Aerospace Industry

Tuesday 2nd September 2014 Westminster Hall

[Mr Philip Hollobone in the Chair]

[Mr Philip Hollobone (in the Chair)]

Order. The sitting is resumed, and I see we have a galaxy of parliamentary talent before us to hear Sir Peter Luff open his debate on the future of the UK aerospace industry.

14:29

[Sir Peter Luff (Mid Worcestershire) (Con)]

I apologise to the House for my voice; I am suffering from the after-effects of a long and difficult summer cold. I will croak my way through my 30 minutes or so and hope that I can be heard throughout my speech.

It is a great pleasure to welcome the Under-Secretary of State for Business, Innovation and Skills, my hon. Friend the Member for Mid Norfolk (George Freeman) to his second Adjournment Debate on a subject that he and I have discussed in the past. I am confident that he will lend a sympathetic ear. In keeping with the prevailing wisdom about the meaning of the word “aerospace”, I will discuss primarily the civil airframe market and its supply chain rather than space or defence, although I will make some remarks about both.

My interest in aviation goes back to the 1960s in Windsor. I grew up directly under the flight path of the rapidly expanding Heathrow airport, where I went plane-spotting regularly. I remember the Viscounts, the Comets, the VC10s and of course the magnificent Concorde. Those wonderful British and Franco-British aircraft inspired many British children, and they and the outstanding military aircraft that we have built have handed to this generation an extraordinary legacy of excellence in aviation that we must honour by continuing that success.

The debate is also an opportunity for me to return to the 2010 report of the Select Committee on Business, Innovation and Skills, which I chaired. The report was entitled “Full speed ahead: maintaining UK excellence in motorsport and aerospace”, and the inquiry convinced me of the extreme urgency of addressing the engineering skills shortage in our country. More than four years later, we are making some progress, but there is still a lot more to do. I will return to some of the report’s recommendations later in my remarks, but its conclusion states:

“The Government’s role in support of the aerospace sector is to enable the industry to compete on an equal footing with its international competitors. Other countries actively support and promote their aerospace industry through the provision of financial support, access to trade credit and funding for R&D work. The UK Government must ensure that the level of support it provides industry does not place the British aerospace sector at a disadvantage.”

There has been much to welcome in Government policy since that report. Government and industry now work together successfully through the Aerospace Growth Partnership in a concerted effort to secure the UK’s position as a leading aerospace nation, the second largest in the world, to invest in innovation and to take advantage of the future growth opportunities within the civil aerospace industry.

I hope that all participants in the debate—I am glad to see that the number is growing—offer unqualified support for the Aerospace Growth Partnership approach, but that does not remove the need for Ministers to be accountable to Parliament for the progress made. The debate is an opportunity to challenge aspects of the AGP approach constructively and test its progress. It is also an opportunity to demonstrate cross-party support for the broad approach being adopted.

In that spirit, I will be asking whether the strategy is sufficient to rise to the international competitive challenge. Are the various mechanisms being established sufficiently integrated and comprehensive? Are the views of the major US players in defence and civil aerospace who value our supply chains so highly properly understood? Is support for aerospace exports sufficiently strong? Is it understood that the sector and its supply chains comprise many medium-sized businesses, not just large original equipment manufacturers and small firms? Is the British supply chain sufficiently robust? Is it right to limit the scope of the work to the civil aerospace market? Should not links with the defence aerospace and space sectors be more explicit? Is the approach to skills adequate? Can the momentum being generated in the AGP be sustained?

Isaac Newton said:

“If I have seen further, it is by standing on the shoulders of giants.”

The modern British aerospace industry indeed stands on the shoulders of giants. British scientists and engineers have an outstanding track record of technical and commercial success since the earliest days of manned flight. We are heirs to a roll-call of famous names of companies and individuals. Aerospace is a significant manufacturing success story for the UK, and is one of our most important high-technology industries. As the BIS Committee 2010 report said:

“Britain is one of the few nations involved in the design, manufacture, marketing, maintenance and support of the full range of aircraft products—from complex composite aero-structures, including wings, aero-engines, rotorcraft, aircraft systems and avionics, through to maintenance, repair and overhaul services.”

Ours is the largest aerospace sector in Europe and, as I said before, the second largest globally, after the USA. A Boeing 787 Dreamliner flying with Rolls-Royce engines is 25% British by value. An Airbus A380 with Rolls-Royce engines has about 40% British content, broadly the same as other Airbus variants fitted with Rolls-Royce engines. Indeed, the new A350 XWB and the A330neo are supplied only with Rolls-Royce engines.

[Gordon Birtwistle (Burnley) (LD)]

I congratulate my hon. Friend on securing this debate. He mentioned the Airbus and Boeing aeroplanes using Rolls-Royce engines. Is he concerned, as I am, that Rolls-Royce has stopped making smaller engines for A320s, A319s and the smaller Boeing aeroplanes and is concentrating solely on big engines? Would it not be advantageous if Rolls-Royce could get back into making smaller engines, either with a partner or on its own? Smaller aeroplanes are becoming very popular at the moment.

[Sir Peter Luff]

I do not think it is right to double-guess companies’ commercial strategies, but my hon. Friend makes an important point and I am sure that the company has heard what he said. I hope it responds to both of us to explain its industrial rationale for taking that particular decision.

Airbus’s UK contribution includes civil wing design at Filton and build at Broughton; fuel system and landing gear design and testing at Filton; and A400M wing design and manufacture at Filton. UK suppliers providing other significant components and services to Airbus include landing gear manufacture in Gloucestershire; window manufacture on the Isle of Wight; maintenance service panel manufacture in Greenford; design houses around the country; and even a standby compass. We are also strong in the military market. Eurofighter, the Saab Gripen and the F35 all have significant British content.

These are exciting times for the UK aerospace industry, and there are significant opportunities for further growth. The latest monthly commercial aircraft order and delivery data, published last week by the trade association ADS, reveal a further increase in the backlog of more than 12,000 aircraft and 21,000 commercial aircraft engines. That equates to about nine years’ work in hand for the industry and could be worth about £155 billion to the UK economy.

Obviously, the UK civil aerospace sector makes a huge contribution to UK jobs, skills, exports and long-term growth. In 2013, UK aerospace was worth £27.8 billion to the UK economy, with 91% of final demand coming from exports. Aerospace exports grew by 12% in 2013, and the industry employs 109,000 people in well-paid, highly skilled jobs, and supports another 120,000 in the supply chain. The average wage is about £41,000, more than 50% higher than the UK average, and the sector has grown 10 times faster than the rest of the UK over the past three years.

After the record number of orders and commitments made at the recent Farnborough international air show, the longer term looks strong and opportunity-laden too. It is estimated that by 2032, more than 29,000 new large civil airliners, 24,000 business jets, 5,800 regional aircraft and 40,000 helicopters will be required. As the UK specialises in developing and manufacturing some of the most complicated and high-tech parts of modern aircraft, the industry estimates that that requirement means a potential market share of about $600 billion for the UK.

Against that background, we must ask ourselves whether the Government and the industry are doing enough to ensure that the UK retains and improves on its current position. To be honest, I was concerned by the breezily optimistic picture painted in “Flying High”, this year’s update on the Aerospace Growth Partnership. It reads more like a sales brochure for Government policy than an honest assessment of the challenges facing British aerospace companies. Only on the very last page do we read:

“However, the challenges of intensifying international competition, the rapid pace of innovation in the sector and a need to broaden our customer base remain.”

Those words encompass my reasons for seeking this debate.

There were starker warnings in the strategy “Lifting Off”, published last year, which says that

“recent trends have shown that UK content on new aircraft is in decline and that, without action, this will accelerate as new generations of aircraft are introduced.”

My confident hope is that the new Minister’s response will reveal a depth of thinking about the competitive challenges and a strong commitment to do all that it takes to maintain the UK’s position internationally. [Interruption.] I am encouraged by his affirmation of my hopes and aspirations. I also hope—again, confidently—to hear recognition from the official Opposition spokesman that the AGP’s success is built on the firm foundation laid by previous Governments, and therefore an expression of strong support for this Government’s approach to working with the industry. This should be an opportunity to examine in a bipartisan spirit how we can ensure that the success story of British aerospace is maintained.

The industry, through its trade association, identifies four principal challenges: overseas competition and innovation, environmental demands, access to finance, and skills. Advances in technology are driven by environmental needs to cut emissions, reduce fuel-burn and increase aircraft efficiency. The UK must continue to be at the forefront of research into improvements in those areas in order to stay competitive, drawing on its capability in propulsion, and advanced structures in particular. Small and medium-sized enterprises throughout the supply chain will face increasing pressure from larger companies to cut costs and innovate. Many companies face problems accessing the necessary finance to grow, respond to new demand, collaborate and conduct R and D. Banks and financial institutions can be less willing to offer the finance needed for innovation due to the inherent risk and the long time scales involved.

UK industry requires not only a greater number of aerospace engineers and technicians to replace the current generation, but candidates with the right skills and knowledge to understand the use of new materials and structures in aerospace manufacturing. I will return to that at the end of my remarks.

However, my first specific question to the Minister flows from the first of those four industry concerns—overseas competition and innovation. Innovation underpins growth. If we do not invest in innovation now, the UK will not be competitive in the years to come. That is especially true in high-tech industries such as those in the UK aerospace sector, which face increasing global competition. We know that public investment increases private investment in innovation, but as the Business, Innovation and Skills Secretary has observed, the UK has both lower public funding and lower total investment in R and D than most of our competitor nations. More must be done to boost UK aerospace R and D, and to create a more level playing field with Europe and the rest of the world. For every £1 invested in the UK, France spends €10 and Germany €15.

However, the AGP looks set to improve that position. Later this year, the Government are due to publish their science and innovation strategy, which also offers an excellent opportunity for the UK to make a serious commitment to innovation policy, complementing all existing industrial strategies. However, countries such as South Korea, Japan and Brazil are throwing their immense firepower at building their share of global markets—for example, we can look at the strong position of Japanese suppliers on the new Boeing 787. Other nations such as France and Germany have been doing more, and often for longer, to stimulate technology and R and D. The growth in opportunities in civil aerospace means that the UK faces increasing competition from both mature and emerging markets. Therefore, we must foster innovation throughout the supply chain to bring new technology, products and expertise in order to stay ahead in a competitive market.

I worry about whether the various mechanisms being established are sufficiently integrated and comprehensive. The response that has developed and that is spelled out in the AGP’s strategy is built around a variety of mechanisms. It rightly identifies areas of UK competitive advantage—wings, engines, aerostructures and advanced systems—and emphasises the importance of reinforcing that success. It seeks to address a major shortcoming in the UK business environment for aerospace. As “Lifting Off” says:

“Long-term predictability and stability of Government funding for R&D is a key factor in determining where it”—

the industry—

“chooses to invest and...the UK needs to do better in this research.”

At the pinnacle of the AGP is the Aerospace Technology Institute, an industry and Government co-funded £2 billion investment over seven years. That is precisely what the BIS Committee 2010 report called for and I am delighted to see our recommendation being so enthusiastically embraced. The ATI’s small team will lead on the development of the strategy and will identify the specific technological activity required to address capability needs in the UK. It aims to align early research and cross-sectoral R and D innovation delivered through the Technology Strategy Board, which will soon be known as Innovation UK. It already has more than £300 million of collaborative R and D projects under way, spanning the four UK priority areas: wings, engines, aerostructures and advanced systems.

The ATI works alongside the recently established UK Aerodynamics Centre and the various component parts of the High-Value Manufacturing Catapult, but a manufacturing accelerator programme is also being proposed. I am not currently clear about what that programme would add to the complex landscape of organisations. Indeed, I confess to being just a bit concerned about the complexity of the environment, with the ATI, the UKADC, the MAP, the TSB, the HVMC and its seven component parts, including the excellent Advanced Manufacturing Research Centre near Sheffield, the inspirational Manufacturing Technology Centre at Coventry, the important National Competence Centre near Bristol, and, possibly finally, the National Aerospace Technology Exploitation Programme that is aimed at smaller companies, never mind the host of academic organisations and those many organisations involved in defence aerospace.

I am a strong supporter of the AMRC and the MTC. I have been to both—I went to the MTC last week. They are fantastic centres of excellence, designed to encourage improvements in manufacturing across Britain and not just in aerospace, and they have a vital part to play in the aerospace sector and across all sectors. However, I worry whether that is a complex environment. How are the Government and the AGP assessing the strength of the international competitive challenges, and what lessons are they drawing about the adequacy and, crucially, the coherence of the UK’s response? We must always remember that the aviation industry works to very long time frames—they are often several decades per programme—and therefore consistent and long-term support from the Government is vital to provide a stable policy environment in which to operate.

[Sir Gerald Howarth (Aldershot) (Con)]

I reinforce the point that my hon. Friend made about the lead time for developing new aircraft today in comparison with even a generation ago. This morning, we had a briefing from the Royal Navy project director on the joint strike fighter programme. That programme has taken 14 years of development to get to where it is today, and we are a long way from getting any aeroplanes into service, which really illustrates my hon. Friend’s point.

[Sir Peter Luff]

That is true in the civil and defence markets—long lead times are a characteristic of new aircraft development. That is why the AGP is intended to span 15 years, and why it is vital that it receives cross-party support, to ensure support continues throughout future Administrations. Therefore, I have a central and, I hope, easy question for the Opposition. Do Her Majesty’s loyal Opposition hold true to the principles to which Labour worked in the last Parliament, and do they still endorse the broad approach being followed by the Government in this Parliament, subject to the kind of detailed questions that we are asking today?

I cannot avoid the sensitive issue of the understandable rivalry between Airbus and Boeing. I bow to no one in my respect and admiration for Airbus UK and its management team. I bitterly regret that the British share in the ownership of this fine business was lost when BAE Systems unwisely divested its shareholding. As a result of that decision, we have to work all the harder to ensure that we keep, and if possible increase, the UK’s share of each Airbus aircraft that is built. Airbus employs around 10,000 people directly in the UK: 6,000 at its site in Broughton, north Wales; and 4,000 at Filton, in Bristol. Broughton manufactures the wings for all Airbus civil aircraft; Filton designs the wings, as well as designing and testing the fuel systems and landing gear. Filton is also the manufacturing site for the wings of the A400M military transport aircraft, which will soon go into RAF service as Atlas. The Airbus supply chain involves another 1,000 UK companies; Airbus is one of the UK’s biggest inward investors in R and D, with 2013 investment at around £480 million; and there is the new North factory in Broughton.

[Mark Tami (Alyn and Deeside) (Lab)]

I join other Members in saying that I am very pleased the hon. Gentleman has managed to secure the debate. I will make a point before he moves off the issue of BAE Systems. He clearly said that he regrets the sale by BAE Systems of its share in Airbus. In hindsight, BAE Systems may have taken a different road, but one of the problems that was harming Airbus in this country was that BAE Systems cried wolf so many times, threatening to sell its share—it said it was not selling the share, then threatened to sell it. Does he accept that that, too, was not a sustainable position?

[Sir Peter Luff]

The hon. Gentleman makes an important point. We are talking about the long-term commitment to this sector; long-term commitment to ownership also matters very much. I strongly endorse what he said.

Of course, the new North factory in Broughton was opened by the Prime Minister three years ago. That factory shows the continued commitment of Airbus to the future of UK manufacturing and R and D. The company deserves the kind of high-level endorsement demonstrated by the Prime Minister. However, we need to give that endorsement practical substance by attacking non-compliant World Trade Organisation subsidies of Boeing and by robustly supporting export campaigns for Airbus aircraft.

Let us move briefly to Washington DC and, in a sense, to Washington state. At the end of July, it was astonishing to hear a senior Boeing executive tell a congressional hearing about

“the economic and employment benefits Europe has achieved with aerospace using massive state support over the past four decades”.

The old biblical phrase about the mote and beam comes to mind. The land of the free does not always extend its commitment to freedom to free trade.

Sadly, an ongoing dispute before the WTO regarding US and EU support for large civil aircraft manufacturers remains a real threat to the competitive position of Airbus. In essence, the WTO has found that European repayable launch investment loans to Airbus are legal and WTO-compliant but that many US grants, contracts and tax concessions to Boeing between 1989 and 2006 were WTO-inconsistent. Against this background, it is bewildering that, in blatant disregard of the 2012 WTO findings, Boeing has been awarded the single largest targeted tax break in US history, amounting to nearly $9 billion, in order to underwrite development and production of the new 777X aircraft in Washington state. The 777X is a serious competitor to Airbus’s wide-body A350 XWB and A380 families. This latest tax break for Boeing essentially allows it to develop the new aircraft for free, which places Airbus and its suppliers at a huge competitive disadvantage. It means that fair competition is not possible for products such as the A380. The “massive state support” happens not in Europe but in the USA. Will the Minister assure me that the UK Government will use their strong influence with bodies such as the European Commission and the WTO, and work with other Governments, to ensure that there is a level playing field in which UK companies can operate, with a fair global legislative environment?

Having said all that, Boeing builds excellent planes and it will remain a force to be reckoned with for the foreseeable future. We may think that the US Government’s use of subsidies is outrageous, but we still respect the technical skill of Boeing and the success of its aircraft. As the Defence Minister with responsibility for equipment, I was determined that all the major defence suppliers—including Boeing, Lockheed Martin and Northrup Grumman—should be made to feel entirely welcome in the UK and were encouraged to invest here, so as to work ever more closely with our supply chain.

In that spirit, we should recognise the way in which Boeing has thrown itself into the UK, supporting the AMRC at Sheffield and, for example, the Royal Aeronautical Society’s excellent “Build a Plane” challenge. The views of the major US players in aerospace—defence and civil—who value our supply chains so highly must be properly understood if we are to ensure that British suppliers can play a significant part in their future products. Yet the very name “Boeing” seems virtually to have been exorcised from AGP documentation, with only the briefest and most cursory of mentions. We want British technology to be so compelling that Boeing has no choice but to increase UK content on its planes, but we will get to that point only if we properly understand its needs, too. What are we doing to ensure we have that understanding?

I turn to exports. Industry insiders tell me that official support for sales campaigns is absolutely vital for the aerospace industry. From my time at the Ministry of Defence—I look to my hon. Friend the Member for Aldershot (Sir Gerald Howarth) in this regard as well—I have supported, in India, Turkey, South Korea, and elsewhere, the excellent work of the UK Trade & Investment Defence & Security Organisation. Sadly, UKTI is seen as being

“a long way from being optimal on the civil side.”

Specifically, the industry needs more advanced information on when Ministers are travelling on trade missions and not just to have what one chief executive described to me, in a description I recognise all too clearly, as

“a complete obsession from a media/comms perspective for ‘announcables’.”

Aerospace contracts take a long time to negotiate and cannot just be pulled out of a hat because a Minister happens to be visiting a particular country. As that same chief executive said to me,

“The UK diplomatic service is one of the best in the world; my colleagues from overseas regularly say that to me, the PM has a high regard on the global stage—we should use it more. He has said to us on several occasions that he is happy to be the number one Airbus salesman—it’s just that sometimes the back-up from UKTI is lacking.”

Another company has emphasised to me that advance warning of ministerial visits abroad and of trade delegations here to help support sales campaigns is just not being given, although that happens regularly—routinely—in other European countries such as France. On exports it seems we could do much more. Will the Minister pledge to look at that issue?

When politicians speak of SMEs, they often mean the very smallest firms, employing perhaps 10 or 20 people —members of the Federation of Small Businesses, say. Much of the debate about the aerospace industry appears to the outsider to revolve around the original equipment manufacturers on the one hand, and SMEs on the other. Discussion of the former usually focuses on the pursuit of new programme investment, in the case of purely indigenous companies, or on the methods by which non-indigenous companies can be persuaded to invest in the UK, embody original intellectual property in the minds of UK employees and deal with the constraints of the US international traffic in arms regulations regime.

Discussion of SMEs quite properly tends to concentrate on increasing their market access. However, in such a debate the industry layer below that of the OEMs but above that of the SMEs tends to be ignored. This layer, made up of companies that we could call the large sub-prime suppliers, includes companies such as Marshall Aerospace and Defence Group, Cobham, Meggitt, Ultra Electronics and Martin-Baker, most of which are completely British; the value they generate flows directly into the British economy and the Exchequer.

I acknowledge that many of these companies have particularly strong positions in defence aerospace, but I will be asking shortly whether we are right to think of the defence and civil markets in such distinct compartments. Any serious analysis of the future of the UK aerospace industry should take account of the large sub-prime suppliers and their contribution to the UK economy, national security and prosperity as well as to innovation, skills and training. Are we focusing sufficiently on the large sub-prime businesses in the AGP strategy?

We must also ask whether the British supply chain is sufficiently robust. Monday’s Financial Times reported that there were concerns about the ability of the UK supply chain to cope with the rapid upturn in orders. Industry chief executives have expressed concern to me about the lack of ambition of some of their suppliers, which are content to remain static but are risking stagnation or worse through an absence of plans for growth. Others have expressed concerns about the stability of small suppliers and said that they are forced to use two different suppliers for the same component to ensure stability of deliveries—and that second supplier is generally not a British one. There may be a need to provide not just finance to the smaller SMEs, as the AGP promises, but management consultancy on growth strategies and possible consolidation with other suppliers. I suspect more active intervention in the supply chain will be needed. Will the Minister consider that?

Is it right to limit the scope of the AGP’s work to the civil aerospace market? I ask because I am sure the linkages with defence aerospace, and space in particular, should be more explicit. Indeed, the Office for National Statistics classifies activity in this area as

“manufacture of air and spacecraft and related machinery”.

The Library briefing note reminds us that support for the sector from successive Governments owes much to the need to sustain the defence aerospace sector.

The AGP could learn directly from the Defence Growth Partnership, too. As noted in “Delivering Growth”, recently published by the DGP, the UK’s defence value chain comprises all suppliers of equipment, support and technology for defence, including defence aerospace, and includes the enabling functions of Government, ranging from test facilities to regulators, and the UK’s strong academic and science base in universities, research bodies and technical institutes. This is a profoundly capable resource, but a diverse one.

The DGP intends to harness the power of the value chain in a more co-ordinated way, to enhance responsiveness, agility and competitiveness in meeting customer needs. In addition to leveraging the existing value chain, it aims to maximise the synergies with other sectors and attract new companies into defence—particularly SMEs that can bring fresh thinking into the sector, but might otherwise struggle with market access. This is the kind of approach that we see in all industrial strategies, but I do not see it in the AGP.

In the 2010 Select Committee report, we looked at defence research and expressed concern about the sharp reductions being planned by the last Government, concluding that

“If we are looking at developing UK national capabilities for future defence requirements, it is self evident that if there is less being spent on research and technology now, we will have less UK capability in future.”

We also stated:

“While defence research is primarily the responsibility of the Ministry of Defence it is important that the Government acknowledges the fact that defence research has an impact on other areas of R&D, especially other high-tech industries. The Department for Business, Innovation and Skills should be involved in any discussions about funding for defence research to ensure that the impact of any reductions on advanced manufacturing industries is minimised.”

As Minister with responsibility for defence equipment, I was proud to put a floor under the Department’s spending on science and technology and prevent any further cuts, but our spending on defence S and T remains far too low.

In defence aerospace, much of the activity will have a direct read-across to the civil sector, particularly, for example, when it comes to sustaining relevant skills and fostering innovation. The rigid policy separation between defence and civil markets owes much to departmental boundaries, but also to a disappointing sense that promoting defence is not quite as acceptable as promoting civil aerospace. No such concerns cloud the minds of US policy makers and Boeing is again the beneficiary. It is time we grew up and joined up the parts of aerospace more convincingly.

That leads me to my final comments on the importance of sustaining the engineering skills of the aerospace sector. This was one of the most compelling sections of the 2010 BIS report and, more than four years on, there is not a word I would alter. “Lifting Off” gives a graphic account of the skills shortages and the demographic problems facing the sector. However, what I find profoundly disappointing is the apparent lack of acknowledgment that these are the problems of the wider engineering sector, too. Yes, the strategy outlines actions of Government and industry to address the issue—I welcome unreservedly the 500 masters-level postgraduate places announced in the scheme and the development of high quality, employer-led apprenticeships—but as EngineeringUK says, the UK, at all levels of education, does not have either the current capacity or the rate of growth needed to meet the forecast demand for skilled engineers by 2020.

The Royal Academy of Engineering and EngineeringUK estimate that by 2020 in the UK there will be demand for between 1.28 million and 1.86 million engineers and technicians. Approximately 640,000 graduate engineers will be required by 2020 across all sectors of the economy. Seven out of 10 jobs will be to replace the ageing work force. UK higher education institutions currently produce only 21,000 engineering graduates and UK industry creates only 66,000 engineering apprenticeships each year.

Against that background, it is profoundly worrying that each of the published industrial strategies, including the AGP, seem to regard skills in their sectors in isolation. The progress report on the AGP this year speaks of

“improving the image of the”

aerospace

“sector to make it a more attractive career choice”.

Companies have briefed me proudly on their own contribution to solving the aerospace skills shortage, but the Government and the Royal Academy urgently need to work for consolidation and co-ordination of the plethora of schemes, to build a coherent, comprehensive cross-engineering approach.

[Gordon Birtwistle]

Does my hon. Friend agree that the first step in encouraging young people to go into apprenticeships and engineering is careers advice at school, which is sadly lacking? At the moment, careers advice is normally given by a teacher who has only ever been a teacher and all they want is for young people to go on to university and further education. Engineering desperately needs young people to go into the craft skills, so it can carry on building the products of the future that this country is famous for.

[Sir Peter Luff]

I could not agree more profoundly or absolutely. My hon. Friend is right. One of the great disappointments of recent years is the decline in the quality of careers guidance in schools. The engineering profession is seeking to address that through a number of initiatives, but the industry should not be required to do that. The Government should understand the importance of this crucial part of the education process.

What worries me is that the Government contribute to the plethora of schemes, sponsoring small and particular solutions to problems that are probably designed to give Ministers announcements to make and sound bites to hide behind in debates such as these. It is time to concentrate on the big schemes that the Government fund, such as the excellent STEM—science, technology, engineering and mathematics—ambassador scheme.

I commend the major companies such as Rolls Royce and Airbus, which demonstrate a commitment to work with existing nationwide schemes—for example, encouraging their staff to become STEM ambassadors. Will the Minister take this opportunity to give his support to STEM ambassadors? In the detail of the AGP’s skills work there is much to applaud, but the micro solutions will work only if the macro issue is addressed: how to make all forms of engineering attractive to young people.

I still regard the looming engineering skills shortage as the single biggest avoidable threat to Britain’s prosperity and security. One way to help address it is to ensure that all industrial strategies, including this one, join up in a big picture approach so that each of them does not just go its own sweet way. It was good news that this summer saw the largest STEM outreach of the aerospace sector during “Futures Day”, on the Friday of the Farnborough International Airshow. More than 7,500 11 to 21-year-olds visited the air show for a hands-on programme of activity designed to enthuse them about the many opportunities in the aerospace sector. A poll by ADS of 150 aerospace MSc students found that one in five were inspired to pursue an aerospace career because of a visit to an air show, so “Futures Day” offered a unique opportunity to inspire the next generation. However, we must always recall that the future of aerospace in the UK is, in Airbus’s words,

“ultimately dependent on the availability of high-calibre scientists, mathematicians and engineers willing to enter the aerospace industry.”

Finally, is the momentum being generated capable of being sustained? Our competitors are snapping at our heels and staying ahead in this particular global race will require every ounce of exertion by both Government and industry. The future is bright, but only if we work to make it so.

[Mr Philip Hollobone (in the Chair)]

Sir Peter’s excellent tour d’horizon of the UK aerospace industry took half an hour, and I want to call the Front Benchers no later than 3.40 pm. There are three Members standing, so if they could confine their remarks to no more than 13 minutes each, they should all get in.

14:59

[Jim Shannon (Strangford) (DUP)]

It is always a pleasure, Mr Hollobone, to serve under your chairmanship. It is equally a pleasure to speak in this debate, and I thank the hon. Member for Mid Worcestershire (Sir Peter Luff) for securing it. He has outlined the case brilliantly, although he did not mention Northern Ireland, so I will do that and correct the balance. That is important, because we have an industrious and successful industry in Northern Ireland that creates many jobs, and I will outline that in my contribution.

As the Democratic Unionist party spokesman for transport, this subject interests me, not only because of its magnitude, but because it creates many jobs in my constituency, both directly and indirectly. It creates jobs directly in the companies, and indirectly through sub-contracting. Many companies come into the engineering sphere because of the good work done through the aerospace industry.

We should all feel immensely proud of the UK aerospace industry, and we have every right to be proud of it. We boast the largest aerospace sector in Europe and we are second globally only to the United States. We should shout our successes, not from the rooftops, because we are not on the rooftops, but in the Chamber. The importance of the continued partnership of the Government and the industry through the aerospace growth partnership cannot be underestimated, as the latest figures from the ADS, which represents the aerospace, defence, security and space industries, suggest. As of 28 August, there was a record backlog of more than 12,000 aircraft and 21,000 commercial aircraft engines orders. With the economy still only making a slow recovery and thousands of jobs not yet secure, that is fantastic news for the aerospace industry and for the United Kingdom overall, with estimates that the backlog will be worth between £135 billion and £155 billion over the next nine years. That is not a paltry sum and it indicates how much the aerospace industry contributes to the economy of the United Kingdom of Great Britain and Northern Ireland.

The aerospace industry is extremely positive. While everything else makes slow and steady progress, the industry has been growing at a pace 10 times quicker than the rest of the economy in the last three years, outstripping many employment sectors. That is another example of the importance of the Government’s partnership with the industry. I am sure that the Minister and the shadow Minister will underline that clearly in their responses. The new orders are simply part of long-term industry growth, with estimates of demand for more than 29,000 commercial airliners between now and 2032, which is in line with the airlines’ desire to carry more passengers and expand their fleets. The future looks positive, and it is positive because of the direct attitude the Government have adopted to the industry, but—as the hon. Member for Mid Worcestershire said—other things need to be done to keep us in a prominent position.

The situation certainly looks promising, and I must admit that I was keen to contribute to today’s debate not only in my capacity as my party’s spokesperson for transport, but also because of the massive contribution that Northern Ireland makes to the industry. The main factory in Northern Ireland is located in Newtownards in my constituency. I am pleased about that, of course, and I can boast of having one of the most technologically advanced and internationally focused aerospace industries in the world right in my constituency, giving job opportunities to many young people.

The hon. Gentleman referred to apprenticeships, as did the hon. Member for Burnley (Gordon Birtwistle), who has commented on the issue before in Adjournment debates and in Westminster Hall, and I am pleased to see such opportunities coming through for people in my area. Bombardier has more than 5,000 highly skilled employees across four sites in Northern Ireland. The site in Newtownards is the biggest, but there are others in Newtownabbey and Belfast. Bombardier promotes many job opportunities, and it is important to see that happening. With first-class capabilities, the site’s operation plays a pivotal role in all of Bombardier’s families of commercial and business aircraft. It also produces and sells components for Rolls-Royce, Airbus and General Electric. Bombardier’s CSeries aircraft has significant UK content, primarily through the advanced composite wings that were designed, and are manufactured, by Bombardier Aerospace in Belfast.

[Sammy Wilson (East Antrim) (DUP)]

The hon. Member for Mid Worcestershire (Sir Peter Luff) emphasised the importance of research and development. One of the ways in which Bombardier has kept its place in the market and, in particular, kept production in Northern Ireland has been through the research and development money made available by the previous Government to ensure that the investment required in Northern Ireland to keep the competitive edge was made. Does my hon. Friend agree with the point made by the hon. Gentleman on the need to think about the long term, because the period of return is long term? It is important to think about long-term research and development incentives if the aerospace industry is to be maintained at its current standard in Northern Ireland and the United Kingdom.

[Jim Shannon]

I thank my hon. Friend for that valuable contribution. He is absolutely right. Sometimes you wonder, Mr Hollobone, whether people have looked at your notes before they make an intervention, because often they raise issues that you were going to come on to. The Northern Ireland Assembly has made a significant commitment to Bombardier—the Minister responsible for that is Arlene Foster—as have this Government and other Governments. We have a huge range of aerospace companies operating in Northern Ireland, including B/E Aerospace, Magellan Aerospace, Goodrich, RFD Beaufort and Thales, to name just a few, so it is perhaps not surprising that one in three of the world’s aircraft seats are manufactured in the village of Kilkeel in Northern Ireland. Look around the world and think of all the planes there are and remember that a third of those seats are manufactured in Kilkeel in Northern Ireland.

Even more good news for Northern Ireland and UK industry was the announcement—this relates to the intervention of my hon. Friend the Member for East Antrim (Sammy Wilson)—of a £6.8 million advanced engineering competence centre in Northern Ireland. That is a commitment to the future and to research and development. The centre will be based at the Northern Ireland Advanced Composites and Engineering Centre in Belfast and will focus on developing innovative solutions in the advanced engineering sector. In other words, it will look at the long-term progression of aerospace, not just in the United Kingdom of Great Britain and Northern Ireland, but in Europe and the rest of the world.

The centre is tremendous news locally, as it will no doubt create more jobs, but it is also brilliant news for the UK aerospace industry as a whole. As opportunities in civil aerospace grow, the UK faces increasing competition from mature and emerging markets, so the new centre will, I hope, develop new approaches for advanced engineering, because being ahead of the competitive market is the only way we can ensure that we remain first in Europe and first in the world. That is the point I want to emphasise. We are aiming at short-term goals, but we are also trying to achieve a long-term strategy.

The figures I gave are testament to just how successful and important the aerospace industry is to the UK economy and our ability to compete globally. That is why I urge the Government to work alongside their partners, not just to encourage technological innovations, which are important, but to lead the way in cutting emissions, reducing fuel burning and increasing aircraft efficiency. Those are important issues that we cannot walk away from, and the aerospace industry is trying to address them. That can be done, and we must do our best in tackling them.

One thing that is close to my heart is my wish to see the Government encouraging students and young people to undertake the necessary courses at universities and technical colleges, as the hon. Member for Burnley said. We need not only aerospace engineers and technicians to replace the current generation—we have to look at that—but staff who can work with new technologies and materials. We need further education at universities and technical colleges to work alongside the industry to ensure that the bright brains of our young people are there to take on those jobs.

I am pleased to learn that almost 70% of UK aerospace companies employ apprentices and trainees. That is tremendous news. Each year we meet some of those trainees here in Westminster, as I did this summer. It was good to meet some of the young men and women who are interested in the industry and looking for opportunities. We have a commitment from Government, both here at Westminster and regionally, to ensure there are apprenticeship opportunities for both genders. This is exactly what the industry needs. Provided we continue to develop and innovate, I believe that the future of UK aerospace is very bright indeed.

[Mr Philip Hollobone (in the Chair)]

I call Sir Gerald Howarth—a qualified pilot.

15:10

[Sir Gerald Howarth (Aldershot) (Con)]

It is a delight to participate in the debate under your chairmanship, Mr Hollobone, and to follow my hon. Friend the Member for Mid Worcestershire (Sir Peter Luff), who was my colleague at the Ministry of Defence. He has done us all a great favour in raising the debate, which follows a debate we had on 22 November 2012. Many of the key points that have surfaced in today’s debate were also mentioned then. I share his recollection of the Viscount flying over Windsor because I was at school at Haileybury and Imperial Service College junior school in Windsor. Indeed, I used to fly on the Viscount 700 from the then new Heathrow airport to my home in Hamburg in Germany.

I also share an appreciation of the Farnborough air show, which takes place in my constituency. Those present who did not attend the Farnborough air show need to report to my study afterwards to explain why, because the whole world comes to Farnborough. Interestingly, this year the air show was responsible for the signing of a record number of orders for new aircraft and systems. About $83 billion of business was done at the last air show; this year $200 billion of business was signed at Farnborough. It is hugely important to the British economy and to our industry.

Farnborough is home to BAE Systems, the world’s fourth largest defence contractor, and QinetiQ, which is one of the world’s leading research companies. QinetiQ holds more than 1,500 patents, 1,000 patents pending and has 1,000 defence contracts at any one time. Farnborough also has the headquarters of AgustaWestland International. Its senior vice-president in charge of international business is no less than our former colleague Geoff Hoon, with whom I get on extremely well. He is doing a great job promoting the interests of Westland around the world. I also have a lot of smaller companies in my constituency, such as Cam Lock, which makes face masks for every US naval fast jet in operation and for the Royal Air Force. I have EWST, which makes electronic warfare testing equipment. I have Sonardyne, which makes detection equipment. A huge amount goes on in my constituency, and I hope hon. Members will understand why I am keen to take part in the debate.

As my hon. Friend the Member for Mid Worcestershire said, aerospace is a hugely successful business in the United Kingdom. We are world leaders. We have the second largest aerospace industry in the world and the biggest in Europe. We have 17% of the world market. The UK industry is split 50:50 between civilian and military. It employs 109,000 people directly and 120,000 indirectly. It is a massive contributor to manufacturing industry. Everyone is talking about the importance of the manufacturing industry for this country, but we have in our midst the world’s second most successful manufacturing industry. Let us go out there and promote it. It is not just BAE Systems, QinetiQ or Rolls-Royce, but a whole string of companies, whose names I cannot exhaust. I will single out a few: MBDA, which stands for Matra BAE Dynamics Alenia; Cobham; Marshall; Babcock; Serco; Martin-Baker; and Bombardier—formerly Short Brothers. I have seen some of the fantastic work that goes on in Northern Ireland, which is world leading in missile technology.

Aerospace manufacturing is done across the kingdom, including in Scotland, which I hope will remain part of the kingdom. As the son of a Scottish borderer, I am going to Scotland on 15 September—battle of Britain day—to fight for the maintenance of the Union of the United Kingdom.

We have hundreds of SMEs—another success story. In 2008 there were 380 enterprises engaged in this industry, according to the Library’s very helpful brief. Today that figure is 560. This industry is growing, and it provides prosperity to the United Kingdom. That is critically important. Interestingly, the 2009 Oxford Economics paper states:

“A £100 million investment in the defence industry generates an increase in gross output of £227 million, and increases Exchequer revenues by £11.5 million.”

[Sammy Wilson]

Northern Ireland is the ninth biggest European region for the aerospace industry and we therefore greatly feel the pressures. Does the hon. Gentleman accept that there are great pressures on the industry because of the high exchange rate, the difficulty in getting finance from banks—and the effect that has had, especially on the small and medium-sized enterprise supply chain—and the anti-competitive practices in other countries, where certain firms are given advantages that we do not have in the United Kingdom?

[Sir Gerald Howarth]

The hon. Gentleman makes a good point about having one hand tied behind our back. Our businesses are not hugely helped by the anti-corruption legislation that we have put in place, which other countries do not sign up to as readily as we do. In fairness, I acknowledge the huge importance of Northern Ireland in the wider United Kingdom aerospace business: it is an integral part, not an add-on.

The aerospace industry contributes two things. First, there is the prosperity, which I have illustrated. Secondly, it provides us with the sovereign capability to defend ourselves. That is critically important. We can all see what is currently going on around the world. It is devastating for those of us who have been around a bit. Things have never looked so uncertain, volatile and frightening. We need to remember that we have taken our defence for granted. In much of it, we are assisted by the United States of America, its massive spending programme and its lynchpin role in NATO. In the United Kingdom we have the ability to defend ourselves. We are not reliant on other people, who might withhold technology or equipment. We must be able to generate such things in the United Kingdom.

When my hon. Friend the Member for Mid Worcestershire and I were in the MOD we had a battle about whether we should have a defence industrial strategy, and whether maintaining a sovereign capability in the United Kingdom should be a key Government policy. He and I were on the same side. It is common knowledge that some of my colleagues in the Conservative party took the view we should not have any kind of industrial policy. They felt that was interventionist and socialist. I do not accept that. The Government have a responsibility for the defence of the realm. That is the first duty of Government. We have responsibility to ensure we have the means to protect ourselves. Two years ago I paid tribute to Lord Drayson, who produced the defence industrial strategy, and I do so again. It is one of best, most articulate and clearest documents to be produced on this matter. As Lord Drayson said, we have to remember that today’s kit is the result of yesterday’s investment. Therefore, we have to invest today.

I congratulate the Government on what they have done on the aerospace growth partnership and the defence growth partnership. There has been a genuine partnership, with industry and the Government working together. That is the sort of thing we need to do and I warmly welcome it. Industry is also doing well on the skills front. BAE Systems has a huge investment in taking on young people and giving them skills. Leo Quinn, the chief executive of QinetiQ in my constituency, is seriously concerned about the promotion of skills. As my hon. Friends the Member for Mid Worcestershire and for Burnley (Gordon Birtwistle) said, we need to do more to promote the merit, mobility, importance and excitement of the manufacturing industry, particularly in the field of aerospace and defence.

We should, however, be concerned, because the order book of BAE Systems is declining. It stands at £40 billion and that is a massive figure, but it is falling, and we know the pressure that defence budgets are under around the world. There is increasing competition from other countries. We have promoted defence exports—and the Prime Minister has been magnificent in giving a lead on that—but it is not possible to sell anything nowadays without being prepared to transfer the technology. We face a growing challenge from India and China, who want to take their place in this important marketplace. If we will have to transfer our technology every time we seek to sell the Typhoon or other important military equipment, what is there for the United Kingdom? How are we going to feed our people? That is where innovation comes in. That is where investment in technology, and defence research in particular, comes in. I could not agree more with the comment by my hon. Friend the Member for Mid Worcestershire that innovation underpins growth. I have made a note that the only way we can compete is by innovation. We are all on the same page with that.

The Government have a role to play. Unfortunately, there has been a fall in defence research by the Ministry of Defence. The latest figures are not encouraging. In 1990-91 the Government spent, at 2012-13 prices, pretty well £4 billion on defence research. That figure fell to £1.8 billion in 2010-11. Fortunately, industry seems to be spending more. According to KPMG, 75% of respondents to a survey said that they would spend between 2% and 3% of revenues on research and development in the next two years; 16% said they would spend between 4% and 5%. If we are to maintain our position in the world we must do that. We must also decide where we go after the joint strike fighter. I have been visiting BAE Systems at Warton for many years. When I used to go there 20 or 30 years ago, I would always be told “We are okay for the next five or 10 years, and then there is a cliff edge.” The Typhoon came along, and now we have JSF—but where do we go after that? I do not believe that manned fighter aircraft can simply be consigned to the dustbin of history. Manned flight still has a critical role to play, particularly in situation awareness.

I welcome what the Government and BAE Systems are doing with Taranis, which is an ITAR-free programme that I launched to the press, who were not allowed to come within 50 yards of it, I am pleased to say. However, we need to maintain the technology. Taranis is a great technology demonstrator. We need more technology demonstrators and we also need a proper debate on where the industry will go, post-JSF.

15:23

[Mark Tami (Alyn and Deeside) (Lab)]

It is a pleasure to serve under your chairmanship today, Mr Hollobone.

Manufacturing and aerospace are clearly vital to the economy of north-east Wales and the north-west of England. At the heart of that, as has been mentioned, is Airbus at Broughton, where there are more than 6,000 jobs at one plant. Importantly, there are thousands more in the supply chain. We do not talk enough about the supply chain, although I am pleased that other hon. Members have done so today—without it, the primes would not be able to produce the goods. We should give it more support and discussion.

Airbus alone supports more than 100,000 jobs in the supply chain, and if we included the other aerospace primes the number would be very high. That area of activity is high quality and export-driven; it raises billions of pounds for the UK every year, and the jobs are of high quality as well.

If such a level of employment is to be maintained, and if there is to be expansion and growth, we need to improve our skills base. Even during the economic downturn, companies told me that they found it difficult to find skills at the level they need. Apprenticeships are important in that context; in the past three years in the UK, Airbus alone has enrolled 4,000 apprentices. It is telling that 70% of its senior managers were apprentices at one time. We need to send a message—I am pleased that other hon. Members have mentioned this—that apprenticeships are not something for kids who do not get to university because they are not bright enough. They are very important. We need to adopt more of a German model, where it is not a case of university for some and apprenticeships for others. We need a programme where it is more possible for people to transfer between the two. Most employers would probably say that the ideal person has a university qualification but has worked or done some training in the workplace—not someone who has been nowhere but the classroom, but someone who has skills they can use and the benefit of a university education.

We have a long way to go to catch up. For every pound that the UK spends on research and development, France spends £10 and Germany spends £15. Many hon. Members have mentioned the Aerospace Growth Partnership, which is doing a good job. It needs more, and we should help it more, but the key, as has been mentioned, is the fact that it has cross-party support.

A problem in the past has been that whoever came into government chucked things out and brought other things in, which led to uncertainty. Big employers—even small employers—do not know whether to invest in the relevant area, and whether the Government will still support them. A classic example of what I mean is the area of composites. The UK failed to invest in the coming material for aircraft. I was pleased that Lord Mandelson grasped that and realised that we should provide support. If we had not done that—we were well behind the Spanish and Germans, and I think we still are; we need to do much more work—we would have been in a difficult position.

The importance of the A400M, which has already been mentioned, was civil as well as military, because it demonstrated that we could do the relevant work with composites. The A350 extra-wide body will be 53% composite. Our colleagues in Europe—our partners in Airbus—would love to get their hands on that work. The Spanish and Germans have made no pretence about it. We are fortunate to have it, but I do not think that, just because we have built the wings for years, we can assume that we will always get them in years to come. We are only as good as our last aircraft, or our potential to produce the next one. Clearly the next big challenge for Airbus will be the replacement for the A320, which is the workhorse of so many airlines. If we were not to get that work, the longer-term future for Airbus in the UK would be bleak.

[Sir Gerald Howarth]

I am glad that the hon. Gentleman mentioned the Airbus A320. I happened to fly in one of the test models. It was, of course, a good example of Government and industry working together; the Thatcher Government put £250 million into the programme. Margaret Thatcher took a lot of persuading, but eventually even she agreed that Government intervention on that was a good idea.

[Mark Tami]

I totally agree. Going even further back, I remember when an Industry Secretary had the choice whether to keep the Airbus share or go for Concorde. He went for Concorde, which, in hindsight, was probably not the best choice. There will be crucial choices for the UK about Airbus in the coming years; the new A320 is almost certain to be a wholly composite aircraft, with structures different from those we are used to.

There is a big challenge for us out there, but there are also other threats to Airbus. The hon. Member for Mid Worcestershire (Sir Peter Luff) mentioned unfair competition. There is nothing wrong with competition, which is good in many ways, but unfair competition is bad and threatens the future of an important industry. For years, the US dominated both the civil and military aircraft markets and I suppose it thought that no one would ever challenge it. Airbus did, however, and it now accounts for a large share. New players such as China, Canada, Russia and Brazil are all looking for a segment of the market, so we cannot assume that the big players will remain unchallenged.

We need only to look at the 747, which was funded by the American Government as a military transport aircraft. Boeing actually received all the funding and had many of its costs paid and then—surprise, surprise—somebody decided that people could also be put on it and that it could be used as a civil airliner. Airbus and Boeing have both been to the World Trade Organisation. Such processes are always long and drawn out, but the WTO found in 2012 that many of the US subsidies were not allowable under WTO rules. Back in 2011, the WTO found that repayable launch investment was, but there was some issue with the interest rates.

The EU has sought to address some issues, but, as the hon. Gentleman made clear, the Americans have done the exact opposite and decided to give the biggest ever single tax break of $9 billion to Washington state, which will then hand it on to Boeing to pay for the development costs of the 777X, which is exactly what was done with the 747. That is happening at a time when America is looking to Europe for an agreement about more competition and more open markets.

To be honest, the problem is that the US wants to compete freely in our markets, but it does not think that we should be able to compete in theirs. We have seen that before, such as when BAE Systems tried to break into the American defence market. Probably the worst example was the air tanker competition in the US, which was won convincingly by Airbus, but Boeing then went crying to the US Government, who then stopped the competition and changed the rules so that Boeing could be the only winner. Surprise, surprise, the contract went to Boeing.

I certainly do not want us to return to a system of closed markets because that would not be good for Airbus or our industry, but we need a level playing field. We cannot have a system in which we are expected to play by the rules when others are not; many jobs will be lost, plants will close and we will return to Boeing, or whatever company, ruling the roost once more. We want open markets for our companies to compete in and can expect that America does as well, but the situation cannot be unfair. I hope that our Government will be far more forthright with Europe and will work with it to ensure that we stand up and make our case, because it is vital to the future of the industry.

I want to refer to another threat—the hon. Member for Mid Worcestershire may disagree with me on this: our future in Europe. I am particularly worried because Airbus is an example of the perfect way in which Europe can work together. Were we outside the EU, I have serious doubts that we would have the same level of investment. I am not saying that the plants at Filton or Broughton would close tomorrow or that we would lose existing orders, but we would jeopardise future investment as the Germans, the French and the Spanish would make a strong case for investment to be made within the European Union and not in an outside country. Those who are calling for our exit need to consider the implications for jobs.

[Sir Peter Luff]

I am grateful to the hon. Gentleman for his fine speech. Just for the record, I strongly agree with his point about membership of the European Union and the particular impact on the aerospace sector.

[Mark Tami]

I thank the hon. Gentleman for that. Such a move would affect not only Airbus, but also the many thousands in the supply chain.

[Mr Laurence Robertson (Tewkesbury) (Con)]

The hon. Gentleman is making a good speech. However, the biggest employer in my constituency is GE Aviation, an American company that has been visited by ex-Ministers. There was concern about its plans when it took over the plant, but it has heavily invested in it.

[Mark Tami]

I clearly welcome that. As I have said, it is good that we have American companies over here, but I would like to see more British companies buy companies in America, although that often seems difficult. There are great opportunities for us, but there are threats as well. We must learn the lessons of the past. We have lost many manufacturing companies that we thought would go on for ever, and many will never return. Aerospace is a great opportunity and we must grasp it and invest, not just let it fall by the wayside.

15:36

[Mr Iain Wright (Hartlepool) (Lab)]

May I begin, Mr Hollobone, by saying what a pleasure it is to serve under your chairmanship again? I also want to thank the hon. Member for Mid Worcestershire (Sir Peter Luff) for securing the debate and for advancing his argument in such a characteristically persuasive and courteous, although on this occasion very quiet, manner. I hope that his voice returns soon. I have said it before, but it bears repeating: I am sorry to see him leave the House, especially given the work he has been doing on raising the status of engineering in this country. He leaves a good body of work and I am sure that it will continue outside the House. He will be missed, certainly by the Opposition, for the work that he has done.

As this is the first time I have debated with the new Minister, I want to welcome him to his post. Since he obtained his red box, he has aged about 35 years, so the Government must be working him far too hard. I am pleased that he has been given specific responsibility for the life sciences sector, and I hope that we can soon debate the future of that vital industrial sector, too.

We have had a good debate about the future of the UK aerospace industry, which, as has been said many times, is a remarkable success story. Indeed, it is the very model of what a successful modern industrial sector in the UK in the 21st century should look like: high value added, with a focus on design, manufacturing, production, maintenance, innovation and excellence, as well as a relentless drive in the global export market, providing highly skilled and well-paid jobs and enjoying a long-term, collaborative approach between industry, Government, employees and research institutions.

Over the summer, I was privileged to visit the design team and view the manufacture of the A400M at Airbus in Filton. I have been to Marshall of Cambridge, which is one of only 15 companies out of a total global supply chain of 23,000 suppliers to be presented with a supplier of the year award in 2014 from Boeing. I also visited Rolls-Royce in Derby and the manufacturing technology centre in Anstey to see how innovation and collaboration between industry, research institutions and Government is ensuring that British industry retains its competitive edge.

The aerospace industry is vital to the UK economy, and, as the hon. Member for Strangford (Jim Shannon) said, this country should rightly be proud of it. It is worth noting that the UK aerospace industry grew on average by over 7% each year since 2008. Bearing in mind where we were in 2008, with the global financial recession and the drying up of credit across the world, that is a remarkable achievement. One reason for that, apart from the technical brilliance, drive and entrepreneurialism within the industry, is long-term collaboration between Government and industry. The aerospace industrial strategy, set up by the previous Labour Government and, thankfully, continued under the current Administration, has provided the industry with long-term certainty to plan and invest in Britain with confidence. Labour remains determined to ensure that the UK maintains its position as Europe’s No. 1 aerospace manufacturer, and that Britain remains second only to the US on the global stage.

We are well placed to capture a sizeable part of future growth in the industry. As has been said today, it has been estimated that, by 2032, more than 29,000 new civil airliners will be required, with a value of almost $4 trillion. As the hon. Member for Mid Worcestershire said, according to the data released by the trade association ADS last week, the largest ever month-on-month increase in the industry’s order book will bring it to about 12,000 aircraft and 21,000 engines in total, worth between £135 billion and £155 billion to the UK economy in the next nine years.

Labour Members welcome that and we will actively look to capture greater market share in a growing industry, although, as has been acknowledged today, that will be difficult, given the rapid pace of innovation and technological progress, the intensifying competition and the determination of other nations to secure a firm foothold in a high-value, lucrative and prestigious sector. In direct response to what the hon. Gentleman was asking me, that is why the next Labour Government will prioritise the aerospace industrial strategy as a vital sector. We will maintain the Aerospace Growth Partnership and the Aerospace Technology Institute, and we will emphasise the importance of long-term policy stability to allow the industry to soar ever higher.

A number of issues need to be addressed—many have been aired today—in order to ensure that the ambition for the industry is realised. I was particularly pleased to hear what my hon. Friend the Member for Alyn and Deeside (Mark Tami) said about the importance of the supply chain, because he is absolutely right. It is key that the supply chain is aligned with what the primes require to maintain competitiveness and technological innovation. No one wants to see work leak away from our shores, costing jobs and industrial capability, because of an un-coordinated, uncompetitive or unresponsive supply chain.

The hon. Member for Mid Worcestershire, in his opening remarks, mentioned the report in yesterday’s Financial Times. It is worth the Minister having a look at the report, which questioned the industry’s supply chain capacity to deliver the backlog of orders, especially when combined with the simultaneous emergence of new product development lines. Geoff Ford, who runs Ford Aerospace in my region of the north-east—I have been to see his factory—stated in that Financial Times report that the backlog of orders should give the suppliers the confidence to expand and to increase capacity. He said:

“If we don’t do that we’ll lose out to other countries.”

He is absolutely right.

What is the Minister doing to ensure that British-based companies in the aerospace supply chain are geared up to take advantage of the industry’s great order book? Not only is capacity important, but so is ensuring that technological advances and product development cascade through the primes and into the supply chain. The role of a proper, co-ordinated industrial strategy is crucial. If industry states that composites will be used more in future at the expense of metals, how are the supply chain companies being assisted to make the investments needed, not only to grow capacity, but to stay relevant to the primes’ modern production requirements? What are the Government doing to assist?

Access to finance has not been mentioned as much as I thought it would in the debate, but it is equally crucial, especially in the aerospace supply chain. The nature of the industry means that up-front capital expenditure is often required with long pay-back times. Supply chain work might move from Britain if British companies do not have access to the finance necessary to invest and compete. Will the Minister update the House about progress on the supply chain finance forum set up by the AGP? What tangible improvements have been seen? How many companies have received access to finance for up-front investment costs? Similarly, will the Minister let us know how many companies have benefited from and actually received the cash from the National Aerospace Technology Exploitation Programme since its launch?

In connection with the importance of the aerospace industry, I think about the three S’s: supply chain, skills and certainty. I have already mentioned certainty and the supply chain, but I must make a point about skills as well. Skills are the means by which the industry will maintain its competitive edge. The work force is ageing and, traditionally, the sector has not provided as many apprenticeships as other comparable sectors have done, although that is now changing. There is a need to increase the industry’s capabilities in certain skills and trades. Many companies carry vacancies that cannot be filled because of a lack of suitable skills. Unless that problem is addressed urgently, activity will move away from the UK, because of a lack of suitable skills.

Is the AGP going as far as it can to identify the specific crafts and skills necessary to enable the UK to maintain its comparative advantage? For example, the AGP has introduced standards for an aerospace manufacturing fitter role, and something similar for electrical fitters and machinists is being developed. What other trades are being considered? That is important and would show the benefits of a proper, co-ordinated industrial strategy.

[Gordon Birtwistle]

I agree with the shadow Minister. The craft parts of the industry are critical. Plenty of young people wish to be involved in design and the high-tech part, but the craft side is critical. Does he agree with me and with the big companies such as Rolls-Royce, BAE Systems and Airbus, which are now training more than the necessary number of apprentices? For the benefit of its supply chain, Rolls-Royce took on double the number of apprentices that it needs. Does he agree that some of the bigger companies should be getting on board and doing that for the smaller companies in the supply chain?

[Mr Wright]

The hon. Gentleman is right, and that model works well for the aerospace industry. I certainly want to see that encouraged, because an oversupply of apprentices then cascaded down through the supply chain reassures the primes about quality. It can be a means by which the whole competitiveness of the sector can be maintained and something that we should certainly encourage.

[Jim Shannon]

In Northern Ireland, with Shorts aircraft fitters for example, Bombardier has been anxious and keen to secure recruitment from those in the 50-plus bracket, who perhaps went to another job, but still have the skills. They can come back to do training with Shorts Bombardier. That is an example of where in the United Kingdom that is happening for those over 50, who are not on the apprenticeship scale, but are looking for jobs and have the skills.

[Mr Wright]

The hon. Gentleman makes an important point.

Going back to what the hon. Member for Burnley (Gordon Birtwistle) asked in an earlier intervention, not only with specific regard to particular trades and fitting, but the whole education system, from primary through secondary education and on to further and higher education, the system should be geared up to say, “The aerospace industry: you could have a fantastic career if you choose it.” Going to work in a factory, in particular somewhere such as Airbus in Broughton, is certainly not a sign of failure. I would be absolutely delighted if one of my children won an Airbus apprenticeship. It is a fantastic success story, which we need to encourage. The culture of this country is that we do not make anything in Britain any more, but that is simply not true in practice. What steps are the Government taking on manufacturing in general and aerospace in particular to ensure that that is dealt with?

I mentioned the success of exports for the UK aerospace industry, with 90% of the high-value products made by the sector in Britain exported overseas. However, the industry has told me—the hon. Member for Mid Worcestershire mentioned this—that more support and co-ordination are needed for export sales campaigns. Primes and suppliers have said to me fairly consistently that they would like more advanced information and to be more closely involved when Ministers are travelling on trade missions, or when international delegations are visiting the UK. Will the Minister respond to what seems to be a constant voice?

[Sir Gerald Howarth]

As my hon. Friend the Member for Mid Worcestershire (Sir Peter Luff) said, the UKTI Defence & Security Organisation has done a fantastic job under Richard Paniguian. May I add that, in my experience, our embassies around the world are fantastic? For the record, the late Simon Featherstone, our high commissioner in Malaysia, was one of those diplomats who really helped us.

[Mr Philip Hollobone (in the Chair)]

Order. To draw his remarks to a close, I call Iain Wright.

[Mr Wright]

My final point, as has been mentioned several times, is about ensuring that British firms are competing on a level international playing field. What steps are the Government taking with the European Commission and the WTO to ensure that rules are complied with and enforced, so that there is a level playing field?

Aerospace is a massive success story for Britain, which needs to continue not only next year but for the next few decades. There is cross-party support, and I hope that the Minister will address our points in his response.

15:49

[The Parliamentary Under-Secretary of State for Business, Innovation and Skills (George Freeman)]

It is an absolute pleasure to start my Front-Bench work in Westminster Hall under your chairmanship, Mr Hollobone. I congratulate my hon. Friend the Member for Mid Worcestershire (Sir Peter Luff) on securing this debate. I also want to take this opportunity to pay tribute to his work on this sector and on industrial strategy more generally, in what has been a very distinguished career in this House and in Government. From our work over the past few years, he knows that I share his passion for making sure that we use every pound of Government money to support a wider, more balanced long-term economic growth agenda for this country. This debate has played an important part in highlighting those issues.

My hon. Friend has raised a number of excellent points about the civil aerospace sector in the UK: the role of innovation in driving long-term growth; whether the current strategy is sufficient to rise to the international competitive challenge; how we can improve linkages between the defence sector and the space sector; whether both we and the supply chain sufficiently understand the views of the major US players; the case for improving export support; the need to support companies in the supply chain, both small and large; whether the approach to skills is adequate; and the importance of maintaining the momentum of the AGP.

We have also heard important contributions from my hon. Friends the Members for Aldershot (Sir Gerald Howarth), for Burnley (Gordon Birtwistle) and for Tewkesbury (Mr Robertson), from the hon. Members for East Antrim (Sammy Wilson), for Strangford (Jim Shannon) and for Alyn and Deeside (Mark Tami) and from the shadow Minister. There is a strong consensus in the room on the importance of the sector and its need for cross-party support. I will strive to respond to all the points raised as best I can in the time available. If I fail to do so, I will write to Members to deal with points in detail.

The Government know well that the aerospace industry is vital for the UK economy. It is one of our key industrial sectors and, like the life sciences sector, a key driver of long-term growth. I was struck by the recent figures from ADS showing that since 2011 the sector has grown by 14%. That is a real success story for the UK and something we should be rightly proud of. There is a huge opportunity for the UK to benefit from the forecast growth in aerospace, with forecast demand for 29,000 new passenger aircraft, valued at over $4 trillion, between now and 2032.

The sector has achieved so much, through a combination of good management, a skilled, innovative work force, supportive trade unions and long-term Government policy. The recent aerospace sector strategy provides long-term stability for the UK. It is particularly important for sectors such as aerospace and the life sciences that we lay out a programme for long-term support to secure investment.

The Aerospace Growth Partnership, set up in 2010, was designed to transform the way in which Government and industry work together. The AGP led on developing the industrial strategy published in 2013 and is now taking forward its implementation. It is not something that we can take for granted. In early meetings with the aerospace industry’s business leaders, it was striking that our national success is dependent on investment in research and technology. The UK’s No. l position in Europe was built on heavy investment in the ’70s and ’80s. However, over the years, public funding reduced significantly, resulting in some of our research capability going overseas, followed, inevitably, by some manufacturing jobs. That had to be addressed. It was through those honest, frank conversations that the seeds were planted for what became the aerospace industrial strategy.

It quickly became apparent that there was a need for Government to operate strategically over the long term. For critically important sectors such as aerospace, that is essential. For example, all hon. Members here will know that the Airbus A320 family was launched in 1984 and first flown in 1987, and is still selling strongly in 2014, with over 6,000 delivered so far and an order backlog of 1,200. Like the other sectors for which the Government have set out industrial strategies, the aerospace sector has long-term product development time scales that last well beyond a single Parliament and require a stable environment where industry and Government pull in the same direction. In that context, I warmly welcome the shadow Minister’s comments.

At the heart of the industrial strategy was a commitment to set up the Aerospace Technology Institute and for industry and Government to invest £2 billion over the next seven years in new technology and manufacturing—the largest and longest commitment on aerospace in a generation, creating funding certainty through to the end of the next Parliament, to give industry the certainty it needs to invest in the UK. It is a new way of working that avoids the piecemeal, ad hoc, hand-to-mouth approach of the past. It matches industry time scales that allow new technology to be developed and harnessed into game-changing products.

I am pleased to say that industry and Government have made good progress in setting up the Aerospace Technology Institute. Key posts have been filled, the office has been established in Cranfield and the institute has been fully operational since the beginning of April. A key part of the ATI’s work in the months ahead will be to develop a technology strategy for the UK that will take into account the international competitive challenge of which my hon. Friend the Member for Mid Worcestershire spoke.

We have wasted no time in putting that work to good use. To strengthen critical parts of infrastructure, we have already committed £60 million to the manufacturing technology centre in Ansty and £15 million to upgrade wind tunnels in research organisations. In total, we have announced well over £300 million of collaborative research projects, involving companies of all sizes working alongside academic and research institutions. Over 100 UK companies and 26 universities are now involved across the UK.

Knowing that long-term research funding is available gives business the confidence to invest. I was delighted at the announcement at Farnborough air show that Airbus will develop a new version of the A330, which will exclusively feature the new Rolls-Royce Trent 7000 engine. With over 120 orders already, the new aircraft will support jobs in Airbus, Rolls-Royce and the wider supply chain.

I turn now to skills, another issue raised by my hon. Friend. A big success story has been the jointly funded initiative to create an additional 500 masters-level postgraduate places. Last year, as planned, 100 bursaries were awarded; this year we have awarded a further 200 bursaries and the remainder will be awarded next year. I am delighted to report that industry has just opened up a portal on the Talent Retention Solution website so that bursary holders can link up with companies of all sizes.

I can also report that industry has submitted a bid through the AGP to the Government’s employer ownership programme to tackle its priority skills needs. It includes actions to boost apprenticeship numbers, and improve early career opportunities and the flow of high-level skills into the sector. That bid, for over £10 million of public funding, will leverage in additional investment by industry. I will take the opportunity to set out my support—as my hon. Friend invited me to—for the flagship apprenticeships and the STEM programme, which he talked of earlier.

[Mr Laurence Robertson]

Will the Minister be so kind as to look into any possible effect that the changes in funding of apprenticeship schemes might have on the industry—not necessarily now?

[George Freeman]

That is an important point. I will be delighted to look into it and come back to my hon. Friend.

We have also opened a dialogue with industry about the potential to create a national college for aerospace to help the sector tackle its long-term skills needs. My hon. Friend the Member for Mid Worcestershire also mentioned the importance of promoting women in science, technology, engineering and mathematics. I pay tribute to him for his campaigning work on increasing the flow of STEM skills into the economy and increasing the number of women working in STEM jobs. As in the life sciences, that is a key strategic priority for the future of our country. I want particularly to take the opportunity to support the STEM ambassador scheme.

To boost the pool of potential engineers, the Government are making a series of interventions across the spectrum, within vocational and higher education and with employers. In response to Professor Perkins’s review, we are putting in £30 million for employers to address engineering skills shortages in sectors, £18 million of investment in a new elite training facility at the Manufacturing Technology Centre in Coventry and £250,000 of seed funding to encourage children in schools to consider engineering careers through the Tomorrow’s Engineers initiative. In addition, last year my right hon. Friend the Member for Havant (Mr Willetts) announced a £400 million boost for English universities to promote science and engineering —a £200 million fund from Government that will be matched by universities on a one-to-one basis.

The Government cannot tackle this agenda alone: engineering employers, the profession and educators need to work together with Government to increase the supply of engineers in the UK. Companies such as QinetiQ, based in the constituency of my hon. Friend the Member for Mid Worcestershire, are taking a leading role through initiatives such as the 5% Club.

The AGP is also working to increase the competitiveness of our supply chain. The ambitious Sharing in Growth programme is part of that work and a great example of how the sector is raising the capability of our aerospace suppliers, mainly at mid-cap and smaller business level. Sharing in Growth is an ambitious £120 million performance improvement programme tailored to the specific needs of the participating companies. The programme is backed with £50 million from the regional growth fund and aims to secure or create up to 3,000 UK jobs. The Aerospace Growth Partnership has also created the National Aerospace Technology Exploitation Programme, a £40 million programme backed by £23 million from the advanced manufacturing supply chain initiative, to help smaller companies innovate and expand.

I will also pick up on my hon. Friend’s comments on Boeing. Although Boeing was not a formal part of the Aerospace Growth Partnership, given that it has no civil manufacturing presence in the UK, we have made it clear that initiatives coming out of the AGP, such as R and D funding, are open to Boeing when working with UK suppliers.

As time is running short, I shall conclude by touching on the issue of the Washington state tax breaks. I am pleased my hon. Friend has taken this opportunity to set out a balanced description of the WTO disputes. We continue to work with EU counterparts and I will be happy to write to him in detail on that ongoing work.

My hon. Friend also touched on the importance of links between the civil and defence aerospace sectors. Again, I will write to him in detail, but I emphasise that the Government are looking at that crucial area.

I conclude by highlighting once more the work the AGP has done and congratulating it on what it has achieved so far. It is already beginning to make a difference, which was summed up in a recent interview in The Sunday Telegraph with Fabrice Brégier, CEO of Airbus, who said—I will not use a French accent:

“I must say the UK has an approach which is to support industry, to support the economy and to be very pragmatic…We would like at times for other parts of Europe to have the same pragmatism and support.”

The signs are that there is increasing confidence in investing in the UK, and we are seeing fantastic new aerospace facilities. In less than four months, we will all be in election mode, but the best test of all this work will be if we can maintain sufficient unity of purpose. Today’s debate has suggested that that unity does indeed exist, which is important and to the benefit of us all.