Lord Haskel
That this House takes note of the development and retention of manufacturing industry in the United Kingdom.
Lord Haskel
My Lords, it is not true that we do not make anything any more. We are the seventh largest manufacturing nation, and in high technology manufacturing, we stand proudly among the major economies. In cars, aircraft, pharmaceuticals, chemicals, food and space we perform well. Manufacturing is 11 per cent of our economy, but 46 per cent of our exports.
How do I know that? In recent months, the Government have been making a conscious effort to talk up manufacturing—talk it up because we are told that manufacturing is going to play a major role in rebalancing our economy. It will be a rebalancing away from financial services, away from the south-east towards the rest of the country, away from spending towards saving and away from consuming towards creating. Manufacturing is to be central to this.
Now, at the same time, the Office for Budget Responsibility tells us of difficult times ahead and the OECD tells us that our economy is likely to contract. In the face of this, initiatives such as the “Make it in Great Britain” campaign, launched last month by the Government to celebrate the country’s world-class manufacturers, are inadequate and perhaps counterproductive. Yes, it celebrates manufacturing and makes us feel good about it, but it does not tell us that too much actual manufacturing has gone abroad and continues to go overseas. This is what we need to address. This is why, to fulfil these expectations, manufacturing not only has to develop but has to survive. This is what this debate is all about.
This is a huge topic and I shall only be able to touch on a small number of aspects, so I am most grateful to all noble Lords who are speaking in this debate so that we can hear about their special concerns, learn from their specialist knowledge, benefit from their long experience and hear their suggestions. I hope the Government are listening.
The first point I will make is that, if you are going to retain and develop our manufacturing sector, there needs to be a better understanding of what manufacturing actually is in 2011. It is not separate from services—successful manufacturers provide services. One of our finest companies, Rolls-Royce, makes aeroplanes. Did any noble Lords see that absorbing programme on BBC2 on Sunday evening, about how the engines are made? The point is that the airlines do not buy an engine, they buy so many thousand hours of flying time, and each engine is continuously monitored form Derby to ensure that it is working properly. It is given the service it needs by Rolls-Royce wherever the plane lands. Service and manufacturing go together.
This is why the scope of manufacturing is far wider than the Government seem to imagine. It includes things like software, branding, languages, ICT skills and advanced business processes. These are all parts of manufacturing, as well as the metals, materials, products and engineering. Manufacturing, too, has become part of the digital economy. We have a fine car industry, which exports something like 80 per cent of its production. Is the Minister aware that electronics now account for between 15 and 30 per cent of the production costs and that the industry tells us that this is only going to increase? This is the way that many of our manufacturers are developing. Many expect that in 10 years’ time, the digital economy will be equal in size to the physical economy. This kind of manufacturing can only be built on the firm foundation of an existing manufacturing sector. You need an industrial base to build it on, and unless we retain this industrial base, all the fine work done by our science and technology sectors will benefit others. This is why retaining manufacturing in these hard times is so crucial.
Moving us towards this high-value, knowledge-intensive manufacturing combined with service is the task of the Technology Strategy Board. The TSB helps manufacturers by doing the strategic work. It identifies those areas or platforms of economic growth where their businesses can thrive and it provides finance through competitions. This is especially valuable for smaller businesses—companies, perhaps in the supply chain, without the resources to do this work themselves. By bringing together all the aspects of a new technology or a business-growth platform, plus the money, it helps them gain the competitive advantage by speeding up the transfer of knowledge. I declare an interest as the honorary president of the Materials Knowledge Transfer Network. It brings together 4,500 members to embrace all the communities involved in metals, materials and composites, to take advantage of our advanced materials technology and engineering.
There are two other communities that we have been particularly anxious to embrace: science and design. On design, I make no apology for repeating what I said on 24 November in a debate in your Lordships' House on government procurement. Imaginative, sensible and innovative design is one of the foundations of a modern manufacturing economy. It is not an expensive add-on to make something look good. It drives fitness for purpose and raises the quality of use. As Vicky Pryce said in her report the other day, design converts something mundane into something desirable, like the iPhone. This is why I was amazed that during a 20-minute wind-up speech in that debate the Minister spoke of how the Government were going to use procurement to help British industry, but the word “design” was not mentioned once—and this in a House which regularly debates the creative industries. The Government really must get their act together on this.
The Government talk a lot about science and innovation and their importance for manufacturing and economic growth, and they are right to do so. New and better products and new and better ways of making and servicing them raise productivity and profitability. But the point about manufacturing innovation is that you get a double effect. If you make an innovative aeroplane, this enables and facilitates innovation in the airline industry. If you make an innovative piece of medical equipment, the nation's health benefits through medical innovation enabled by the new machine. It turns out that, if you measure the total innovation in the economy, because of this double effect, manufacturing accounts for 42 per cent of the total, even though it is only 11 per cent of the economy.
Where does this innovation come from? It comes from our science base. Fortunately, the Government accept this as part of the empirical evidence about the economic returns from science. Sadly, I do not think that the financial sector has bought this argument, except perhaps in the ICT sector, where time horizons can be shorter. It is due to short-term investment horizons that British manufacturers do not compare well with our competitor nations in research and development. As a result, we are no longer at the cutting edge of technologies where big projects are getting under way—in sustainable or nuclear energy, for instance. It is partly because of this that some of the foreign-owned, large manufacturing companies are becoming increasingly concerned about the health of their domestic suppliers. If they have to import components from abroad, the logical conclusion is that the final assembly can move offshore, too.
The recent financial crisis has thrown into sharp relief the financial management and corporate governance of our manufacturing companies. The absence of any serious policy to retain and develop our manufacturing companies has meant that they, too, are the victims of the same shareholder value philosophy which has pervaded much of British business for years. I congratulate the Government on getting John Kay to look into this—at long last.
The Government call on shareholders to be active in demanding a longer time horizon in business management—the call is for stewardship—but so many of our manufacturing companies are so-called “ownerless corporations”. The real problem is that the link between owners and boards is broken. That is what the Government should be trying to fix, not just excessive pay. That is a symptom, not the disease. Only an engaged and committed ownership will see through the development and retention of our manufacturing companies. The short-term focus of fund managers and their clients runs counter to this, but at least there is now talk of getting rid of quarterly reports. Manufacturing businesses require stewardship. They are not there for the quick buck.
There are several important issues on which I have not touched. Skills and training is perhaps the most important. Increasing the number of apprentices and training courses is of course welcome, but for manufacturing it is the quality and standard that is important. Most apprenticeships on offer are far from the three-year engineering course. Meanwhile, the Government are making life a lot more difficult for the 450 FE colleges where many manufacturers look for their recruits. It is not easy to match skills training with the rapid developments in manufacturing. The answer lies in starting early—at school, if possible. Yet which subjects are facing curriculum cuts? Why, design and technology are, of course.
Trade is important and, yes, the Government are right to encourage exports because those lift standards and enlarge markets, but the Government have to do a lot better. On 22 November, it was reported that the fund to encourage small and medium-sized enterprises to export had signed up just four companies since its launch eight months previously. Obviously, either something more is needed or the qualifications have to be changed. The encouragement that I would like to see coming loud and clear is that exporting is an investment, not a cost—especially exporting to the single market, where it has become easier since every member state now has a single point of contact telling exporters, in English, exactly how to do business in their country. It was your Lordships’ European Committee that helped fight for this. Incidentally, I have never seen this mentioned in any government guide to export. Has the Minister seen it? She will be impressed if she has a look.
Would that there were a single point of contact for British manufacturers dealing with the Government. Over the years, BIS has been constantly reshaped, rebranded and given different responsibilities. I think that its largest budget today is higher education. Manufacturing's big concern, energy, is in environment; employment is elsewhere. So is drawing the line between competition and free trade, which manufacturing needs, and economic warfare, which it does not need. The truth of the matter is that there is no coherent policy at government level for manufacturing. Some may think that nothing extra is needed other than to cut red tape, employment rights and taxes. Yet if you agree that government has a part to play in shaping the manufacturing sector and that government has a role in fulfilling the ambitions and expectations that we have for manufacturing, somehow all of these threads have to be drawn together.
They have to be drawn together because all these issues that I have tried to outline are crucial for the success of our manufacturing sector. The serious thinking has to be coherent if it is to be effective. On 29 November, in the Financial Times, a poll of manufacturers reported that most directors of companies participating in the survey cast doubt on the Government’s efforts to encourage a shift in investment and output towards manufacturing. I am sure they had their views confirmed yesterday, when they heard how the Prime Minister is going to the euro summit all fired up to defend the interests of the City. Would it be presumptuous to join the front page of this morning's Guardian and ask: what about the interests of manufacturing? I hope the Minister is going to tell us that the Government have a coherent and balanced policy, and a plan to use all the levers of active government to support, enable and empower manufacturing, from prime contractors down through the supply chains. I beg to move.
Baroness Garden of Frognal
If noble Lords will forgive me for just one moment, the timing for this debate is very tight. Back-Bench speeches should be no longer than six minutes, so when the “6” comes up noble Lords should please finish their contribution.
Lord Jenkin of Roding
My Lords, we are extremely grateful to the noble Lord, Lord Haskel, for giving us the opportunity to debate this subject. I am going to follow him on skills in a moment but, with regard to what the Ministers are saying, I can only imagine that he has not read the report of the all-party manufacturing group held last month, at which my noble friend Lord Green of Hurstpierpoint answered a great many of the points that he has made about small businesses and exports. The central point that he made was that of course the Government and UKTI have to do more, but there needs to be a change of attitude on the part of small companies.
I need no persuasion about the importance of manufacturing industry. Before I went into the House of Commons I spent 13 years in the chemical industry, and I have always felt that it is a great pity that there are not more Members of another place who have done the same sort of thing.
I turn to skills. My honourable friend John Hayes, the Minister for Skills and Training, is doing a splendid job in grappling with the situation that he inherited. In particular, he has recognised, as I am not sure our predecessors did, that if you are going to have more apprenticeships and skills councils, they must be employer-led. That is what is now happening. Those skills councils that have been employer-led have been very successful. I shall mention only two of them: Cogent, which deals with the skills and training for many of the STEM industries, and the National Skills Academy for Nuclear—I declare an interest as its honorary president. They are now wholly independent of public finance because they are now being financed by industry. That should be applauded. Yet one hears of so many problems regarding the lack of skills.
Another of my interests that I should declare is that I am honorary president of the Energy Industries Council. That is the trade association that represents more than 650 companies in the energy supply chains, including a large number of small and medium-sized enterprises. It holds trade shows around the world. Last month my noble friend Lord Howell of Guildford was pleased to visit a two-day trade fair that the EIC was running at Olympia, and only last week he did the same at a trade fair in Dubai. On both occasions he was hugely impressed by the quality and range of the manufactures that are available from the companies that were exhibiting on the stands, but on both occasions my noble friend heard the same complaint: that they cannot get the skills and the skilled people necessary to deliver the export orders that they are now getting from around the world.
I heard the same point at another meeting. A speaker on behalf of Centrica made exactly the same point: it cannot get the skilled labour. Yet, as we know and grieve, more than 1 million young people aged 18 to 26 are described as NEETs—not in education, employment or training. What are the barriers? Why can this not happen? Is it attitudes? Yes, that is certainly one of those barriers. Is it reluctance on the part of employers? Possibly. However, the biggest barrier—I heard this the other day from the vice-chancellor of the Open University, who was extremely persuasive—is a lack of proper information and careers advice to young people. Many of them do not know about the opportunities that are open to them to gain skills and so begin to qualify for jobs for life. What is my noble friend’s department doing to strengthen the provision of information to young people?
A major new project is emerging in Yorkshire—what will be the world’s biggest potash mine. It involves an investment of £3 billion and 1,000 new jobs, all of which will need to be skilled. What is the company doing? It is going into the schools and the further education colleges in order to persuade the students there of the importance of gaining skills so that, when the company starts to recruit people, they will be able to operate the equipment. Last night I heard a very interesting comment on this from the former chief executive of the Association for Science Education, who said:
“That would not have happened 10 years ago”.
There has been a significant change in attitude, but many more companies need to do that.
I end by offering a bouquet to my noble friend. The department’s Talent Retention Scheme, which was launched by my honourable friend Mark Prisk, is a scheme whereby skilled people who are losing their jobs can be picked up by other firms that are looking for people. Participation in the scheme is beginning to grow but I wish that more companies would subscribe to it. I hope that my noble friend will be able to confirm that.
Lord Bhattacharyya
My Lords, I thank my noble friend Lord Haskel, who is a great ally of British manufacturers, for securing this debate. I have had many private debates with him. I am sure that he is among the very few people in this House who understand manufacturing.
I also wish to declare my interests as set out in the register, and draw special attention to my role as the founding chairman of the Warwick Manufacturing Group. I come to this topic with a great deal of personal interest and experience, having worked with, and for, leading British and global manufacturers for some 45 years. In that time I have participated in many debates about the past decline and worrying future of British manufacturing. I have no desire to go over those debates again. After all, since the crash, manufacturers have provided the good news in Britain’s economy. We have had eight quarters of manufacturing GDP growth, business investment has increased for the past sixth months and while yesterday’s output figures were poor, a “maker’s recovery” continues in key sectors; for example, automotive. For the first time in decades, manufacturing is seen as key to Britain’s growth, not our biggest problem. If we are to solve the challenge of unemployment, we know that a jobless recovery through building warehouses to hold imports to be sold in supermarkets, all paid for on credit, is no solution and never has been. Do we want an economy based only on warehouses and office parks that I see littering our countryside, or a recovery which relies on taxing highly paid clerks in the City? No, we need to make the products that the world needs.
In that spirit, there is news in the Autumn Statement to applaud: increased infrastructure spend; business angels tax relief for small businesses; and credit easing to support British firms seeking finance, although the devil will be in the detail. This stimulus package—for that is what it is—is a step in the right direction, but it is only the first stage of a long-term change. The transformation that we need cannot be delivered at the flick of a switch or by issuing a press release from Whitehall. We need a better, broader capitalism, and that means developing better products for broader markets. This is a point that the leader of my party has made very powerfully. The global market is consumer driven. Consumers, especially British ones, care little where goods are made, only that they are fit for the intended purpose, and I do not blame them.
Government should support the development of globally competitive products in Britain in three bold ways. Procurement is the essential first step. Without a big market to aim for, a focus on new products will not appear profitable for many businesses because in global terms the UK market is small. The UK defence sector prospered because it could rely on a high-demand customer—the Government. Whatever the weaknesses of defence procurement, its great strength is that it procures new British products. We need to expand that insight to the NHS, housing, infrastructure and energy. Compare Hitachi in Newton Aycliffe with Bombardier in Derby. One is secure through procurement, the other is at risk in its absence.
Secondly, we have debated research impact many times in this Chamber. I welcome the progress that the Business Secretary and the Science Minister have made on life sciences and the NHS, but why does this apply to such a limited field? What is the point of a school of manufacturing, if it is not judged on impact? We must make impact the cornerstone of assessing all the applied sciences. We need to make applied research an essential tool for businesses, not a parade of expensive white elephants.
The third step to securing global scale is to attract overseas innovators, whether through asset purchase or partnership. We must attract companies that will invest in the UK and can increase exports. They know what growing markets need and how much they are prepared to pay. Overseas investment also focuses UK plants on being globally competitive. A plant owned by a Thai firm knows how it must change to compete with Thai factories. I am talking about steel.
Next, we should help British firms to develop new products. Too often, we talk a lot about selling but do not make much worth buying. We put our faith in trade delegations without worrying if the delegates have goods to sell. It is all right—the only thing they sell is the financial sector. Then they are worried. I know that in India, for example, all that trade delegations want to sell is the financial sector, but they will not get in to such markets because they are very highly regulated in most countries.
I am proud of our successes—from JCB to BAe and JLR—but we need many, many more. Today, it is hard for a manufacturing business to meet such product challenges. Why? I am often told it is because medium-term finance is hard to secure. That is why we need a real industrial bank. Why not use funds destined for banks through quantitative easing to establish a new ICFC? Success in expanding a firm needs a big high-volume market to aim at, quality products that compete in global markets, and finance to develop those products and processes. The same applies to procurement policy, support for R&D impact and inward investment, and providing the finance needed for expansion. Government can use the current crisis to mould policy for a generation if we have the long-term ambition. Ambition is essential. Caution is no virtue if Britain’s makers are to march. Think of post-war Germany, which built KfW and Fraunhofer from nothing.
Lord Lee of Trafford
My Lords, Paterson Zochonis—now PZ Cussons—went public in the 1950s. It was capitalised then at just over £1 million. Today, it is capitalised at £1.5 billion. Shareholders have not had to put in a penny of further capital. The company employs 9,000 people worldwide, particularly and substantially in Nigeria and Indonesia. PZ, together with Nichols in soft drinks manufacture and Halsteads in floor coverings, are probably the best three examples of manufacturing industry based in Manchester—the home city of the noble Lord, Lord Haskel, who I thank for introducing this debate.
What characterises these three companies is that they are all family controlled. They have been carefully stewarded through the generations. Had they not been family controlled, takeovers would almost certainly have taken place in all three cases. I had the privilege of being a non-executive director of two of these companies, and my family invests in all three. Yesterday, JCB, which has been referred to, announced that it was investing £31 million in designing and manufacturing the next generation of heavy-duty engines to give their products a,
“huge competitive edge across global markets”.
That is another example of an excellent family business. As the noble Lord, Lord Bhattacharyya, said, we just need many more. Contrast this with yesterday’s announcement from Cadbury, following the acrimonious takeover by Kraft, that there will be a couple of hundred further unfortunate redundancies.
We have global positions in aerospace, pharmaceuticals, and food and drink, but the ownership—the siting of headquarters and manufacturing plants—is complex and varies considerably. Take BAE Systems, for example, which we regard very much as a UK company, where probably 50 per cent of the ownership is in overseas hands. It employs more people in America than it does in this country. At present, we have a service-dominated economy but, as has been said, there is a close relationship between a successful manufacturing company and successful service companies. We undervalue manufacturing in this country both in the valuations of many quality quoted companies, making them vulnerable to overseas takeovers, and in the perception of manufacturing as a wealth creator and a career. We need, I suggest, to build bridges between manufacturing and the wider public in this country.
When I was Tourism Minister in the late 1980s, I instigated the first ever conference on what I termed industrial tourism, bringing together the English Tourist Board and the CBI. It was at Centrepoint. The whole idea was to encourage people to visit our manufacturing and for manufacturing plants to open themselves up. Today, many larger companies in ceramics and whisky encourage visitors, as do niche businesses such as Hardy’s in Alnwick, a fishing tackle manufacturer, and Derwent Pencils in Keswick, but we need more.
I shall make four points. First, it should be the norm, not the exception, to open manufacturing plants and processes to visitors—subject, obviously, to health and safety compliance. Secondly, apart from putting a higher tariff on physics and maths, we need a far closer liaison between manufacturing industry and schools. Thirdly, we need much more positive media coverage of manufacturing and the investment opportunities that exist in our quoted manufacturing companies to be brought into people's homes, to encourage potential investors to take their own decisions rather than invest through funds or similar. Fourthly, we should be putting successful manufacturers on a pedestal in this country. They are surely as important as those participating in the big society. What sort of lead do we give here in your Lordships' House? We have many bankers, barristers, brokers, academics, medics, people from the world of advertising and the media, local government, the diplomatic corps and the military, but how many out of 800 in your Lordships' House have real experience of substantial manufacturing industry and exporting? I am not talking about non-executives; I am talking about major executives who have really been involved in wealth creation.
In my final minute, I shall make a couple of quick points. First, there are substantial opportunities in the manufacturing chain to create manufacturing companies in this country. For example, Triumph Motorcycles brings in 90 per cent of its parts from abroad. More could be done to develop the manufacturing chain here. My noble friend and colleague Lord Alliance was telling me earlier that we are now beginning to see a slow reversal, with textile and clothing manufacture beginning to come back to this country. Secondly, the Sunday Times last week reported that of the 100 fastest growing companies 50 per cent were in service, 25 per cent were in retail and only seven that I could identify clearly were in manufacture, so there is a huge job to do.
Lord Bilimoria
My Lords, we had a debate on manufacturing almost exactly a year ago. Looking at the speech I made then, I felt that I could almost repeat it verbatim today. My point is that not a lot has happened and not much has changed in the past year with manufacturing. What has changed is that the economy has become more and more gloomy. The Government's predictions are completely up the spout, with us going into recession almost throughout this year, bumping along the bottom, with the risk of a double-dip recession. On top of that, we have had the domino effect of the subprime crisis, starting four years ago, now to the eurozone crisis, which in turn threatens to pull the whole world into depression.
What has happened to manufacturing all this time? The Government talk about a balanced economy, but what is the reality? In his autumn Statement last week, the Chancellor mentioned manufacturing only three times. What are the Government doing to incentivise manufacturing? It is a sector that in the early 1970s made up 30 per cent of GVA, employing 5 million people, but today makes up just 11 per cent of GVA and employs only half the number, 2.5 million people. I ask the Government bluntly: are they all talk? In fact, are they doing enough talking? Are the Government making manufacturing a priority? Can the Minister respond to this?
I thank the noble Lord, Lord Haskel, for initiating the debate at this time because just this week we have heard that British manufacturing is heading for a sharp slowdown as confidence, orders and output tumble. The EEF and BDO revised their forecasts for 2012 manufacturing growth from 2.2 per cent to 0.9 per cent. In October, the manufacturing sector shrank 0.7 per cent. Furthermore, if the Government were serious about manufacturing, we would be taking steps to incentivise the sector. At the moment, taxes are too high. The 50p tax rate is pushing away inward investment, with national insurance being increased, and employment laws are coming across from the EU with no talk about us repatriating our powers while the EU crisis is going on. It would seem that now is the ideal time to be having that discussion.
What has helped Britain over the years has been our open economy and our flexible labour force. But the more we get hampered by EU regulations, the less attractive we are to inward investors. Manufacturing is about not just home-grown manufacturing, but attracting manufacturing from outside. The Tatas invested in Jaguar Land Rover, a company that was in the doldrums, a company that no one wanted to buy. When the Tatas went to the Government for help, the noble Lord, Lord Mandelson, chose not to support them. They supported themselves and stood by their guns. Look at the company now: even in this environment it has made a £1 billion profit. Tata is an Indian company founded by a Zoroastrian family, my community of which I am proud to be a part. It is now one of the leading manufacturers in Britain.
What about India? India broke on to the world stage through IT, outsourcing and BPO, but it is actually a manufacturing nation, with manufacturing making up 25 per cent of its economy. India wants to increase that. We are going to be left behind. We have the cutting-edge capability which we have heard about. We have the support of the best creative industries, the best design, the best accountants, the best lawyers in the world; it is all there. The knock-on effect is that every two manufacturing jobs created lead to another seven jobs further down the supply chain.
I say to the noble Lord, Lord Lee, that I practise what I preach. As the founder and chairman of Cobra Beer, I always say with pride that, first and foremost, I am a manufacturer. We have a joint venture with Molson Coors, one of the largest brewers in the world, and produce our beer in Burton-on-Trent, the biggest brewery in Britain, where, I am proud to say, in the past year since the previous debate on manufacturing, we have won two Monde Selection medals in the world quality awards, taking our total tally to 55 gold medals in 10 years, most of them produced here in Britain.
We can do it. We are capable of world-class, world-beating manufacturing. The Government have just got to make it a priority. On exports, I am proud to say that in the past year Cobra’s exports, made in Britain, have increased 16 per cent year on year. We are outside the euro. We are in control of our own destiny. In India as a child, when I saw that a product was “Made in Britain”, it said “quality”. We are still capable of being the best of the best.
What about finance? Research shows that 70 per cent of SMEs cannot get finance. As reported through the CBI, a leading bank has been telling clients not to apply for the Government's Enterprise Finance Guarantee scheme, the replacement for the Small Firms Loan Guarantee scheme that helped my firm get off the ground, because the bank does not want to take the 25 per cent risk even though the Government are guaranteeing 75 per cent. The Government have got to make the banks support businesses.
On top of this, are the Government doing enough to create today’s 3i? When the Government backed the creation of the Industrial and Commercial Finance Corporation, which was to become 3i, in 1945, it did so much to nurture the entrepreneurial potential of Britain in bleak times. Can we not create similar large-scale organisation backed by the Government?
To conclude, we have to act now. The situation is getting desperate. Manufacturing means the creation of jobs and employment. It means generating taxes, which means paying for the public services from which we all benefit. I am sorry to say that my impression is that the Government's vision for manufacturing is a little blurred. It needs a target. We need 20/20 vision. Perhaps 20 per cent of GDP by 2020 is a bit ambitious, but the Government need to be focused, concentrating and confident with regard to manufacturing. I do not want to be standing here a year from now quoting from my speeches this year and last year. To quote the poet and Nobel laureate, Rabindranath Tagore, the 150th anniversary of whose birth we are celebrating this year:
“Where the mind is without fear and the head is held high …into the dreary desert sand of dead habit… into ever-widening thought and action… Into that heaven of freedom, my Father, let my country awake”.
Lord Cope of Berkeley
My Lords, it is very good that the noble Lord, Lord Haskel, has turned our attention away from the financial crisis and the eurozone, and given us the opportunity to talk about the real basics of the British economy. I agree entirely with him about the excellence of British manufacturing, and about the unsatisfactory nature of the economists’ definition of manufacturing.
When I was first a Member of Parliament, the Rolls-Royce factory in my constituency in Patchway employed 10,000 or 12,000 people. Now it employs a tiny fraction of that. A lot of the people employed were servicing the factory in one form or another. Now the catering is outsourced to an external caterer, which would count as a service industry, and all sorts of maintenance jobs which were done in-house before are now being put out. That affects the way the statistics look, in total. I am an accountant by profession, and we accountants do not always see things the same way as economists do. It frustrates me that the statistics get distorted in this way.
The other thing that has happened to this factory, and many others over the same period, is that whereas there were enormous workshops full of hundreds of men—nearly all were men—at lathes and milling machines, with supervisors and inspectors checking everything to make sure that very high-tech standards were being adhered to in the machining of the metal, there are now enormous machines, with one man sitting in a little glass box beside them, doing very little except gazing at a computer screen. This means, of course, that there are fewer people employed, even though they are producing more, and pouring out even more high-tech goods.
Despite all the immense challenges of the world today, I am full of optimism over the position of British manufacturing in the world. I agree with the noble Lord, Lord Haskel, that we have lost our capability as far as nuclear power is concerned. However, that is a 10-year story, and more attributable to the last Government than to anything that can be done at this stage. It was lost because of the attitude to nuclear power, which I never shared.
However, I am full of optimism. We remain an amazingly inventive people, full of entrepreneurs. We know that from history, but it remains true today. Businessmen, when asked what they want the Government to do, often say, “We want it to get out of our way”. That is a very understandable attitude, but there are some industries—and the aerospace industry is one which has already been referred to—where the Government are inevitably involved, with a role as a huge purchaser on both the civil and military sides. The UK aerospace industry is second only to that of America. It has a turnover of £23 billion, and good order books on both the civil and defence sides.
Of course, as the noble Lord, Lord Bhattacharyya, reminded us, the MoD has had some spectacular problems in its purchasing, but it is crucial that MoD purchasing is first class, not only for the Armed Forces but for the defence industries. The defence industries employ about 300,000 people. That is half as much again as the whole of the Armed Forces, so that area of the MoD’s responsibility is of great importance. The MoD’s R&D budget is about a quarter of the total spending on R&D in defence, but it is important, as is the support given later on. One could make similar remarks about the pharmaceutical industry, which has been mentioned, and about many other industries that I do not have time to cover.
It is one thing to make things and sell them, but intellectual property is of the greatest importance. I know that my noble friend has an important role to play in this. I noticed the very important article by Sir James Dyson in yesterday's Times about the difficulties his company has in China. Anything the Minister can say about that would help to update us. The single European patent is also being developed and will be important to all our industries.
Overall, I remain optimistic about British manufacturing industry. We should not talk it down, as occasionally happens. On the contrary, we should be proud of the achievements of very many sectors of manufacturing industry and of what the Government are doing through the Plan for Growth in all kinds of ways to encourage it.
Lord Sugar
My Lords, I am grateful to the noble Lord, Lord Haskel, for securing this debate on manufacturing. The noble Lord, Lord Lee, should be comforted by the fact that I am a manufacturer; I know that he is looking for manufacturers in the Chamber today.
I have spent the whole of my business life in the electronics industry. I started my first factory in 1971. It would be fair to say that in those days it was possible for someone to start up a small knife and fork factory and produce electronic consumer products. I am sure that the same can be said for many other commodities including clothing and textiles. In the building in Great Sutton Street, London EC1, where I occupied a floor, the upper floors were occupied by garment manufacturers. The irony is that in Great Sutton Street today the same buildings are occupied by the new-world media industry of web designers and social networking companies.
Some may argue that this is progress, but I argue that while these new-world industries employ some people, at the end of the day and near the end of the line people have to buy hard products. The buck must stop somewhere and there is a limit to where providing services can take us. I think that it is fair to say, with regret, that we have lost manufacturing industry for high-volume consumer products in this country, but fair also to say that design and intellectual property, mentioned by the noble Lord, Lord Cope, are also important and retained by British companies. A classic example is the Dyson company that the noble Lord referred to, which has been very successful in the vacuum cleaner business. The cleaners were produced in this country until manufacturing was taken abroad to a low labour cost territory. Of course, Sir James Dyson will point out that he employs a large number of people in the research laboratories at his headquarters.
Manufacturing of the famous brand Burberry was carried out in the UK but has long since migrated to the Far East. The irony is that prestigious brands such as Burberry are sought by the newly affluent population of China and in Japan. This brings me to my point: while I accept that low-cost commodity items can no longer be produced in the UK, high-quality merchandise can be. The demand in the lucrative export markets is very high for prestige brands where price is not necessarily the issue. The companies that I spoke of could still produce some of their flagship products in the UK and employ quite a few people and set the example of a British brand manufacturing at home, which would create employment and earn valuable export revenues.
The noble Baroness will be pleased to hear that I am not here to criticise the Government. However, I have a couple of suggestions; I am a bit of a detail man. The first is that some of the money in the recently announced £125 million advance manufacturing supply chain fund should be allocated to what I call incubator factories. So many empty premises and industrial estates throughout the country could be converted into specialist factories, where core infrastructure could be installed. This is applicable to various industries; be it electronics or textiles, it does not really matter. On the periphery of the main factory there could be small units where start-up businesses can do their stuff, design their products and utilise the core facilities, paying their way for the utilisation of the equipment and occupancy. Here they could sample their products and make small production runs.
My second idea is based on the lack of patriotism in this country, at the point of purchase. We need to educate the public to buy products that are produced or at least assembled in Britain. We need to change the mentality of the public so that when they go shopping they can help in their little way by purchasing products that are made or assembled in Britain. In the back of their minds should be the thought that, somewhere down the line, their purchasing decision is assisting employment. This new mentality needs to be instilled into the British household. For example, a logo should be produced that states: the product you are about to purchase is British.
The Government need to consider an initiative whereby—in association with, say, the federation of British industries—they come up with a certification scheme for manufacturers and producers of food, clothing, furniture or whatever. That certification should be accompanied by the aforementioned logo. The Government themselves should dip their hand into their pocket and promote this with some form of advertising. I am sure that some noble Lords will tell me that that might infringe all kinds of EU regulations, but I do not particularly care about that—I am sure that there are ways to deal with it. I remember that there was a time when “Made in Britain” was a very proud statement for manufacturers. It meant that the item was a quality product. I believe that we are still capable of producing quality products in this country.
Lord Dykes
My Lords, it is a great pleasure to follow the noble Lord, Lord Sugar. Although he will not remember it, I vividly remember that we first met about 13 years after he started his first factory in 1971. It was when I was visiting Dixons Group in the Edgware Road, which was on the edge of my constituency when I was the MP for Harrow East. Even then one admired someone who was a genuine manufacturer, as he has outlined today. I, too, thank the noble Lord, Lord Haskel, who has immense experience of this subject. He is the ideal person to open this debate. I shall be very brief, partly because the Chamber is dotted with some very interesting and impressive entrepreneurs; some have already spoken—the noble Lord, Lord Bilimoria, among them—and some will speak later.
We have a manufacturing history in Britain and the territories historically associated with Britain, so we see lots of ideas springing up and innovative suggestions being made. There is now a feeling that, at long last, it is time for everybody to give a boost to manufacturing in both the traditional sense and in new products that will be commensurate with the amazing electronic revolution. Many people say that we do not do enough of it, and I agree.
I declare an interest as a representative of the all-party group that supports the Food and Drink Federation. On Tuesday night, Dods hosted a meeting at the Institution of Mechanical Engineers, just across Parliament Square, of leading manufacturers in Britain. Some of these manufacturers were originally foreign-owned. Finmeccanica was originally an Italian company but is now one of the major defence equipment producers in this country as well. There was a panoply of very good examples of what can be done in this country. The combined food and drink sector is one of the most successful examples. Some of these companies are very small and manufacture both food and drink. Some are extremely successful and very well known. They are going from strength to strength and employ huge numbers of people.
I try not to do too many factory visits because it stops me being busy in the Chamber, which is the job of a full-time working Peer, which is my classification. However, I recently went to Coca-Cola’s wonderful and amazing factory in Edmonton. It was a great pleasure. It was immensely impressive to see the amazing electronic revolution that has taken place in its packaging and bottling plant. However, the sober truth is that that huge warehouse in Edmonton employs perhaps only four to seven or eight technicians and engineers who watch the computer screens and occasionally do repairs when an electronic machine goes wrong.
It is no wonder that there is youth unemployment on a massive scale. We cannot solve this problem other than by boosting manufacturing, which requires many people to perform many of the processes involved. We shall otherwise have to rely on retail, which is a huge people sector and excellent for creating business posts. However, the jobs created in this sector are not always skilled. I do not wish to criticise those in the retail sector who would consider themselves at least semi-skilled if not skilled, but many of the posts are not skilled. For the young unemployed, in particular, but also for other unemployed people, including older ones, stacking supermarket shelves is no substitute for finding a decent job in the new, innovative manufacturing sectors of the future.
I was a member of the Stock Exchange for many years. The large institutional firm of which I was a partner—a modern firm with a modern outlook—had a policy of always visiting factories. We did many factory visits every week. In those days, in the 1960s and 1970s, one vividly saw the decline of British industry. It was mainly the management attitudes that dismayed me—and not because I was a left-wing radical, far from it. I was much more of a traditionalist in those days and liked many of the traditional aspects of British industry, whatever sector it was. However, there was an attitude of condescension to the employees.
The idea that trade unions caused the difficulties in manufacturing is totally ludicrous. One saw that company directors were often the weakness. I vividly remember visiting BSA when it started to decline. When I went to British Leyland the visit started at 11 am; we had a visit of an hour and a half and then it was lots of gin and tonics and a huge boardroom lunch, which I think finished at 3.30 pm with one of the directors saying, “I’ve got to go and play golf now. If only the workers in this company would work harder, we’d solve our problems”. Six weeks earlier I had visited Volkswagen at Wolfsburg. The visit started at 7 am; we had black coffee and then a huge factory visit. Lunch was in the canteen with the employees. The directors and the employees sat together and ate together. I was an MP then, and when I came back I had a cup of tea in the House of Commons Tea Room with a very traditional Tory MP. I explained the difference and how shocked I was by it. The British motor industry was in decline then, and the fantastic German motor car industry was a good example of employee participation. The MP was a Tory old buffer—I will not say who it was to save his family embarrassment—and he said to me, “I think I prefer the British way of life”. That was the dismal lesson in those days.
There is no reason for that now, because British industry is very modern and egalitarian in its attitudes. We need more examples in manufacturing of the John Lewis philosophy, in which employees participate as equals. We need fewer glitzy, spivvy takeovers, which are the norm in Britain, as opposed to the long-term Mittelstand development that you see in Germany. I was at a party in Germany where somebody said that they were an engineer, and people crowded around. I heard someone at the Groucho Club say that they were an engineer, and people started walking away. They were really worried about being contaminated by meeting an engineer. Attitudes are hugely important, and that is the beginning of our innovation.
Lord Lyell
My Lords, I shall follow my noble friend Lord Dykes because everything I want to say is on an industry. I learnt about that industry, although it was nothing to do with my youth. It is the pharmaceutical industry, or what the Prime Minister chooses to call “life sciences”. I am probably unique in your Lordships' House in having not one O-level in science. Like my noble friend Lord Cope and, I understand, the noble Lord, Lord Haskel, I was trained as an accountant—a bean counter, though for the purposes of the pharmaceutical industry, I would call it a pill counter.
In 1977, I landed on the Benches opposite. The late Lord Belstead said to me, “You, lad, will cover the Patents Bill”. What did that involve? It involved pharmaceuticals. We call them drugs or, now, life sciences. This industry has been given a very heavy political boost this week by my right honourable friend the Prime Minister, who stressed that the United Kingdom should be a leading place for investment in this industry. However, investment is not the only side of things. The time, skills and disciplines required will take between 12 and 15 years—the scale of many of our careers in your Lordships’ House—to produce what they like to call a blockbuster, a successful product or drug. Chapter 3 of the strategy, the pamphlet that is available for O-level students like myself in the Printed Paper Office, has the excellent title of “Attracting, developing and rewarding talent” for everybody involved in this industry. I hope that we will be able to combine the scientific excellence and commercial rigour that are necessary overall in industry in the United Kingdom but particularly in pharmaceuticals and life sciences.
Secondly, I understand that there is now enormous assistance from all the records of the National Health Service throughout the United Kingdom. Indeed, in some of the pamphlets, I discovered that there are enormous records taken in my own area of Tayside of some aspects of health—I had better not go into which particular aspects; nothing to do with the liver or obesity, but we do not need to worry overmuch about that. There is certainly a huge amount of information available from National Health Service records, and I understand that using these records is going to be one of the priorities of the Government’s strategy: first, in discovering what ailments need to be cured and are a priority; secondly, to carry out trials directed towards the relevance of these problems and diseases.
Then one comes, of course, to the finance. The research and trials are fine but I am delighted to read in the pamphlet—I am afraid that I have perhaps been dozing like Rip Van Winkle with regard to some aspects of the tax thing, but I am sure that my noble friend Lord Cope will be delighted—that there is something splendid called “super-deduction relief”. I was not aware of that in my tax studies, but I understand that is going up from 200 per cent to 225 per cent. I see the noble Lord, Lord Bilimoria, beaming at that. Obviously there will be something in it for him, I hope, and others for whom he has spoken. It shows that the Government are taking this particularly seriously, to try to help all types of businesses, large and small, to get some financial assistance. It sounds quite a lot, that you are writing off twice your investment, but over a scale of 12 to 15 years, perhaps that is no small help.
My third point concerning the life sciences industry is that NICE is supporting both the compliance and the regulation. This is simply essential and obligatory for life sciences and medicine because one is taking care of not just finance, not just these wonderful motorcars that my noble friend Lord Dykes spoke about, but of people’s lives, well-being and health. I strongly support every aspect of NICE carrying out compliance and regulation in this industry. It is no small miracle that 20 per cent of Europe’s successful medical biotechnical companies are here in the United Kingdom. We are indeed world leaders in some aspects of this industry, as the table on page 11 of Investing in UK Health and Life Sciences shows.
I am immensely grateful to the noble Lord, Lord Haskel, for giving us the chance to discuss the excellence of British industry. I am proud to be a mere accountant, a counter of those pills—they used to be beans but we call them something else.
Baroness Donaghy
My Lords, how do we develop a bigger share of the manufacturing marketplace? I think we all know the solutions: a competitive banking system, for more flexible loans; a universal vocational education; a philosophy of long-term investment; and a system of government that is focused on strategic issues stretching beyond a four- or five-year term of office—not a lot, really.
Some noble Lords have talked about their manufacturing backgrounds. I worked on a production line in a pie factory in the Midlands, so I can say that I was a meat pie manufacturer. I was brought up to believe that Sir Frank Whittle was a hero—which of course he was. My father worked as an aero engineer for Armstrong Siddeley. I make the point about Sir Frank Whittle for two reasons. First, it is unfortunately comparatively rare for a child to be influenced in this way. I am a comparative newcomer to the world of Westminster and I wonder what the response of our political classes would be if their children announced that they were going into manufacturing. My guess would be that it would be the equivalent of your child coming home from holiday having married the hotel waiter. Culture change is needed from top to bottom, not least in the industries themselves, which must find ways to fire the imagination of the young.
The second reason for mentioning Sir Frank Whittle is to emphasise the importance of heroes—and heroines—a point made very clearly by the noble Lord, Lord Lee of Trafford. If we look at how Sir Frank Whittle was treated by the establishment of the day, we get some idea of the shortage of heroes, and it is a job we should be doing: the top 50 manufacturing heroes of the century, the top manufacturing hero of the year. I welcome the fact that the £1 million Queen Elizabeth Prize for Engineering, to be overseen by the Royal Academy of Engineering, has been created to elevate the status of engineering. It might help to create more heroes, but does it address the issue of teamwork, collaboration and partnership, which is a feature of much development work today? I have a concern about that.
Having talked about Sir Frank Whittle, it is important that we do not allow the debate to be just a stroll down memory lane. The excellent debate in the House of Commons last month covered the key areas of skills, financing and culture change, and the need for a clear strategy for the future. The right honourable Pat McFadden covered this very well when he said:
“I also believe that we make more than we think and more than we sometimes give ourselves credit for … we can challenge the culture of decline and loss. As a country, we should resolve to be the best place in the world for engineering”.—[Official Report, Commons, 24/11/11; cols. 521-22.]
There are some excellent examples of collaboration between companies and universities. I am a member of the University of Birmingham’s business advisory committee, along with the noble Lords, Lord Bilimoria and Lord Jones of Birmingham—yes, I do get a word in edgeways. The university produces an excellent yearbook on entrepreneurship and innovation, with a foreword by my noble friend Lord Bilimoria. I was privileged to attend the Lord Stafford Awards dinner last month, where close collaboration between industry and universities in the Midlands and eastern area was celebrated. I would like to pay tribute to Lord Stafford for his work in this area. Apart from the well established work at the universities of Birmingham and Warwick, there were other exciting developments, including between Siemens and the University of Lincoln, intended to encourage people into the engineering industry.
Part of the debate in the Commons was around creating a full-time Minister for Manufacturing. The Minister for Universities and Science, Mr David Willetts, indicated that the BIS Minister, Mr Prisk, was,
“for all practical purposes our Minister for manufacturing … He is the go-to Minister for manufacturing”.—[Official Report, Commons, 24/11/11; col. 539.]
There really needs to be more strategic political focus on manufacturing. It is covered by many government departments, and that in itself can be the kiss of death for progress. I conducted an inquiry into the underlying causes of construction fatal accidents and saw then how many government departments were involved. I recommended that there should be a full-time Minister to provide more political focus on the industry, and a resource to provide an overview of the various departmental activities. What I did not say in my report was that a turnover of eight Ministers, with an average stay of eight months, was not conducive to good governance.
That is, unfortunately, the Westminster way but it does not give confidence to industry. When I pointed that out to some civil servants, one said that he thought the construction industry was a bunch of whingers. I met 175 organisations and individuals, and I did not meet a single whinger. They were a group of practical, can-do people who achieve great things for our country and deserve our support.
When preparing for this debate, I was going to make a plea that Governments should try to kick the habit of making grand, intermittent announcements about funding. Unfortunately, this week we have had—guess what?—a grand announcement of a new £125 million fund,
“to boost UK advanced manufacturing supply chains”.
The inevitable press release talks about “a new initiative”. An initiative is of itself new but tautology is always the order of the day on these occasions. The problem with these one-off funds is that they are invariably time-limited and, therefore, cut out long-term planning. The politician’s reply is that it is pump-priming and has to be administered by a department, for which one could read, “project managed by a civil servant whose promotion depends on it”. The criteria for eligibility will be couched in such a way that most people will not apply and the fund will be inadequate.
The support for our manufacturing base really is a matter of life and death for our economy. I welcome the opportunity to speak in this debate and I thank the noble Lord, Lord Haskel, for that opportunity.
Baroness Randerson
My Lords, I make no apology today for drawing on the experience of Wales and its manufacturing. Wales was, of course, a great manufacturing nation. In the past 10 days, Wales has suffered two major blows to its manufacturing employees. First, there is the mothballing of the rolling mill at Llanwern steelworks owned by Tata with the loss of 150 jobs, although there is the hope that they might be brought back when the economy picks up. Secondly, 75 jobs were lost at Hawker Siddeley Switchgear at Blackwood where employees were manufacturing electrical components for trains. These are the latest examples of a steady but steep downward trend in the contribution of manufacturing in a part of the UK, which, as I have said, was a bastion of industry.
In 1990, Welsh industries employed 235,000 people from a population of 3 million. By 2008, this had fallen to 162,000 people, making up 14 per cent of Welsh employment. Estimates suggest that a further 30,000 jobs have been lost since, among them the jobs at Burberry referred to by the noble Lord, Lord Sugar. In 1997, manufacturing was responsible for 28 per cent of Welsh GVA, which had fallen to 18 per cent by 2006. The decline has been pretty well across the board—clothing, textiles, publishing and printing, metal manufacture and mechanical engineering. Above all, in the electrical engineering industry, 18,000 jobs were lost between 2000 and 2008. This was the sector in which Wales had been so successful in attracting inward investment in the 1980s and 1990s under the leadership of the Welsh Development Agency.
This is the crux of the problem. Industries used to be based where the raw materials and the sources of energy were; hence the development of the Welsh valleys, for example. The problem now is that industries are footloose. They go where they can get the best offer and the best skills. In the 1980s and 1990s, the Welsh Development Agency did a superb job attracting inward investment. But that was based on a low-pay model and no country in Europe can establish industry based on a low-pay model now, even if it were morally defensible in the current world. We have to sustain our manufacturing now on other bases.
Sadly, the WDA was abolished a few years ago and Wales no longer has a strong international image to attract inward investments. However, the key issue is that footloose industries now go where the skills are. We need to maintain a strong manufacturing base, of which we should not lose sight when we look at other aspects of the economy and perhaps see them growing and flourishing. There are particular reasons why we want to keep that strong base. First, the pay is relatively good—skilled jobs mean good pay. Secondly, there is a tendency in manufacturing to create, as a proportion, more full-time jobs, and hence better income for the household. The third reason is the export earnings that come from manufacturing. Finally, manufacturing creates other jobs in the supply chain in a way that some other aspects of the economy do not do.
In the 21st century, successful manufacturing regions are those which spot the opportunities, create the skilled workforce required and keep ahead of the game by nurturing technological development. It is a matter of great regret that, for example, Wales as a country is wonderfully placed geographically for the production of a variety of forms of renewable energy but it has failed to develop a manufacturing base for the production of the equipment required for renewable energy production. That is a lost opportunity which, unfortunately, will be difficult to catch up with because other countries are doing it so successfully.
Successful manufacturing economies of the future need a vibrant, innovative university research sector closely linked with local businesses. They need an army of appropriately trained apprentices. I congratulate the coalition Government on the emphasis that they put on the development of apprenticeships, which have increased from 280,000 in 2009 to 450,000 today, and that figure is rising. I also congratulate them on the emphasis that they have put on the STEM subjects at universities. It is highly important to encourage our universities to do the research and to link closely with businesses.
Finally, I thank the noble Lord, Lord Haskel, for introducing this debate. However, he is rather unfair to expect the coalition Government to have turned around the super-tanker of the economy, which in recent decades has been heading fast in the wrong direction. It will take years to turn around that super-tanker.
Lord Northbrook
My Lords, we are all grateful to the noble Lord, Lord Haskel, for introducing this important debate on the development and retention of manufacturing industry in the United Kingdom. Placing UK manufacturing in a global context, whether we like it or not, we cannot compete in the mass manufacturing market because of our wage structure compared to countries in Asia and Latin America, for instance, where labour costs are so much lower. The UK is competing with numerous locations for investment from internationally mobile manufacturing firms. Brazil, Russia, India and China have already moved up the value chain and offer incentives for multinational companies to establish operations in their countries at the risk of eroding our manufacturing base. The emergence of countries such as Colombia, Indonesia, Vietnam, Turkey and South Africa presents an increasingly crowded space in which the UK needs to manoeuvre to attract investment. However, there is no reason why the UK cannot have a niche role in manufacturing higher value added products.
Until very recently, figures for the manufacturing sector throughout the recession have offered signs of optimism in an otherwise bleak landscape. In the first quarter of 2011 the sector grew by more than 20 per cent in terms of output and orders. By September, the sector was still showing year-on-year growth of 2 per cent. We are still the seventh largest manufacturing country in the world and leaders in industries such as aerospace and pharmaceuticals, and we enjoy a comparative advantage in medium to high technology manufacturing. The vital industries that underpin those sectors such as packaging, or the contribution which food and drink, the largest manufacturing sector in the country, make by employing more than 400,000 people, should not be forgotten.
On Tuesday, several noble Lords and I attended a most interesting event sponsored by Dods which, with several large companies and institutes, has issued a publication entitled Manufacturing a Greater Britain. This publication sets out five policy recommendations which I will discuss in more detail. I have also blended in what the main manufacturers’ association, the EEF, has published recently as advice to the Government following the Autumn Statement.
The first recommendation in the document is that we need to improve the rigour of science, engineering, technology and maths teaching in our schools and colleges. This will help drive quality in the UK workforce. The second recommendation is that the Government can play a strategic role in supporting key industries with increased public sector investment in the research and development which will help innovate them. I think this recommendation has to be carefully thought through and targeted, particularly in these difficult economic times.
I welcome the Government’s announcement in October that they would finance a £170 million package to create the first technology and innovation centre in high-value manufacturing. I also welcome, as does the EEF, making additional tax allowances for R&D expenditure available for smaller companies and hope for further progress in the move to above-the-line relief for larger companies. Here I would ask the Minister for progress on these consultations. I can understand that sensible public sector procurement could give preference to UK products, taking into account the extra social security costs if redundancies occur as result of businesses laying off workers or failing altogether as the result of failing to get a contract.
The third recommendation is to review environmental legislation to ensure that energy costs remain competitive. The Chancellor’s announcement of a rebate from the carbon tax for energy-intensive industries is welcome and is also praised by the EEF. It is now necessary, in my view, for a broader cross-departmental review of environmental legislation. As part of this process, each unilaterally applied carbon policy in the UK should account for the likely detrimental effect of an implementation that results in investment being located abroad.
The fourth recommendation is more difficult to achieve in the short term. Manufacturing in this country has suffered a negative perception as being the poor relation compared with having a job in financial services or the professions. One possible silver lining to the recent economic and financial crises may be to persuade new job recruits to go into industry as a more secure place to work. More needs to be done in, for instance, television programming. We need programmes about engineering and manufacturing, especially from channels like the BBC, although I was glad to hear the noble Lord, Lord Haskel, mention a good programme last Sunday. Sadly, overall, its record in this area has been seriously lacking and positively hostile at times, and this needs to change.
Finally, more needs to be done to assist small and medium-sized enterprises, whether through giving them access to finance or export markets. The EEF is also vocal on this front. The UKTI is doing good work to help businesses locate overseas markets. It can do still more to help in this area and make it easier for them to access trade finance.
Lord O'Neill of Clackmannan
My Lords, I am happy to follow the contribution from the noble Lord, Lord Northbrook, and I will pick up on a couple of his themes. I also congratulate my noble friend Lord Haskel on securing today’s debate and for providing us with such a helpful introduction. It was a tour d’horizon of British industry in the round, and it was very useful. It is perhaps significant that this is the second Thursday in a row that we have dealt with industrial matters in the Chamber, and we have seen in excess of 20 contributors applying to speak on each occasion. I want to make a point here.
As a House, I do not think that we deal with this subject in the methodical way we ought to in terms of a Select Committee. I know that we have the Science and Technology Committee, and indeed I have served on it, and that there are a number of economic committees, but we do not have a committee that is devoted to enterprise and innovation, a topic that I believe is the subject of an annual report from the Council of Birmingham University, or certainly from the Midlands. I have already spoken to, as it were, the Labour bit of the usual channels, and when we consider future developments for Select Committees, this topic should be given an opportunity. I say that because, having served on the Science and Technology Committee, it tends at times to be a bit theoretical and has an understandably heavy agenda. The needs of enterprise, engineering and manufacturing could be dealt with more effectively by another such body looking at them.
At this point I should declare an interest in that I am a consultant to the Manufacturing Technologies Association which likes to think of itself, with some justification, as the provider of seedcorn for British engineering. It is the body that by and large provides most of the machine tools required by our engineering and industrial activities. This is done sometimes through imports and sometimes from the UK. The bulk of the association’s membership comprises companies that are relatively small, so the association is not skewed towards the big companies.
Perhaps I may raise a consideration touched on by the noble Lord, Lord Northbrook, the R&D tax credit. I think that there is a slightly different aspect to it. This is working very well for small and medium-sized enterprises because the point of application is also the point when annual accounts are produced. If you are making a profit, then you are able to benefit from the credit. It would be good to widen the scope of the credit to allow bigger enterprises to apply at different points in their profitability cycle, because we know that businesses do not make profits every year, much as that is to be desired. If we had a one-size-fits-all application system, it would probably mean that the credit could not be applied for when annual accounts are being produced, and that could impose a burden on some smaller companies. I make the point in the context not only of an additional burden on business, but also because at a time when we are talking about red tape challenges, this would introduce a bit of red tape that we could usefully avoid. I do not want to scupper what is a worthwhile attempt—in the past we have all argued for R&D tax credits and the like—but it would be unfortunate if a unified system made it more difficult for many of those who are benefiting from it quite considerably at the present time. That was the first point I wanted to make.
Secondly, I want to echo the sentiments which have been expressed in relation to the design and technology campaign. It seeks to try to sustain the design and technology component within the compulsory part of the 11 to 14 curriculum in schools. We talk in a pious way about encouraging young people to get into engineering. If you catch young people of 11 to 14 years of age and interest them in this subject, they will carry on with it. Indeed, one of the important successes of the new-style design and technology curriculum is that it is now one of the most popular non-compulsory subjects at GCSE level. Some caution should therefore be shown, particularly by advocates of the classics against everything else, because not everyone is going to spend their life in contemplative study, and at the moment far too few young people are moving towards productive activity in our manufacturing economy.
I do not wish to appear harping, carping or unduly critical, but we must be cautious about making changes to the tax credit system, worthwhile though they may be. We should also think twice about the possibility of removing the compulsory element of D&T from the school curriculum. It is designed to encourage youngsters to go into engineering, which so many of us consider to be a career and a profession that the country requires and which in itself is intensely satisfying for those involved.
Lord Giddens
My Lords, I, too, congratulate my noble friend Lord Haskel on initiating this debate in his usual polished and persuasive way. I spent most of my career in academic life, but I am an entrepreneur. I started a company; unfortunately, it did not make nearly as much money as those started by my noble friend Lord Sugar.
I shall talk about something which I think is interestingly counterintuitive in terms of what has been said so far in this debate. I want to comment briefly on the re-shoring debate in the United States. Re-shoring is the opposite of off-shoring. It is the drawing-back of manufacturing jobs into the US economy. So far as I know, it has been barely discussed in this country, but it has had very wide public discussion in the United States—in my view, quite rightly—and there is a lot of ongoing academic work about it there on which we could draw in the UK and in Europe. A good example is the work being done by the Boston Consulting Group, which produces a volume called, Made in America, Again. Several reasons are given as to why we might see an interesting reversal in the main trends that have dominated global manufacturing for the past 30 or so years, which I shall discuss briefly.
The first is the instability of global supply chains, something which companies and Governments are much more conscious of in the wake of a series of natural disasters around the world, including the earthquake and tsunami in Japan which severely disrupted supply chains—of course, the explosion at Fukushima plant played a part in that.
The second is the rising price of oil. It seems to me that unless there is a really serious global depression, which one could not write off, the price of oil will continue to rise. It is inevitable because of the technology needed to secure oil from the very difficult places which we now have to get it from.
The third—and this figures importantly in the American debate—is the increasing level of wages in China, especially in the manufacturing centres near to the coast from which most of the goods transported to other countries come. Those wages are rising—of course, the average wage in China is very different—whereas, at the same time in the United States, American real wages have been stagnant or declining. This has been by and large true of the other western industrial economies. When higher US productivity and lower cost of transportation are taken into account, the Boston Consulting Group argues that the cost advantage of making some core types of goods outside the United States becomes entirely marginal and that manufacturers who are thinking three or four years ahead should start to plan in a different way.
Moreover, there is a renewed debate in the United States about the true value of manufacture in an economy, which cannot be measured purely in immediate economic terms. You have to measure it in terms of the skills you lose, the difficulty of replacing those skills, the investment capacities that you lose and so forth. It is very important that we get this into our debate here.
The Boston Consulting Group has done detailed research on seven industrial sectors where it says that production could return to the US. It has also done research in detail on one firm, Otis, which has relocated back to the United States, to find out the reasons. That is appropriate, because Mr Otis invented the counterweight in the elevator in the 19th century. He made possible skyscrapers and thereby, you could say, the American way of life.
The re-shoring thesis has been widely criticised, but I think that the critics are short-sighted about it. You might react sceptically and think, “Oh, well, it’s wish-fulfilment”. But this is wrong, partly because, as a social scientist, I have always found a useful operating principle to be: if you want to think ahead, do not think of current trends but think of the opposite of those trends. That is because history marches dialectically and it could very well be happening here.
Critics say that if production moves from China it will simply go to poorer countries, but I do not think, in the light of all the work that has been done on re-shoring in the US, that this is the case. The reasons, briefly put, are: the shipping time; the shipping cost; cost and quantity control, which you lose when you export your production abroad; and, crucially, lost of patents. Intellectual property rights are so important in modern industry. If you locate your production in a country which does not respect those rights, you do not have the same control as you do in your own country.
In conclusion, according to the Boston Consulting Group, the value of manufacture which could come back to the US amounts to $1 trillion a year. I ask the Minister to comment on this and its relevance to our own debate about manufacturing.
Lord Selsdon
My Lords, I have the great pleasure of serving on the Information Committee with the noble Lord, Lord Haskel, who has always continued to demonstrate to me the theory that people such as me all reach the level of our incompetence but never he.
I always wanted to be in manufacturing. It went probably from my academic education, which was pretty weak. I would learn:
“Abstract nouns in –io call
Feminina one and all;
Masculine will only be
Things that you can touch or see”.
I wanted to be involved in making new things. When I first went into industry, I joined a company called Universal Asbestos, which was not the sort of company to join but it was going into plastics, and I was a young chap who might learn about polytetrafluorethylene, polyvinyl-formaldehyde—all of the “polys”—and how polymers were put together.
I became a rep for a while during my training period in the north-east of England, which was a pretty depressing area at that time. Nobody was interested in new products; they were interested only in getting the old products without having to pay for them in advance. In my plastics world, I was asked, because we were looking for new products, whether I would join a company that was doing industrial and economic research into consumer durables and things of this sort. This ultimately led me into the white goods market with an Italian group called Merloni.
We were looking to co-operate in England. I wrote to the noble Lord, Lord Sugar, as you would expect, because he was a very dynamic chap in those days, offering to help. He wrote a letter which I suppose would say, more or less, “Sugar off”. I am, however, grateful to him today because, last night, Sky Television rang up and asked whether I could be interviewed on manufacturing. Then, to my great relief, they told me at nine o’clock this morning that they had got the noble Lord, Lord Sugar—they had captured a good ‘un.
Manufacturing is quite an interesting subject, but I am not sure that the term is right, because we are looking to where we create added value. I start, because of my background in trade, by reminding ourselves that we have a balance of payments deficit on visibles of £100 billion. We may have a surplus on invisibles of £50 billion, but we have a major problem on deficit with trade, which is effectively the lifeblood of the nation.
Over time, we have failed to recognise the need not only to invest more in new product research but to find that particular moment when you get from the product design—that can be years away sometimes—to it being take up. When I was in the banking world for many years, I would be approached on odd things that other people would not finance. If someone rang up, my colleagues would say, “Oh, it’s another hare-brained scheme. Go and talk to Malcolm”. That would be hovercraft or things that never seemed to get off the ground. Let us take the hovercraft industry: it was a great technology which then steadily faded away. It became no good for transport, but it was good for things like surveillance out in the Arctic or over the tundra.
Surprisingly enough, it was in the white goods field that I became quite interested. We wanted to co-operate. We could not get any co-operation from Arnold Weinstock so we bought Hotpoint. Hotpoint was originally the hot point of the iron that gave you the greatest heat which meant that it was perfect. The next company that we went and bought was called Colston. Charles Colston played squash. He found that the rubber of a squash ball got so jolly hot that a special type of rubber was needed. He then worked out that if you put a rubber seal around a washing machine, which could heat the water hotter, you would have a better machine. The Colston was used by the middle classes for ever and a day. My mother kept one for 50 years.
In all of these areas, we then found that you looked for the greatest component part or cost of something. Usually, it was the bit that always went wrong such as when button pressing came in, and when buttons disappeared, you found that the wrong electronic signals were sent so you could not make the thing work.
When one looks at the world of consumer durables, what helps everybody, ultimately, is if you can get a conditional order. Having gone into the water industry—I followed the pipe connection right the way through—I ended up working in water and sewerage and doing big sewerage projects. My favourite project was one in India where we were going to use the latest technology. In the end, our pumping station used the Archimedes screw. Archimedes had used his screw to get water out of a ship in Alexandria harbour. Then I found that my heroes were not the modern engineers; they were Archimedes, Galileo, Newton and even Einstein; who all operated on the same level as the noble Lord, Lord Haskel, which is many levels above myself.
Yet in some areas we have made big advances. The noble Lord, Lord Bilimoria, who I respect greatly, mentioned 20:20 vision. He must not worry. Some of the most advanced people in the country are in the field of retinopathy. If he has any problems with 20:20 vision, please will he come and see me?
Lord Morris of Handsworth
My Lords, it is a privilege to add my name to all those thanking the noble Lord, Lord Haskel, for securing this timely and important debate.
As we see the balance of our economy weighted in favour of what we import against what we produce, there is no doubt that we need to rebalance our manufacturing priorities in favour of home production and exports. The reality is that we urgently need a new strategy for British manufacturing, in the absence of which we will end up taking in each other's washing and, sadly, we will have to do it using our Japanese washing machines.
It is my hope that in this debate we will not just concentrate on what has gone wrong, but we will seek to focus on some of the solutions, as the noble Lord, Lord Haskel, did in his introduction. But first let us talk about the problem. The scale to which the British manufacturing sector has shrunk in the past 30 years was highlighted in a recent Guardian article under the headline “Why doesn’t Britain make things any more?”. I do not quite subscribe to that. We do make things. The issue is that we need to make more things and make better things, and most of them should be things to serve other markets. The article asserts that in the past 30 years the UK manufacturing sector has shrunk by two-thirds—a factor described as the greatest deindustrialisation of any major nation, all done in the name of economic modernisation. Let us be clear. The impact of deindustrialisation on our manufacturing sector has swept through our country with the force of a hurricane.
Much has been written about it and our experience has been enhanced by the Industrial Revolution, but today it is the deindustrial revolution that carries the heavy social and economic burden. But what is the driving factor behind the flight from manufacturing? In the 1980s, we were told that in the future we would hire brains, not labour, and that the role of Governments was to get out of the way and let a thousand creative flowers bloom in the knowledge economy. Silicon Valley was the inspiration and Britain would become the e-commerce capital of the world. Sadly, the so-called economic modernisation has led to a large degree of industrial decay.
When the noble Baroness, Lady Thatcher, came to office as Prime Minister in May 1979, manufacturing accounted for almost 30 per cent of our national income and employed 6.8 million people. But when the previous Prime Minister left office in May 2010 it was down to just over 11 per cent of the economy and employed just 2.5 million people. While Britain's manufacturing household brand names disappeared, what a contrast it is that Germany and France have managed to retain their household names such as Renault, BMW, Bosch and many more.
The impact of deindustrialisation on the balance of our trade means that, last year, Britain actually bought £97 billion more in goods from abroad than we sold—the biggest shortfall since 1980. In the north-east, manufacturing jobs have nearly halved since 1979. Deindustrialisation attacks the base of our manufacturing sector and, by extension, the strength of our economy. For example, the majority of the 6,000 workers who lost their jobs when MG Rover closed in 2005 have by now found alternative employment. But a recent study shows they are on average earning nearly £6,000 less per annum. That is an economic negative to the UK economy. The danger is that a greater proportion of our citizens now earn their living from the state as an employer. That is no wonder when we give train contracts to German factories rather than to workers in Derby.
I pause here to assure the noble Lord, Lord Lee, that the contribution to British manufacturing is not exclusive to the boardroom. The Mini motor car would never have been built but for the designers at Hardy Spicer who designed the first constant velocity joint, enabling the Mini to be driven off the front wheels. I know because I was there for 18 years, but I visited the boardroom only when I had bad news.
I went to a reception recently to celebrate the rise and progress of Triumph Motorcycles in Leicester. As I stood there I thought, “If I get arrested on the way back to this House, the motorcycle that the police officer will be riding will be a BMW, and possibly also the car his colleagues are driving as well”.
Baroness Rawlings
My Lords, this is a timed debate and we are running out of time. Please will the noble Lord wind up his remarks?
Lord Morris of Handsworth
I will merely say that we must align our procurement policy with our manufacturing policy because manufacturing really does matter.
Lord Soley
I add my congratulations to my noble friend Lord Haskel. He is one of the few Members of this House who actually puts entries on the Lords of the Blog site about manufacturing. Some noble Lords who have been speaking today should do the same because entries always attract a lot of interest. I am delighted that my noble friend Lord Sugar is going to do one of the television broadcasts that has been organised by the press office of this House, because we need to get the message out about the importance of these debates. They are important in their own right but we should not just be talking to ourselves or to government Ministers, as important as that is. Getting the message out to a much wider base is important as well.
I want to focus on one factor, which is the immense importance of science and technology to the manufacturing process in the modern world economy. In his introduction, my noble friend Lord Haskel reminded us of something that we should keep reminding ourselves about. It is difficult to separate manufacturing from servicing. There is no artificial divide.
An example from my old constituency of Hammersmith is similar to the one given by the noble Lord, Lord Sugar, about what happened with small knife and fork manufacturing industry. When I was first elected there in the 1970s, you could go to the arches under the Shepherd’s Bush railway line, or down to Acton, and peep through the closed doors and find people all manufacturing heaven knows what. When the BBC expanded big time in Shepherd’s Bush, that began to go, and instead there was a growth in design, particularly electronic organisation and manipulation of information. Although we might all complain about the BBC television licence fee, in fact the BBC produces—it manufactures—films that are sold all over the world. We often talk about the impact that gives us in terms of culture, political influence and so on, but actually it is a manufacturing process. People are buying that product.
Somebody has already referred to the good example of the television programme about a week ago on the Rolls-Royce engine. There was an equally good one—the same series—on how we make space satellites. People forget that there are very few satellites orbiting this earth that do not have British products in them. There is a message to be made. There is this overlap.
I would like the Government to bear in mind, in their policies on this, the work done on science and technology that was built up very dramatically by the last Government. I hope and anticipate that this will be continued by the present Government, because we cannot have the advances we are looking for without it. The noble Lord, Lord Cope, seems to feel that the decline in nuclear energy was down to the last Government, but it was not. It was much more serious—an acute concern developed in the 1970s and 1980s about climate change and, very sadly, the green movement got carried away with what I regarded as an anti-science approach. All parties, including those overseas, became infected with the idea that climate change could only be combated by, in effect, a “back to nature” approach. The answer to climate change, which I regard as very serious—I wrote my first article on it back in the 1980s—is not “back to nature” but “forward to science and technology”. That is what will crack it at the end of the day; that is what enables us to deal with it.
Nanotechnology is of immense importance. This is something that this country is doing an awful lot on but an awful lot of people will not know what it is. It is the manipulation of matter at a sub-atomic level, and enables us to develop new products which are self-generated by the nanotechnology that underpins it. We are very good at that in biology, chemistry and so on. We have a lead on that very largely because of the National Health Service, which provides an enormous market for drugs and many other matters related to the advanced technologies. It is time we not only used that in our exports around the world—which we do—but recognised that many people look to the health service; which, for reasons that escape me, we keep reorganising, with some bizarre idea that yet another reorganisation will somehow answer these problems. Many people overseas look to not only the science—the biology and chemistry—underpinning what the National Health Services does for us but to its organisation. We could actually sell that service overseas.
Lastly, I want to mention aerospace. Again, I say to the noble Lord, Lord Cope, that if he wants to avoid the problems that affected nuclear energy, watch out for the Government’s blindness on our hub airport policy. If you want the second largest, most advanced, aerospace industry, you have to have a system of supply underpinning it. If we just carry on with the assumption that we do not need to worry about the underpinning work that is done by having hub airports and so on, it will see the same fate as the rail industry. We invented railways and the Industrial Revolution, but let it slide by not keeping up with the science and technology. Science and technology will drive things forward. That is the message of the Industrial Revolution and we ought to bear it in mind when we are talking about manufacturing and science.
Lord Young of Norwood Green
My Lords, I, too, congratulate my noble friend Lord Haskel on what I can only describe as a panoramic contribution on a vitally important issue. He reminded us about the scope of manufacturing and how it links with services and the importance of design. I, too, watched with breathless admiration that recent programme on the making of a jet engine, which was a stunning advertisement for British engineering at its finest. We also had an interesting foretaster debate on cycling earlier, and just down the road from where I live is the Brompton Bicycle factory—another outstanding British success story—which exports all over the world. It produces a high-quality product, which I use every day.
I have thrown most of my intended contribution away because there have been so many fascinating contributions from around the Floor of the House, but an area that has not been covered is the importance of creating hubs—Formula 1 is a good example of this—where a number of manufacturers gather together. I cite that only because it seems to me that it has not been mentioned today, although the noble Baroness, Lady Randerson, made a point about the importance of supply chains. I would welcome comment from the Minister on what steps the Government are taking to encourage the creation of hubs. There is another example in the east of London, in the Old Street area, where we have another potential silicon valley. Hubs require good infrastructure, and these days high-speed broadband is perhaps at the heart of infrastructure. The Government are doing something in that area, but not, I believe, enough.
It will not surprise the noble Baroness that I want to focus on the question of skills. I was very interested in the contribution of the noble Lord, Lord Jenkin, when he talked about the lack of skills. There are some problems in this area and I would not want to deny that, but there is a sort of puzzle as well. For example, British Telecom advertises for 300 apprenticeships and gets 25,000 applications, so I do not think that it has much trouble in filling those.
Clearly, education is a key point, and it is profoundly important to ensure that we create enthusiasm in schools and colleges for design and technology. This raises a question mark about this Government’s concentration on the EBacc, the English baccalaureate, which seems to focus on the classics. There is a real danger, if we are not careful, not that we will be pointing schools and colleges in the wrong direction, but that it will not be inclusive enough. We know it is important to encourage people early on to have an enthusiasm for the importance of manufacturing and the excitement of design. I think the noble Lord, Lord Jenkin, talked about schools and companies and the interrelationships between them. He is absolutely right. Every school in this country should have a relationship with the local business community, and it does not particularly matter which way round it happens.
Career advice is another really important area. Unfortunately, as someone who was a member of the last Government, I cannot ignore the fact that we focused so much on the question of getting 50 per cent into university, which seemed to create the view that a vocational choice was a second-class choice—it certainly is not.
Obviously, I cannot resist the question of apprenticeships, because that is part of the skills equation. I was reading the briefing pack on this debate supplied by the House of Lords Library—again, a really good document—which talks about the barriers to innovation, growth and internationalisation. There is a paragraph in there that I would welcome the Minister giving some thought to. It says:
“For example, firms may under-invest in important skills if they are unable to fully appropriate the benefits of their investment in training because some of the benefits spill over to other firms. The dynamic nature of modern manufacturing may also make it difficult for employers as well as employees to accurately predict the skills sets that could be required in the future”.
That is a bit of a coded paragraph. I had an example of this when speaking recently to one of the sector skills councils. What it is actually saying is that when Nissan, for example, trained its apprentices, it was only to find that at the end of that training period they were poached by another firm offering them a higher wage. Well, other firms would do—they did not have to pay for the training. It is a serious point.
Although I appreciate the importance that this Government give to apprenticeships, we still have to crack the problem that only somewhere between 4 per cent and 8 per cent of British firms have apprentices and only one-third of FTSE 100 companies have them. I have said time and again to the coalition Government that they really need to get companies to lead by example. One way in which to do that is with procurement contracts. The Government keep shying away from that, and I do not understand why because it will not cost them anything and it is not illegal. We managed to do it, and I invite the Government once again to consider that. The Government need to create a climate where it is the norm for all companies to have apprenticeships. They ought to encourage the bigger companies to ensure that their supply chains take on apprentices. We did that with Rolls-Royce, Jaguar and Land Rover. They should encourage the use of group training associations. I have rehearsed these arguments on a number of occasions before, but they are a key part of this question of getting the right skills as part of the manufacturing equation.
So many good points have been made that I have very little time to cover them. My noble friend Lord Bhattacharyya talked about the importance of procurement decisions. We have heard references to Bombardier, the defence sector and the importance of new British products—as my noble friend said, not just the life sciences but all the applied sciences.
As my noble friend Lord Haskell said, there is also the importance of encouraging not just short-term investment but longer-term investment. We heard of a number of examples of family-owned firms that seem to understand the importance of that. The noble Lord, Lord Lee, made reference to that.
My noble friend Lord Sugar talked about high-quality manufacturing. I reflected on that and thought of one example of a British success story that might not have come automatically to mind, although it would to the Minister—that is, Mulberry handbags. They are British made, a British product and a British design, and I am sure that she can manage one on her ministerial salary. It is an important example of a British high-quality success story, and the importance of things being made in Britain that my noble friend addressed.
Another area to which the noble Lord, Lord Dykes, referred was the importance of food and drink manufacturing. That is a huge area. Then there is farming. Agriculture itself is another important area, and we should do anything that we can to encourage not only production but the processing of the products that farmers produce.
My noble friend Lady Donaghy made a particularly insightful contribution and again talked about the importance of having hero engineers. I absolutely agree with her, and I think that the QE prize is an interesting and important development.
I sum up what the Minister may have to say in her difficult task of responding to this debate. First, there is what the Government are going to do in encouraging the creation of more hubs. Secondly, there is the question of apprenticeships and procurement.
Once again, I thank my noble friend Lord Haskel, for creating this opportunity.
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Wilcox)
My Lords, I thank the noble Lord, Lord Haskel, for securing this debate on a very important subject and I pay tribute to the work that he has done as an advocate for the textiles industry. I reflect, too, that he was a Trade and Industry Minister in the previous Government, so he knows where all the bodies are buried. He also knows how difficult it is for me to stand up here and be able to respond to this debate as positively as I can in these difficult times. I reflect on what the noble Baroness, Lady Randerson, pointed out. We are trying to turn this super-tanker around into the right direction, and it all takes time—more time than we would really like.
The noble Lord, Lord Young, always speaks at the end and I very rarely get a chance to answer his questions, so I thought for once that I would just say that it is always a pleasure to listen to him because he really knows this subject and knows particularly about apprenticeships. I will answer on apprenticeships and procurement a little later, when I answer the noble Lord, Lord Bhattacharyya, if the noble Lord will accept that. I may not get to the noble Lord, Lord O’Neill, to say thank you for finding candidates for the “red tape challenge”. I was interested to hear his comments on the Select Committees. The usual channels would do all that, but it is good to hear it. As for the noble Lord, Lord Giddens, and reshoring, I have an answer for him later. We are not likely to do this, but I am interested to hear it.
As we know, the UK is recovering from the biggest financial crisis for generations and faces an intensifying sovereign debt crisis in the euro area. That has further damaged global confidence, which does not help us. In the Budget in 2010, we set out the Government’s plan to reduce the deficit and rebuild the economy. The actions taken have, at least so far, helped to restore stability and consolidated the UK’s AAA credit rating, which is a very precious thing to have and keeps this country attractive to investors. In common with other industrialised countries, the share of manufacturing in the United Kingdom has fallen. There are structural factors which have led to this decline, such as technological change, a shift in demand for services, and tough competition from low-wage countries, especially in high volume, labour intensive products. The Government cannot control these forces, but we can help to ensure that the UK is in the best possible shape to compete in global manufacturing markets by upskilling and encouraging new investment.
Contrary to popular belief, the UK is still one of the world’s biggest manufacturers. We actually make more from manufacturing than we do from financial services, which some people might find quite comforting at this stage. Manufacturing contributes disproportionately to overall levels of productivity as well as generating over half the UK’s exports of goods and is responsible for much of the business R&D in this country. I welcome the contributions from my noble friend Lord Northbrook and the noble Lord, Lord O’Neill, on the R&D tax credit.
British companies, both large and small, are building global reputations in sectors such as pharmaceuticals, the automotive industries, chemicals, aerospace, off-shore oil and gas supply industries, among others. There are big new industrial investments taking place, even in these difficult times. Two weeks ago Toyota announced a £100 million investment at its factory near Derby. At the same time Airbus has announced 200 extra engineering jobs at Feltham, and Nestlé has announced a £110 million investment at its Tutbury plant, with 300 extra jobs. It all goes to help. We recognise that the external economic position is very difficult but we are determined to promote recovery and rebalancing.
I will try to answer as many questions as I can as I go through, so that noble Lords do not all have to wait for the letter to come. In the Plan for Growth published alongside the Budget in March, we set out a range of actions to support the manufacturing sector, including measures to improve technology commercialisation, boost access to a skilled workforce and promote the image of the sector. The noble Lord, Lord Haskel, spoke of a coherent strategy for manufacturing, and this strategy has been developed through consultation with industry. We are working with the sector to implement the actions set out in that strategy.
In answer to the questions from the noble Lord, Lord Bhattacharyya, on procurement, we recognise that there is a need to manage the procurement and investment processes in the public sector so that we can sustain a competitive supply base. The next phase of the growth review has been looking at how the Government can support businesses and ensure that when they compete for work, they are doing it on an equal footing with their competitors. My right honourable friend in another place, the Minister for the Cabinet Office, announced a series of measures at the strategic suppliers’ summit on 21 November, including a more strategic approach to the way we buy public goods, works and services. Building on the good progress in implementing these actions, further measures, as I have said, were announced in the Autumn Statement last week. The £40 billion credit-easing scheme will underwrite bank loans to small businesses. Alongside our £20 billion guarantee scheme to lower the cost of loans, this should help those SMEs struggling to get finance on reasonable terms.
Although I am sorry that the noble Lord, Lord Bilimoria, feels that we have not moved at all since last year, I might say that I was thrilled to hear poetry quoted in this place. Usually, when I go to the European Union I sit there and listen to everybody else quoting poetry, thinking, “This never, ever happens here”, but today it did, so there we are and I thank him for that. In answer to the noble Lords, Lord Bhattacharyya and Lord Bilimoria, regarding access to finance and banking, under the Project Merlin agreement Barclays, Royal Bank of Scotland, Lloyds, HSBC and Santander have promised to lend £190 billion to businesses in 2011, including £76 billion for SMEs. During the first nine months of 2011, the Merlin banks have achieved total gross new lending of £157.66 billion, including £56 billion to SMEs. They expect to deliver their 2011 commitments, and we will of course keep a close watch on lending in the fourth quarter to ensure that the banks really meet those targets.
There will be a £1 billion increase in the regional growth fund to help regional rebalancing. We are also investing £5 billion in new transport and broadband infrastructure, streamlining public procurement, developing a new approach to supporting local supply chains, and introducing measures worth around £250 million to help our energy intensive industries to reduce their energy bills. I can reassure my noble friend Lord Northbrook that we carefully consider all environmental and energy regulations from the European Union. Our energy intensive industry package, announced in the Autumn Statement, is evidence of this and I encourage him to read it.
Only this week, the Secretary of State announced the advanced manufacturing supply chain initiative. Up to £125 million will be used to improve the global competitiveness of the UK’s advanced manufacturing supply chains by supporting innovative projects where the UK is well placed to take a global lead. The fund will be run on a competitive basis by the Technology Strategy Board. Expressions of interest will be invited this month and formal applications in the new year. It will be flexible in the type of support offered to successful proposals. We welcome the proposal from the noble Lord, Lord Sugar, for incubator units. The £1 billion increase in the regional growth fund offers potential opportunities for that type of support. To plug the gap between pure research and commercialisation, we are investing £200 million in a network of elite technology and innovation centres, to be known as TICs. The high-value manufacturing TIC will receive more than £140 million over a six-year period and is now open for business. We are also capitalising the green investment bank with £3 billion from next year.
The noble Lord, Lord Haskel, asked about design. Support for innovation and technology commercialisation is a crucial part of our strategy to support UK manufacturing, and design is an integral part of commercialisation, making products desirable for end users by improving performance and recyclability at the end of the product’s life. Design impacts on the product’s whole life cycle and is crucial. We are looking at more and more ways of being able to work with design.
My noble friends Lord Selsdon and Lord Northbrook are right that the United Kingdom needs to up its game on exporting, including manufacturing. Currently, only one in five companies exports; we will try very hard to increase this to one in four. That is why we have launched the national export challenge, a series of initiatives to help SMEs to take the first steps to break into new markets.
In response to my noble friend Lord Cope on intellectual property, today we are hosting the first UK-China intellectual property symposium in London. Furthermore, we have appointed our very first IP attaché to the UK embassy in Beijing, who will take up that post next week. This is the start of a new high-level dialogue with China on IP working with relevant agencies. My noble friend also touched on the European Union patent, of which we have been a strong advocate. After forty-one and a half years it looks as though, with our lead, we will actually get a single patent for the European Community. Our worry there is the way that the court is formed to deal with that single patent across the whole of the community. I have just come back from Brussels, where we have been discussing that excitedly.
We have put apprenticeships at the heart of our strategy to ensure manufacturing businesses benefit from a more highly skilled workforce. My noble friend Lord Jenkin of Roding spoke encouragingly of the work of John Hayes on skills and the employer-led skills council; for that, we are very grateful. He also talked about the talent retention scheme in which Mark Prisk is involved. I will pass those comments back to them, as any encouragement is welcome.
We have seen a record year in terms of numbers of people both starting and completing their apprenticeships. The noble Lord, Lord Haskel, mentioned the quality of apprenticeships. The £75 million package announced in March is for advanced-level and higher apprenticeships and includes a £25 million fund to support 10,000 advanced and higher apprenticeship schemes. Last week we announced the £18.7 million from the higher apprenticeship fund, which will support the development of 19,000 new higher apprenticeships in a range of sectors, including advanced engineering. At an apprenticeship summit last month, we announced measures including an incentive to encourage small firms to take on their first apprentice. The Government will offer employers with up to 50 employees a payment of £1,500 to take on up to 20,000 apprentices aged 16 to 24. That does not actually read right; I do not think it means that people who employ 50 employees will be allowed to take on 20,000 apprentices, so perhaps I read that wrong.
I agree with my noble friend Lord Lee that it is vital for the future that our young people need to have careers in manufacturing made more attractive to them. The noble Baroness, Lady Donaghy, and my noble friend both spoke about heroes. I would like to take that idea away, if I may, to Mark Prisk because I think he would like to work on that. The Government are working with industry to highlight to young people exciting careers in manufacturing through the See Inside Manufacturing programme. More than 35 companies and organisations from the automotive sector were involved in the pilot phase in June and October, involving open days for teachers, careers advisers, and young people. We plan to roll out a SIM in another manufacturing sector next year.
The noble Lord, Lord Haskel, might like to know that we at BIS have been holding regular displays in our foyer to showcase British design. I wanted to mention that because it has been very exciting. The building is very boring, and it is lovely to have filled up that great big glass space with something that looks interesting. This may be a small thing, but we have also taken people who work in the reception area out from behind reception and got them standing and walking around in the reception area to talk to people who are a bit bewildered about where they are and do not quite know where they are going, and to interest them in the displays. That seems to have gone down quite well, so I am pleased with that.
In my own role with oversight of intellectual property, I am engaging with the design sector and well understand its contribution to the UK economy. The “Make it in Great Britain” campaign, launched on 5 November, is another strand of our action to raise the profile of manufacturing, so the noble Lord, Lord Sugar, is right to encourage us to promote “Made in Great Britain”. As part of the campaign, BIS will work with United Kingdom industry to stage a high-profile interactive exhibition of cutting-edge UK manufacturing at the Science Museum next summer to coincide with the London Olympic and Paralympic Games.
We are working hard to encourage and support British manufacturers and to create an environment where they are free to thrive and compete in a global marketplace. Government action is already resulting in new industrial investment as a direct result of our commitment to introduce the patent box. GSK has stated that it will invest in the UK, including a proposed biopharmaceutical manufacturing plant costing £350 million to £500 million and creating 400 to 500 new jobs. I look forward to attending a second manufacturing summit in February next year in Bristol to give the Government and industry another opportunity to discuss what has been achieved and what more can be done.
I am confident that we can once again put world-class manufacturing at the heart of our economy. The process always seems too slow. To have to stand here and face the noble Lord, Lord Bilimoria, saying that we have done very little since the last time we had this debate is a bit discouraging for me. I hope that, now that he has listened to some of the answers that I have given, the next time we have a debate on industry and have representation from all sides of the House, for which I have been extremely grateful today, he might be able to get up and say, “Doing better”.
Lord Haskel
My Lords, I thank all noble Lords and the Minister for their ideas, their thoughtful insights, their suggestions and their plain warm feelings towards manufacturing. That is a big contrast. When I first came into this House many years ago, manufacturing was looked on as a bit of a nuisance, something that had to be got out of the way. At least today it is looked upon as something that needs active encouragement and support. We have entered a race that we have to win, not a race to the bottom but a race to the top. A lot of the ideas we have heard today will help us get there.
We have heard some wonderful ideas about skills, apprenticeships, procurement and the importance of patient money. We have not had a lot of discussion about the way that our businesses should be run. Patient money and stewardship are a very important part of a successful manufacturing business.
We have spoken about putting manufacturing on a pedestal and making it a priority. That is absolutely right. We have been told about the single European patent, the suggestion about “Shop British” and the attitude to work. We have been told that we have a strength in our NHS records and life sciences. I like the idea of manufacturing heroes and a Minister for Manufacturing. Perhaps we ought to know more about what Mark Prisk is meant to be doing about that. We heard about reshoring in the USA, an idea that is beginning to take hold. We heard about the added value from manufacturing and how it will help with the balance of payments. We heard about the importance of getting the message out and about the importance of science and of hubs and clusters. We have even had a mention of farming.
The Minister told us all about the Government’s financial schemes. I hope that they are working; some are but some are obviously not. We have to get our firms to export. I was glad to hear that the department has become more visitor-friendly. I congratulate the Minister on that.
Once again, I thank all noble Lords who have spoken. Our debate has covered a lot of points. I hope that it will encourage and prioritise help for manufacturing. I beg to move.