Queen’s Speech
Lord Broers Excerpts(9 years, 6 months ago)
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Lord Broers (CB)
My Lords, as a microelectronics engineer who spent his first 20 years in industry, it is perhaps appropriate that I follow the noble Lord, Lord Fox, and a lot of what I shall say resonates with what he has just said.
It is a great privilege to speak in this debate. With other noble Lords, I was immensely impressed by the outstanding maiden speeches of the noble Lords, Lord O’Neill and Lord King. It is hugely encouraging that they have come to join us and help us in finding ways to strengthen our economy.
Like many other noble Lords, I wish to concentrate on manufacturing. The best way to reduce our deficit and bring our economy into balance is surely to increase our manufacturing output. To do this, we need to make our products more innovative and attractive to customers, reshore a significant fraction of our manufacturing and, most importantly, improve our productivity. Much has been gained over the past few years and there have been signs of a real renaissance in our manufacturing capability. Disappointingly, however, output has levelled off during the past year and, once again, manufacturing is lagging behind the financial and services sector, leaving our economy unbalanced. It is vital that we maintain our focus on manufacturing.
During the past two weeks, I have chaired for the fourth time the national manufacturing debate at Cranfield University, this year with the theme of reshoring. I also chaired a session of a Westminster Employment Forum focused on higher apprenticeships. Many of the critical factors affecting our manufacturing performance surfaced at these events and I want to talk about three of them.
First is the need to maintain and grow the support to the catapults, just mentioned. We now have seven catapults already producing innovative advances derived from research in industry and academia that will lead to better products and more efficient manufacturing, and two that began operations this April. Dick Elsy, the director of the first catapult, the High Value Manufacturing Catapult, told us at Cranfield about the success of this flagship example. It now operates at seven different sites and works on manufacturing processes that range from the production of Rolls-Royce turbine engines to plastic electronics. It is pleasing that the TSB, now Innovate UK, was able to exceed the original funding limits and allow it to expand. The other catapults are also doing well, although there is a worry that the regulations governing the provision of government funding to these centres places constraints on their operation that may impair entrepreneurship, but hopefully Innovate UK will keep an eye on this and not let it dull their performance.
As many of your Lordships will know, the catapults are a UK version of the German Fraunhofer centres, but we have a very long way to go before we will compete with the power of those German equivalents. Hermann Hauser, who proposed the catapults, points out that there are 77 Fraunhofers versus our seven to nine catapults. Each of the Fraunhofers is about the same size as the catapults, with more than €3 billion of support, and there are 55 potential Fraunhofers in waiting. He thinks that it is important that there should be a steady increase in the number of catapults—about two or three a year. These have the potential for being the life-blood of our manufacturing recovery, but only if they continue to receive adequate support.
The second factor affecting our manufacturing performance that I wish to talk about, as many other noble Lords have done, is skills, and specifically the need for coherence in the two branches of our higher education system: the university branch and the apprentice branch. One of the speakers at the employment forum that I chaired described our higher education system as a series of pieces from a jigsaw puzzle, mostly of high quality but none of them fitting together. In particular, the qualifications for the different levels of apprenticeship are not adequately defined, especially with respect to the theoretical knowledge required to attain a given level.
It is felt by senior industrialists who I have spoken to that the Government need to help in determining these standards. At present they are established in an ad hoc manner by individual companies and the standards of attainment are too variable—they are all over the place and, to be blunt, not fit for purpose. There is also a tendency for the vocational or apprentice branch to be considered only by those who cannot get into a university. The result of this has been a serious shortage of what Europeans call master craftsmen. This was emphasised at Cranfield as a serious issue that may limit our ability to reshore manufacturing. The strong emphasis that the Government place on apprenticeships is admirable, but the qualifications needed to reach the different levels of apprenticeship need to be defined and enforced.
Finally, I wish to stress the need to place more emphasis on the needs of medium-sized businesses. It was pointed out at Cranfield that it was unfortunate in many ways that we almost universally refer to SMEs, small and medium-sized enterprises, as if they were the same and have the same needs. They are not the same. We are better at creating and supporting companies than we are at supporting and growing companies that are already established. I have raised this issue before. Our financial sector needs to learn how to assess the potential of these businesses and fund them, and not leave it to the Americans to have free access to our successful mid-sized companies just as they are ready to take off, thereby depriving us of the boost they could make to our manufacturing output.
Entrepreneurs’ Relief
Lord Broers Excerpts(9 years, 9 months ago)
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Lord Broers (CB)
My Lords, I am sure the Minister realises that there is a point in the growth of new companies, especially high-tech companies, where they have gone through the first phase but their next phase requires not a few million pounds but perhaps £100 million. In Cambridge, we have certainly lost some very successful companies to US investors at that stage. In fact, it is quite a regular occurrence. Are the Government thinking about that, and about perhaps persuading our City to fund some of these new companies and not always leave it to the Americans?
Lord Newby
Yes, my Lords, but while the problem to which the noble Lord refers is of course a long-standing one in the UK, the Government have done a number of things. One is the growth of the enterprise investment scheme, which generated investment of £1 billion in 2012-13. The seed enterprise investment scheme is another, albeit for slightly smaller firms, and some of the initiatives of the Stock Exchange on AIM and the development of the retail bond market are also designed to help fill that funding gap.
Queen’s Speech
Lord Broers Excerpts(12 years, 7 months ago)
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Lord Broers
My Lords, it is an honour to speak in the debate on the Queen’s Speech. I wish to speak on an issue of major importance to the economy. I spent the bulk of my professional career, about 30 years, working in industrial research and development, and this is the only subject that I wish to address today. Research and development is the seed corn for manufacturing and is essential if we are to rebalance our economy and restore our manufacturing output, which has fallen catastrophically from 20% of GDP in 1988 to 11% now, leaving us in ninth place in the world. We were fourth in 1988. Recovery will depend on the excellence of our R&D. R&D expenditure is the best indicator of the likelihood of recovery.
Thankfully, there are signs that the coalition is aware of this and it has supported several initiatives that will help. I will discuss just two of these, though I noted that the noble Lord, Lord Haskel, mentioned the 130 initiatives for manufacturing. I want to talk about the Catapults that are being organised and partly funded by the Technology Strategy Board and the Queen Elizabeth Prize for Engineering, which is privately funded but strongly supported by our leaders. The Catapults came about as a result of Dr Hermann Hauser and his report that recommended the setting up of institutes similar to the German Fraunhofer Gesellshaft Institutes. Industry and academia will work together in the Catapults under the leadership of industry to harness the output of our strong science base for commercial advantage. There are to be seven of these centres, organised by the TSB and funded roughly in thirds by the TSB, by industry and through publicly funded research programmes. I hope that these will include the Framework Programmes, funded by the European Commission. The aim is to have each of these centres receive about £30 million a year total. The seven centres will therefore represent about a £200 million increase in R&D.
These Catapults should make an important contribution provided they are allowed to be independent and driven by the needs of industry and not strangled by the imposition of government-driven regulation and assessment. It will be a mammoth task, however, to scale them up to match the contribution of the Fraunhofers to German industry. There are 60 Fraunhofer Institutes, funded with €1.8 billion annually. Of this, 70% comes from contracts with industry and from publicly financed research contracts and 30% comes from the German federal and länder Governments. We made a good start but there is a long way to go. I urge the Government to set these institutes free and not harness them with unnecessary bureaucracy.
Overall, we need to increase our annual R&D spend by about 0.8% of GDP to match Germany and the USA, or about 1.4% to equal Japan. To compete with Germany and the USA, therefore, we would need to spend roughly an additional £10 billion annually on R&D over and above what we spend today. This places in context the £200 million for the Catapults. Sir Alan Rudge, who has been working with the Electrical Research Association Foundation on these crucial matters, has pointed out that our shortfall is in part due to the reduction in the size of our industrial sector. Many of our companies have excellent R&D, but there are not enough of them; there are others that are failing to invest in the development of the new products that will be essential to their survival.
The only way we are going to meet this challenge is for the Government to take on board the magnitude of the problem and introduce appropriately strong incentives for industrial companies of all sizes—not just SMEs, although they are incredibly important—to increase their R&D spend and find ways of transferring more of their own funds to innovation and development. We have the talent and the research base to compete on the world manufacturing stage, but without increasing our R&D spend we will continue to sink down the performance table.
Finally, to finish on a positive note, I would like to praise all three political parties for the strong support they have given to the Queen Elizabeth Prize for Engineering—an initiative designed to inspire young people to take up the challenge of being creative engineers. This magnificent prize, to which the Queen has given her name, was funded generously by forward-looking industry. It was launched last November by the Prime Minister, accompanied by the leaders of the Liberal Democrats and the Labour Party, in the Science Museum in a unique moment of political consensus. Like the Nobel prizes, it is an international prize and at £1 million, it is 50% larger than the Nobel prizes. It will be awarded for ground-breaking innovation in engineering that has been of global benefit to humanity. The prize is directed by a board of trustees chaired by Lord Browne of Madingley. I declare my interest as chairman of the international panel of judges.
The prize has been greeted with enthusiasm from all around the world. It is especially pleasing that engineers everywhere have thought it appropriate that the UK should take the lead on this new prize because of the high regard in which British engineers are held. Nowhere is the prize of more importance than in the UK, where it should help to inspire a new generation of creative engineers who will go on to reinvigorate our industrial R&D and thereby ensure a better balance in our economy. It is very encouraging that it has received such strong support from our political leaders.
Economy: Growth
Lord Broers Excerpts(13 years, 8 months ago)
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Lord Broers
My Lords, we have had a series of outstanding maiden speeches in this debate, and it is my privilege and pleasure to thank the noble Baroness, Lady Worthington, and to congratulate her on a truly excellent maiden speech. She brings to this House a wealth of knowledge on climate change matters, as she has clearly demonstrated. She has worked on these crucial issues with the energy industry, advising Scottish and Southern Energy. She then brought her expertise to government, working on the Climate Change Act, and she helped the Government in their campaign to inform the public about the importance of these issues. Her contributions to public understanding have been noteworthy, and I know that we all look forward to her helping this House deal with, for example, the complexities of carbon trading and the EU Emissions Trading Scheme, not to mention the green investment bank. We welcome her warmly.
I was pleased to find in the Budget some real, if insufficient, attempts to tackle the major issues that confront us—those of low productivity, lack of spending on R&D by industry, out-of-date and inefficient infrastructure, and expensive financing. Many have said that we must restore our industrial base and our infrastructure.
I start with infrastructure. I regard banking as just another element of infrastructure. As with housing, energy and transport, it should be efficient and low cost, and I fail to see how this is consistent with banks seeking profits of the order of 20 per cent or more. Would we be happy if our rail operators made similar profits? Where our banks are operating overseas, it might be justified on the basis that their practices contribute to the current account, but here they should be taking professionally calculated risks on industrial initiatives rather than gambling on obscure hedging instruments. I totally support Mervyn King in his attempts to separate these issues but I do not find much in the Budget to assure me that they will do so.
I join others in pointing out that we need to increase our manufacturing output. Our deficit in manufactured goods remains at about £50 billion. It is encouraging that manufacturing is now growing at 12 per cent, but at this rate it will still take 15 to 20 years to recover what we have lost in the past 12 years. Coutts and Rowthorn have pointed out 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 the total UK net earnings from financial services and insurance and more than one and a half times that contributed by all other services. To do this, we need more competitive products, and to create these we need a broad spectrum of creative engineering.
The good news is the Government’s acceptance of Hermann Hauser’s technology innovation centres but, if these are to succeed, industry must concentrate its R&D resources in them, as do the Germans. The enhancement of the enterprise investment schemes are also good news. They will stimulate the formation of new companies and appropriately reward our courageous and professional venture capitalists and angels.
The overall problem of course is much larger than can be resolved with the TICs and by new start-ups. Overall spending on R&D must be increased. At 1.8 per cent of GDP, our spend is 40 per cent lower than that of the US, 30 per cent lower than that of Germany and 20 per cent lower than that of France. Our situation is unbalanced. We have a science budget of £4.6 billion, which supports a science base that is second only to that of the US and is our greatest asset, but this is not matched by our spending on development, which should be several times higher. The TSB is doing a brave job with its budget of roughly half a billion but the rest must come from the private sector, which does not seem to be happening.
The reduction in corporation tax will help, as will the progressive increases in R&D tax credit, but why is the change in R&D tax credit restricted to SMEs? Only the large companies can mount the prime manufacturing projects that we desperately need, and it is the large companies that sustain the SMEs. I ask the Minister to explain the Government’s thinking on this.
We have a great opportunity to increase manufacturing output by building our new energy and transport systems. However, sadly, much of this may come from overseas. There is hope that these foreign-owned companies will manufacture those systems in the UK, but surely it would be better if, to take the words of the Chancellor in concluding his Budget speech, more of it carried the labels:
“‘Made in Britain’, ‘Created in Britain’, ‘Designed in Britain’ and ‘Invented in Britain’”.—[Official Report, Commons, 23/3/11; col. 966.]
These are courageous words but it will take more than the changes in the Budget if we are to succeed in doing this. I ask the Minister to reassure us that there is more to come.