Economy: Manufacturing

Lord Broers Excerpts

Tuesday 30th November 2010 Grand Committee

[Lord Broers]

My Lords, I, too, congratulate and thank the noble Viscount, Lord Montgomery, on this debate. I agree with all noble Lords. How could I disagree with the noble Lord, Lord Willis, about Mike Gregory—and others—who I put into professorship?

The UK remains, according to my numbers, in seventh not sixth place but these numbers seem to be somewhat confused. The important point is that we slipped from fourth in about 20 years. As pointed out by Sir Alan Rudge in an article based on Pink Book data and published by the ERA Foundation recently, present trends suggest that we will fall out of the top 10 within a decade. If that dire prediction is fulfilled, which I hope it is not, it is unlikely that we will ever be able to restore our economy to pre-recession levels.

According to Cambridge economists Coutts and Rowthorn in their recent paper, Prospects for the UK Balance of Payments, our persistent current account deficit could grow from 2 per cent to an unacceptable 5 per cent of GDP by 2020. They point out that, in 2008, our deficit in the trade of finished manufactured goods was £58 billion, far outweighing the surplus of £46 billion generated by the financial and insurance sector, and that it remained at £50 billion in 2009. The most striking point that they make, however, is that an increase of only 10 per cent in manufactured exports, combined with a 10 per cent fall in manufactured imports, would generate a £45 billion improvement in the current account balance, which is equal to total UK net earnings from financial services and insurance and more than one and a half times that contributed by all other services, so manufacturing is hugely important to the UK. It may in fact provide the only way out of our financial difficulties.

Ironically, what manufacturers need is more support from the financial sector, but this is seldom forthcoming, presumably because the timescales for returns from manufacturing are longer than those for the simple trading and exchange of finance. The gains in many cases are smaller. In the long run, however, as the excesses of the financial sector are reined in, the gains in the financial sector will probably fall way below those of the manufacturing sector. To help resolve this difficulty, the coalition should once and for all abandon the strategy of leaving manufacturing industry to fend for itself while it does everything possible to prop up the financial and knowledge-based services in the false belief that they alone can provide all that is needed. Instead, it should do everything it can to support manufacturing.

One key area where manufacturing needs assistance is in breaking down the barrier that persists between product design, at which we are strong, and scientific and technological advances—we endlessly talk about the excellence of our science and engineering base—and their implementation in profitable products. This difficulty has been discussed ad nauseam, but today we have the opportunity to do something about it. We can implement the recommendations of the Hauser review, to establish centres in which industry and universities work together in a focused manner to bring advances in product design and technological capability closer to the market. Such centres are used successfully in many of our competitor nations, most notably perhaps in the Fraunhofer centres in Germany, but they exist in this country in many places, one sparkling example being the centre linked with the noble Lord, Lord Bhattacharyya. Industry should be encouraged to concentrate its R&D resources into these centres and play a leading role in overcoming the barrier between university research and its effective application. It is crucial that we concentrate our efforts and not, as we have in the past, spread them thinly and ineffectively across a large number of small and uncompetitive centres.

Incentives to get the financial sector to invest in manufacturing and to concentrate our research and development efforts in large, critical-mass R&D centres would greatly benefit our economy.