Sir,
There has been considerable press coverage of the high pound, its adverse effect on the manufacturing industry in the UK, and what the Chancellor should - or should not - do to help. Our analysis of more than 200 manufacturing companies in the UK, Europe and Japan - many of them clients - suggests that UK companies generally pay significantly higher dividends and invest much less in R&D, product development and productive assets than their foreign counterparts.
This disparity is most pronounced among those UK companies that are doing less well and becoming less competitive. Our analysis showed that the companies earning the highest total shareholder returns (the top decile) largely followed the moderate dividend, high investment strategy. Sadly, the majority of such companies in our sample were from outside the UK.
This finding points to an optimum solution. While remaining agnostic on what the Chancellor or the Bank of England should do on interest rates and the strong pound, we believe that the key step is for the Chancellor to take the fiscal and other actions that will encourage industry to invest in R&D, product development and productive assets. Companies should review their dividend and investment strategies and develop longer-term investment plans in the creation of leading (global) products - ones that have intrinsically low resource content, and are produced with highly productive labour and assets. Companies should then communicate this strategy to customers, the workforce, suppliers and shareholders.
