UK Industry: International Competitiveness

Lord Paul Excerpts

Thursday 5th July 2012 Lords Chamber

[Lord Paul]

My Lords, it is an honour to follow the noble Lord, Lord Selsdon. For the 16 years that I have been in this House, I have always been afraid to follow him, because how would I keep the House amused?

I thank the noble Lord, Lord Jenkin, for sponsoring this important and timely debate. He has great experience both in industry and in government. The noble Lord might recollect that as a very young entrepreneur I came to see him when he was Secretary of State, and he was most helpful.

As chairman of the Caparo Group, an industrial manufacturing company, I declare an interest. Competitiveness is vital for the future of our country’s economy, and nowhere is that more significant than in manufacturing. Having been intimately engaged in that activity all my life, your Lordships will appreciate why I will focus largely on that sector. After a long while, the manufacturing segment of our GDP has shown an appreciable increase in the past three years. That is intrinsically commendable, but it is not enough. Britain is now the ninth largest manufacturer in the world, although that is a far cry from our ranking in the past. My own experience and evaluation tells me that, given the appropriate encouragement, we can substantially enhance that position.

Our manufacturers are doing almost everything they can and, encouraged by the progress made in recent years, are keen to do more. However, for Britain to get the fullest benefit of their endeavours there must be a much more supportive environment. Today, many manufacturers feel that a more positive and creative approach by the Government would help to engender the conditions that would enable them to maximise their potential.

There is considerably more that the Government can do to structure the context in which manufacturers can achieve a higher level of competitiveness, a condition that would be of great benefit to the country as a whole. We live in a world of globalised interaction, a world in which many Governments encourage and support their manufacturing industries. We need to do this, and fast, otherwise others will gobble up the gains that we have so resolutely made.

Here are a few suggestions for consideration that can be implemented in short order. Above all, there is the question of inadequate access to finance. It is now almost four years since the onset of the banking crisis, with its crippling impact on credit availability, particularly to small and medium-sized manufacturing enterprises. Despite government initiatives such as Project Merlin, the money is just not flowing, even from the institutions within its control such as Lloyds and RBS. In view of this, it is now imperative to create a new corporate institution dedicated to industrial finance, a high-powered, well-endowed industrial bank of a kind that I have been advocating in this House and elsewhere since this financial crisis began in 2008.

I have two other concerns in this financial domain. The first is the cost and time-consuming effect of red tape. Despite occasional reassurances, the bureaucratic tangles of regulatory consent and like procedures continue to escalate. Of course we must have protection, but our excessive foot binding is making it easier, cheaper and less risky to establish projects in countries where these burdens are less onerous. My second concern is the consequence of the current exceptionally low interest rates on the overhanging pension burdens on business. Two weeks ago in our debate on the economic growth strategy, I drew the House’s attention to the serious impact of this looming thunder-cloud over the competitiveness of industry. This needs to be addressed and addressed fast.

If our competitiveness is to be sustained, we must rethink energy pricing policy. While I strongly endorse environmental efforts to prevent the destruction of our ecological heritage, we need a sense of balance. The competitive struggle is a tough, international battle that is hard to fight with one hand tied behind our back. There are industries in which energy is a major component of production. Try as one might, it is simply not possible to avoid or reduce this. Our energy pricing is such that our production languishes while our industrial competitors’ energy costs are considerably below UK costs. Our present system of carbon taxes is basic to this problem. It is just not working. Up and down the supply chain of many remaining heavy-process industries, jobs are being lost and businesses are in trouble.

Innovation is the lifeblood of competitiveness. It can be achieved only through better skills and training and the enhancement of industrial education and research environments. There are two ways in which we can accelerate this process. Large companies already maintain their own facilities to supplement public sector education. Through appropriate tax and other incentives, we can encourage these larger corporates to mentor less well endowed mid-sized businesses to establish jointly the type of technical institutions in which innovation and creativity will flourish.

In my distant youth I was a student at the Massachusetts Institute of Technology. There I saw how the Government and the corporate sector worked with the universities to carry out industrial research for which the universities were paid. This strengthened the financial position of the universities while providing innovative ideas and product design to the corporates and to the Government. Ever since, as your Lordships know, I have strongly endorsed these synergies. We have made some progress in this but I suggest consideration of a crash programme in which government resources anchor such interconnections. With other countries increasing their research budgets, perhaps we can offset our own financial limitations through such a pooling of resources and expertise.

Industrial investment is a long-term process and industry needs a clearer sense of economic direction in order to help that investment. The biggest issue for industry at the moment is the banking crisis. This is so fundamental to our national economy that it must be investigated intensively and resolved. A resolution must avoid any political point scoring, as the whole country needs to have its faith in the financial sector restored. The LIBOR fixing has adversely affected everyone. It has hurt the reputation not only of UK financial services but the country as a whole. We cannot afford that. The Minister is, in my view, one of the best people to give advice on this subject, and I hope that the Government will seek his wise counsel, despite his being in a different department.