Manufacturing and SMEs

Lord Blunkett Excerpts

Wednesday 4th September 2013 Westminster Hall

[John Stevenson]

Yes, I agree. Ultimately, we want to see all sectors of the economy grow, and they are all interlinked. Clearly, if manufacturing improves, the services side will also benefit. The reverse does not always work in quite the same way; there is a greater benefit for services when manufacturing succeeds.

As for my personal involvement, I have to confess that in my previous life I had little knowledge of or involvement with manufacturing. My constituency has a significant number of employers in the manufacturing sector that make a major contribution to the local, national and international economies. I recognise the importance of those employers, and I want to support them wherever possible. That is why I became heavily involved with the all-party group on food and drink manufacturing, which is well supported across the House and which I now chair, and with the associated all-party group on manufacturing—I am delighted to see leading members of that group here this afternoon. There is much overlap between those all-party groups and others, and it is useful to have such differentiation because it demonstrates that although there are many similarities between manufacturers, there are also many important differences.

[Mr David Blunkett (Sheffield, Brightside and Hillsborough) (Lab)]

I also congratulate the hon. Gentleman on securing this debate. He will already have realised that there is much cross-party agreement on the importance of manufacturing. I have seen that importance in the past fortnight, when I visited Burgon & Ball in my constituency. The company has been in business for 280 years, and with the help of the Royal Bank of Scotland and the growth fund I hope it will be here for another 280 years.

Will the hon. Gentleman confirm that part of the difficulty for rebalancing and manufacturing is the continuing culture of our banking system? To be fair, the Department for Business, Innovation and Skills endeavours to do something about the banking system, which focuses on short-term returns from manufacturing and business, rather than on long-term investment. We have turned the original intention of the banking system on its head. That intention, which is still reflected in the German model, is that banks are there to serve manufacturing and service industry development, rather than the other way around.

[John Stevenson]

The right hon. Gentleman makes a valid point. I assumed that many people would raise the question of lending, so I have specifically avoided it, but it is good that he has raised the issue.

My simple conclusion is that, if our economy is to rebalance and grow, and if our nation is to prosper, manufacturing must be central to that change.

--- Later in debate ---

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

It is a pleasure, Dr McCrea, to serve under your chairmanship. I congratulate the hon. Member for Carlisle (John Stevenson) on securing this debate and the cogent and well-reasoned way in which he spoke. There was very little to disagree with. I will keep my comments brief as quite a number of hon. Members want to speak. It is a reflection of the importance of the matter across parties that so many hon. Members want to contribute.

In the past couple of weeks, there has been euphoria about manufacturing. There has been a revival, but we must put that in context because the current level is below what it was in 2010, when it was described as a disaster. There are welcome signs of a significant upturn that might be sustained, but the situation is still not good.

In so far as it is possible to discern what has provoked the sudden surge in confidence and production, it is led partly by an increase in confidence in the housing market, which is rising largely because of the funding for lending scheme, and an improvement in exports. Both are welcome, particularly the increase in domestic construction in the housing industry. However, exports are particularly difficult at the moment with the problems in the eurozone, although there are welcome signs of revival. There is a danger in basing a rise in domestic consumption and confidence on a housing boom that may be temporary and is fragile. Many of the criticisms levelled at the previous Government were that consumption was based on that.

I will not reiterate our debates at that time, but although there is a welcome revival, the long-term sustainability of a manufacturing industry must be based on two things, or three if exports are included. First, a sustained and rising standard of living domestically will underpin demand for manufacturing products in this country. Secondly, an appropriate level of investment in the manufacturing industry in the private sector will ensure that we remain competitive, that value is added to improve exports and our domestic consumption, and that cheap foreign imports are resisted.

The hon. Member for Carlisle rightly outlined investment issues. The funding for lending scheme is generating confidence in the housing market, but the indications are that, like the enterprise finance guarantee scheme and other well-intentioned Government schemes designed to boost bank lending to small business, that is not yet happening. When I talk to banks about that, their reaction is that they want to lend and they have the money but companies will not come forward. When I talk to companies, they say that they do not have the confidence to invest because of the current economic situation.

The recent improvement in confidence may stimulate further demand from small manufacturing businesses, and may make the banks look differently at the risk parameters on which they base their loans and improve bank lending.

[Mr Blunkett]

I will not detain the Chamber long. Surely one of the difficulties with the enterprise finance guarantee scheme—which, in theory, is an extremely good idea—is that many major banks are asking of small businesses, and particularly of the owners, far more than they can give in personal guarantees, given that the banks can recover not only from the individual owner, but the 75% from the guarantee scheme, if they believe that the business is no longer viable. I think that the term is the “going west route”, whereby the banks end up owning the business. That is bound to put the fear of God into entrepreneurs, no matter how brave and confident they are.

[Mr Bailey]

My right hon. Friend raises a valuable point. I talked about the risk profile. A huge body of evidence demonstrates that banks are excessive in the security they demand in order to lend to businesses, and that is one of the main barriers to businesses wanting to apply for loans. If there is a criticism of the Government, it is that while the Government have provided cheaper money for banks to lend to businesses, I do not think that has addressed the obstacles that are far more significant in terms of getting the money out where it is needed, into investment in small businesses.