UK Manufacturing Industry

Lord Northbrook Excerpts

Thursday 8th December 2011 Lords Chamber

[Lord Northbrook]

My Lords, we are all grateful to the noble Lord, Lord Haskel, for introducing this important debate on the development and retention of manufacturing industry in the United Kingdom. Placing UK manufacturing in a global context, whether we like it or not, we cannot compete in the mass manufacturing market because of our wage structure compared to countries in Asia and Latin America, for instance, where labour costs are so much lower. The UK is competing with numerous locations for investment from internationally mobile manufacturing firms. Brazil, Russia, India and China have already moved up the value chain and offer incentives for multinational companies to establish operations in their countries at the risk of eroding our manufacturing base. The emergence of countries such as Colombia, Indonesia, Vietnam, Turkey and South Africa presents an increasingly crowded space in which the UK needs to manoeuvre to attract investment. However, there is no reason why the UK cannot have a niche role in manufacturing higher value added products.

Until very recently, figures for the manufacturing sector throughout the recession have offered signs of optimism in an otherwise bleak landscape. In the first quarter of 2011 the sector grew by more than 20 per cent in terms of output and orders. By September, the sector was still showing year-on-year growth of 2 per cent. We are still the seventh largest manufacturing country in the world and leaders in industries such as aerospace and pharmaceuticals, and we enjoy a comparative advantage in medium to high technology manufacturing. The vital industries that underpin those sectors such as packaging, or the contribution which food and drink, the largest manufacturing sector in the country, make by employing more than 400,000 people, should not be forgotten.

On Tuesday, several noble Lords and I attended a most interesting event sponsored by Dods which, with several large companies and institutes, has issued a publication entitled Manufacturing a Greater Britain. This publication sets out five policy recommendations which I will discuss in more detail. I have also blended in what the main manufacturers’ association, the EEF, has published recently as advice to the Government following the Autumn Statement.

The first recommendation in the document is that we need to improve the rigour of science, engineering, technology and maths teaching in our schools and colleges. This will help drive quality in the UK workforce. The second recommendation is that the Government can play a strategic role in supporting key industries with increased public sector investment in the research and development which will help innovate them. I think this recommendation has to be carefully thought through and targeted, particularly in these difficult economic times.

I welcome the Government’s announcement in October that they would finance a £170 million package to create the first technology and innovation centre in high-value manufacturing. I also welcome, as does the EEF, making additional tax allowances for R&D expenditure available for smaller companies and hope for further progress in the move to above-the-line relief for larger companies. Here I would ask the Minister for progress on these consultations. I can understand that sensible public sector procurement could give preference to UK products, taking into account the extra social security costs if redundancies occur as result of businesses laying off workers or failing altogether as the result of failing to get a contract.

The third recommendation is to review environmental legislation to ensure that energy costs remain competitive. The Chancellor’s announcement of a rebate from the carbon tax for energy-intensive industries is welcome and is also praised by the EEF. It is now necessary, in my view, for a broader cross-departmental review of environmental legislation. As part of this process, each unilaterally applied carbon policy in the UK should account for the likely detrimental effect of an implementation that results in investment being located abroad.

The fourth recommendation is more difficult to achieve in the short term. Manufacturing in this country has suffered a negative perception as being the poor relation compared with having a job in financial services or the professions. One possible silver lining to the recent economic and financial crises may be to persuade new job recruits to go into industry as a more secure place to work. More needs to be done in, for instance, television programming. We need programmes about engineering and manufacturing, especially from channels like the BBC, although I was glad to hear the noble Lord, Lord Haskel, mention a good programme last Sunday. Sadly, overall, its record in this area has been seriously lacking and positively hostile at times, and this needs to change.

Finally, more needs to be done to assist small and medium-sized enterprises, whether through giving them access to finance or export markets. The EEF is also vocal on this front. The UKTI is doing good work to help businesses locate overseas markets. It can do still more to help in this area and make it easier for them to access trade finance.