Economy: Growth

Lord Bhattacharyya Excerpts

Thursday 31st March 2011 Lords Chamber

[Lord Bhattacharyya]

My Lords, I join those who have thanked my noble friend Lord Hollick for securing this debate. I also support the remarks about the excellent maiden speeches that we have heard.

As the director of Warwick Manufacturing Group, I declare an interest as a professor of engineering and as someone who has worked for 40 years in the field of manufacturing here and abroad. I am also a long-time student of the gap between speeches and the shop floor.

The Chancellor’s Budget speech referred to a “march of the makers”. Apprenticeships, the UTCs, extending the Enterprise Investment Scheme, the Manufacturing Advisory Service and the green investment bank are some worthwhile modifications of programmes set up under the Labour Government. They are welcome but the “makers” have heard fine words before and have been let down. The devil is in the detail and in how things are implemented. Sadly, we have never been good at that in the United Kingdom. We do not want a repeat of the “white heat of technology”, which in the 1960s promised much but delivered little.

Today, manufacturing is enjoying a surge in exports and profits, driven by exchange rate gains, increased competitiveness and sticky wages. Quite a lot of that comes from inward investment, some of which I have been privileged to bring in myself. However, there are major issues to be addressed if this growth is to be sustained. In the 1950s, British gross capital formation was a little over half that of Germany and Japan. It stood at 16 per cent of GDP. Today, capital formation is 15 per cent of GDP—still significantly below our main competitors. In 2009, as the noble Lord, Lord Broers, said, UK investment in R&D shrank both in cash and real terms. Business R&D fell significantly. There was a recovery in 2010, but by the final quarter we were flat-lining again.

We need better incentives for the private sector to invest in developing improved products and systems. While the R&D tax credit changes are useful, the reductions to capital allowances work in the opposite direction. Further, the research funding system is so complex and distant from commercial reality that many small companies get little advantage from participating in R&D programmes. In this House, we have debated impact many times and, while I agree that evaluation based on commercial impact is not right for all subjects, in applied sciences and engineering it is surely essential.

Why do we need such commercial clarity? We need it because, although manufacturing is fashionable today, experience tells us that existing schemes and centres will stick a “manufacturing” badge on their projects to secure funds without delivering what we need. We need clarity on impact to prevent that. Indeed, we are already seeing the bizarre situation of projects trying to secure funding from government and talking about a 15-year strategy before being sustainable and delivering commercial impact. That is far too long. However, many good things have happened. I agree with the noble Lord, Lord Newby, about what the Technology Strategy Board does when it comes to technology and innovation strategy. However, it does not have much money. If it were doubled or tripled, it would still be a minuscule amount compared with what is needed—it is at the front end of all our approaches to the manufacturing industry. The perennial problem of underinvestment is exacerbated by the inability of business to obtain finance.

I do not want to repeat what the noble Lord, Lord Skidelsky, said regarding an investment bank, but it would be dishonest of me to say that the Budget was bad for manufacturing. However, if we are to succeed, we need more than a splash of fuel. We need to supercharge the engine. Time will tell whether this Government’s deeds match their words.