Loss of Eurofighter contract – a blow to UK plc?

France is now favourite to win the £10bn deal to make 126 planes for India – a major blow for a European consortium including Britain’s BAe Systems, which has been bidding for the contract.

It is also a disappointment for David Cameron, whose first major foreign trip as prime minister was to India, accompanied by executives from BAe. Speaking in parliament on Wednesday, Mr Cameron urged the Indians to think again about buying the Typhoon planes, but conceded that a lower price for the French aircraft may have clinched the deal.

Since entering Downing Street, Mr Cameron has emphasised that he wants to rebalance the economy, making it less reliant on finance and prioritising exports.

‘Picking winners’

While the concept of a manufacturing strategy is reminiscent of the 1970s, when governments ‘picked winners’ – subsidised individual companies that were deemed vital to Britain’s economic prospects – business does not want this approach to be revived.

Andrew Johnson, senior economist at the Engineering Employers’ Federation (EEF), which represents manufacturers, told Channel 4 News: “In terms of old-style manufacuring strategy – picking winners – that idea has been discredited. It’s not something the government has now, nor is it something we would be calling for them to have in the future.”

But Mr Johnson said the government did have a role in ensuring that companies were not over-taxed, were able to access finance and could draw on an educated, skilled workforce.

‘Competitive advantage’

In a speech in October 2010 to the Confederation of British Industry Mr Cameron said the government should back “those industries where Britain enjoys competitive advantage”, citing as examples green technology, the creative industries, financial services, retail, pharmaceuticals and advanced engineering.

While his words were interpreted by some as a return to ‘picking winners’, the prime minister was not talking about specific companies; he was not envisaging the sort of close relationship governments and British Leyland enjoyed decades ago.

UK Trade and Investment, the government department that supports exporters, says the closest ministers have come to developing a manufacturing strategy is their Plan for Growth, drawn up in March 2011.

This argues that the British economy needs competitive taxes, a business-friendly environment, investment, exports and an educated workforce.

The government says manufacturing and exports have a key part to play in the economy of the future. So how important are these to the UK, and how reliant are we on defence exports?

In terms of national output, manufacturing makes up 10 per cent of the economy and employs 8 per cent of working people (2.5 million).

The manufacturing sector exported £235bn worth of goods in 2010, just over half of all UK exports.

Defence sales accounted for £6bn of this £235bn (2.5 per cent). This sounds small, but Britain is the second largest exporter of new defence products and services in the world - and the defence sector is thought to make up about 16 per cent of manufacturing output.

Amid fears that the British economy may have entered a shallow recession, it would be reasonable to assume that business is pessimistic about the future, but this does not appear to be the case.

‘Cautiously optimistic’

Andrew Johnson told Channel 4 News that EEF members were “cautiously optimistic” about the year ahead and, with weak demand at home, were hoping to export to emerging markets, including China, India and South America.

An EEF survey of manufacturing executives shows that four fifths are expecting sales in emerging markets to either remain static or grow in 2012.

They say they cannot compete with these economies when it comes to making basic goods, but they can manufacture niche products. Overseas markets are vital: 90 per cent of EEF members export and for two fiths of companies, exports account for more than half of their turnover.