Economy: Growth

Lord Bhattacharyya Excerpts

Thursday 21st June 2012 Lords Chamber

[Lord Bhattacharyya]

My Lords, I thank the noble Baroness, Lady Kramer, for securing this debate. I declare an interest as chairman of the Warwick Manufacturing Group.

In many ways, this debate is the companion to that led by my noble friend Lord Adonis last Thursday. If last week we focused on the human cost of recession, this debate is about building a better future. When discussing the Government’s growth strategy, the first question is, “Which strategy?”. There is the “cuts first” plan, which says that the key to growth is rapid deficit reduction. There is the “credit easing” plan, which prioritises lending money to the private sector, and there is the “deregulate for growth” plan, which argues that what limits growth is the inability to fire workers. What do these alleged growth plans have in common? They claim to offer a quick fix—just cut, lend or deregulate and things will be okay.

But the search for easy answers is the problem. For decades, the national hunger for a fast buck meant that long-standing industries were decimated. British expertise vanished and excellence in technology went overseas. We outsourced our industrial heritage and now we are paying the price. Most of the government policies will do nothing to change that.

However, I welcome one of the Government’s strategies for growth which emphasises infrastructure, investment, skills, R and D, construction and using procurement to drive growth. Sadly, it is known to us only thanks to a leaked letter from the Business Secretary. I am here not to bury Vince but to praise him. When the Business Secretary told the Prime Minister that Britain needs,

“a compelling vision of where the country is heading beyond sorting out the fiscal mess”,

and,

“a clear and confident message about how we will earn our living in future”,

he was absolutely right. But who is working on industrial policy for the long term? Who is arguing for creating a real British bank in order that there can be lending? Who has taken the risk to address these issues, even rightly criticising our record in the process? It is Ed Miliband and his team, led by Ed Balls and Chuka Umunna.

Therefore, a coalition for long-termism is forming. It must not be some temporary partisan alliance. No long-term agenda can succeed if it is based on party lines. It should extend from the work that the noble Lord, Lord Heseltine, is doing for the Business Secretary as regards the industrial policy review. My party is conducting the same type of thing. The first challenge is to sustain—not even to make it grow—the manufacturing share of our economy, which is just over 12% of GDP according to the latest figures. Manufacturing matters because it alone can provide capital investment, R and D and exports to drive sustainable growth. Manufacturing represents just over one-10th of our economy, but more than 70% of our business R and D, and 46% of our exports.

Manufacturing cannot be made to grow at the click of a button. You have to create a sustainable ecosystem, which takes skill. Real change is not about numbers and training schemes; it is about changing our whole culture, from companies to government to schools. It is not about spinning a new mantra for the Daily Mail every day. Germany and Japan already think long term—from Berufsabschluss to Senmon Gakko. We too must develop a skills system based on market need and not on getting people off the claimant count.

The same is true of infrastructure. We need not a few shovel-ready projects but a sustained programme of investment in transport, energy supply and the environment, so that suppliers can invest with confidence. In R and D, we must achieve critical mass in a few key technology areas and not spend a little all over the place. If low-carbon transport, digital technology, aerospace and energy are our priorities, we must commit to them from blue sky to shop floor.

Our research grants on internal combustion engines are a key element of the UK automotive sector. We currently fund basic research in an unco-ordinated way when we should keep a focus on low-carbon research. EPSRC spends £750 million a year. It is reasonable to ask how that fits with our national innovation priorities. This is not about questioning the Haldane principle but about clear strategic focus. As the Business Secretary said:

“Our actions are, frankly, rather piecemeal. There are lots of individual funding decisions that lack support in other policy areas, or are not followed through systematically”.

We need to bring together research funding, procurement, skills and the supply chain, and give our key industries a voice in each. These key sectors need oomph at the heart of government. The Automotive Council has made a big difference. It helps to develop common priorities for innovation, encourages investment, and links together the UK supply chain. Other sectors need the same support. The failures of the past mean an industrial strategy that is often criticised as picking winners, yet short-termism means that we create too many losers.

When manufacturing firms do not invest in capital, R and D or people, they discover their weakness far too late and collapse. Instead, we must create an environment in which long-term minded businesses prosper. For decades, British business has been gripped by a consultancy and fast-buck culture, which means that you cannot get long-term financing. Even if you can, our reward structure discourages investment. Then we find these low-investment, low-capital firms are mobile and can outsource jobs, and we can do nothing to prevent them leaving. We end up as a nation of nervous shopkeepers and insecure bank clerks.

We can change this—not by picking winners but by shaping sectors. Our focus must be on leading and creating markets. For example, investing in R and D is not about patents or exploiting intellectual property. The days when you could live off patents are over. Business R and D has become a purchase of the ability to create and shape new markets.

A focus on market leadership through innovation encourages sectors to work together to develop common expertise from large firms to start-ups. It becomes self-sustaining, a positive loop of investment, innovation, leadership and new markets. If government supports sectoral innovation, we can pull supply chains to the UK. This will increase profits and employment and encourage foreign investment. If we think long term, we can build, without extra spending, an economy built on investment not speculation—on sustainable value, not flash-in-the-pan booms.

A coalition for long-termism is emerging, but it is not yet in power. That would require the Government to deliver on the agenda in the Business Secretary’s letter. Unfortunately, so far the Government have paid only lip service to it: a press release here, a stunt there. I hope the Business Secretary can change that. If he cannot, we on this side of the House, led by Ed Miliband, will deliver on that long-term agenda. In either case, I am grateful for the work of the Business Secretary and only hope that he will soon find a more long-term alliance than the temporary coalition he is in today.