW Bankengruppe is another possibility.

What may be less convincing is ERAF’s suggestion of shale gas as a profitable and likely-to-happen solution to the high costs of British industry. Shale gas has transformed the US economy, it’s true, and theoretically provides the solution to declining North Sea supplies as well as British dependence on the politically difficult Middle East. The ERAF thinks that once unshackled from Europe  and its environmental red tape, Britain will embark on a new path towards energy independence. 

Yet, Europe has not been the brake one might think. Inspired by the US shale revolution, fracking was seen as a potential game-changer in Brussels for a while, offering cheap fossil fuel with lower greenhouse emissions than coal. Several member states powered ahead with their own commercial fracking ventures. The EU was under pressure from lobbies, but also perhaps believed in the hype, deciding to classify shale gas as a low-carbon energy source and deluging it with subsidies.

However, as the shine has gone, several European countries have banned fracking; not an EU decision, but a national one. International petroleum companies have withdrawn from Poland, Romania and Denmark because of disappointing yields. Three of the constituent nations of the UK – Scotland, Wales and Northern Ireland – have joined European countries in citing environmental concerns to have a moratorium on fracking. Spain and England are exceptions. Although assessments by the International Energy Agency and BP agree that Europe, for various reasons, is unlikely to reproduce America’s shale revolution, fracking has a friend in Downing Street. The government hopes it will be a panacea for Britain’s growing energy crisis, which will become more acute when coal-fired power stations close down.

Maybe the government will be proved right, and one certainly hopes that the green lobby’s public health concerns are overstated. However, research has shown that America’s and Britain’s geological composition in fracking areas are different. The US has large deposits of shale that are not folded in on themselves and not too thick, while British shale deposits are more complicated. Plus, England is much more densely populated. To find out whether a ‘play’ has potential, a company has to drill up to 100 wells. Yet how would that go down in England’s green and pleasant shires?

Leaving the EU will bring a host of problems as another report by the engineering community points out. The Engineering the Future (EtF) alliance, whose members include EngineeringUK, The Energy Institute, the Engineering Council, the Institution of Civil Engineers and the IET, is so gloomy about EU departure the report could practically have been written by the European Commission. It makes a pretty good case for staying in, and had such a report circulated or at least had widespread distribution, one does wonder whether the referendum result would have been different. While there are problems with Europe, (the euro straitjacket has suffocated economy in Greece and border-free travel facilitates terrorism) leaving has costs.

On top of rebalancing the British economy towards the bottom half of society, Britain now has the task of dealing with the fallout of Brexit as well.

First there is the engineering skills crisis. Over 180,000 new engineers and technicians are needed by the UK every year. Shortages are acute in the IT and construction sectors; one-tenth of vacancies go unfilled, which is twice the average for the rest of economy. The demand for highly skilled engineers is set to continue with nine in ten businesses in engineering and high-tech sectors expecting more demand over the next few years.

It has happened for various reasons – an education sector with an aversion to engineering being one reason – but it means that the shortfall has been compensated for by recruiting abroad, evenly divided between the EU and outside the EU. That pipeline is now less secure and the seeming use of EU workers in Britain as bargaining chips by the government has created anxieties and has somewhat reduced the goodwill many foreign workers in this country feel towards Britain. A recent article in the Guardian reports worries across a broad spectrum of professions. Andy, 39, financial consultant, says: “I work for a medium-sized financial provider who deals with a very diverse client base from around Europe. I am an EU citizen myself, but am still in the UK. At work we had a large number of Europeans working in our customer support and sales teams but now they are nearly all gone.”

Universities are also affected. At Imperial, for instance, a disproportionate number of staff and postgraduates in engineering and science departments are from the EU. They contribute to Britain’s science excellence at the highest level.

A further anxiety is the ability to recruit to large infrastructure projects including High Speed 2, the Thames Tideway and Hinkley Point C; the 2016 national infrastructure pipeline has 602 projects on its list, relying heavily on EU workers. Dr Uwe Krueger, CEO of Atkins, is quoted as saying: “It is mission critical that we remain open to the talent we need from overseas. We simply don’t produce enough engineers in all required disciplines.”

IET president Jeremy Watson highlighted in a recent speech that such projects “will face recruitment difficulties and increasing costs if demand for labour outstrips supply. It’s obviously imperative that we address these challenges and the UK profession will continue to do so.”

A third anxiety is access to international projects. Although facilities are mostly built and managed at national level, the EU funds joint research activities and supports UK-based researchers to work at these facilities. Engineering the Future also worries that Britain’s importance as a standard-setter of metrology will fall behind now that Britain will lose its leading role among in the community of the EU’s national measurement institutes.

The EtF alliance calls for Britain to stay inside the single market and track EU legislation as closely as possible. In other words, follow the rules without having a say in making them – which is what ‘remainers’ always warned would happen – to encourage investments that would otherwise stay away because of having to conform to different standards, and to make it easier for British companies to sell into the EU.

A further EtF concern is loss of funding of engineering projects from the European Investment Bank, which has invested €76bn in British projects since 2000. It asks the government to set up an equivalent.

The manufacturers’ organisation EEF is similarly eager to have a relationship with the EU that basically tracks the union’s legislation. It too hopes to avoid the ‘hard Brexit’ of the single market. Its comments on the cross-border integration of many British and European supply chains deserve quoting in full, because they express a sense of shock and foretell the huge cost of disengagement. “Some of our members report their production processes can criss-cross European borders numerous times in each production process. Many manufacturing companies in sectors which trade predominantly with the EU have only ever known this borderless trading environment. To extricate industry from this long-established trading system will be costly and require a gradual adjustment process. The single market – under the pillar of free movement of goods – has been the most important facilitator of frictionless trade with the EU. UK companies have operated in a zero-tariff environment, with minimum non-tariff barriers and low costs of time delays, transport and facilitated movement across EU borders, in a uniform and single regulatory environment. Moving out of this arrangement will incur significant cost for manufacturing businesses.”

Both groupings – the EEF and Engineering the Future – want an arrangement as close to the status quo as possible. So much for the bonfire of red tape the buccaneers of Brexit wish to foist upon us.

It would seem that openness is a two-edged sword. The ERAF argues that Britain has been too open for business and the EEF says it’s essential to manufacturing. Yet there is a way to reconcile the two organisations’ arguments. Britain has been too much in hock to the City lobby. Procurement rules favouring national preference and various other small adjustments such as a return of the Mergers and Monopolies Commission with a national-interest remit could have preserved British industry in a better fashion. German manufacturing, after all, prospers inside the EU.

The difficulty with the remainers’ argument was that they had to explain a complicated set of affairs that had reached a kind of evolutionary equilibrium through the constant compromise and negotiation over 40 years that is the European Union, while the Brexiteers peddled a simple, dramatic, powerful story of taking back control. It’s adventurous and to many British men, at least, I reckon Brexit is redolent of virility and individualism.

Of course, the Brexiteers managed to connect it to the livewire of immigration, even though leaving the EU will not resolve British people’s resentments (cultural, economic) in many respects about non-European immigration; nothing whatsoever to do with Brussels.

Until the immigration issue was insinuatingly linked to Brexit, the British were not actually that worried about the EU. It was about the fifth concern in surveys in the election campaign of 2015. Perhaps, as the former European Commission head in London Reijo Kemppinen once said, the British had, by the mid-2010s, come out of the closet; it was OK to declare their love for Europe. Politicians at Westminster were more annoyed because they felt disenfranchised by the European Parliament and they were a powerful lobby. Though perhaps people feel as let down about Westminster as they feel apathetic towards who actually rules them. Resentment towards Westminster and the political-financial class generally was one of the reasons for Brexit.

Now that Brexit is upon us, it may be advisable to ask what kind of a society Britain ought to be. The British have to take back control not just from Europe, but in their daily lives. Britain has one of the least productive labour forces in western Europe and has some of the least well designed working environments, according to a survey by Ipsos. You could argue there is too little work autonomy and little privacy. Britain was always notorious in Brussels for pushing for maximum surveillance rights of the state/employer, and minimum protections for the individual in this area.

While 50 per cent of the British population now attend tertiary education, a larger proportion of people are not in education and training than countries it would compare itself to. Inequality is higher than during the Thatcher era. Some would say this is a matter for politicians or office environment designers or psychotherapists, but technology can play an important role in creating conditions for wellbeing. There ought to be a much bigger interdisciplinary effort to try and resolve Britain’s problems. The challenges thrown down by Brexit can help explain why towns like Merthyr Tydfil – recipient of the enormous EU funds – voted to leave the EU. It was the raising of a clenched fist against financial-political elites in London, and the engines of Anglo-American globalism of which London is the premier emblem. Europe is ancillary.

A full article detailing IET president Jeremy Watson’s speech on Brexit will be available in the next Member News.

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