Economy: Manufacturing

Lord Young of Norwood Green Excerpts

Tuesday 30th November 2010 Grand Committee

[Lord Young of Norwood Green]

My Lords, I, too, congratulate the noble Viscount, Lord Montgomery, on initiating this debate on an issue as vital as the value of manufacturing. We have had some illustrious contributions; I worry about trying to follow their quality.

A number of noble Lords, including the noble Lord, Lord Bilimoria, have said that manufacturing is not dead. My noble friend Lord Bhattacharrya made the same point in putting the state of our manufacturing in an international context. If the numbers have declined over here, so have they in other countries. That context is important, otherwise we make the task seem almost impossible.

Our concern is about manufacturing succeeding in the context of growth. We are concerned that the Government have the wrong policy on deficit reduction—it is too rapid and too deep and risks a fragile recovery. We would characterise it as an almost ideological stance on cuts to the public sector which they say will be obviated by growth in the private sector. I hope that they are right in that prediction, but that fails to acknowledge that many private sector manufacturing firms rely on contracts from the public sector. It fails to distinguish between investing for growth and infrastructure and general investment. My noble friend Lord Haskel got it right on the question of debt. There is debt which arises from investing in infrastructure and areas such as the Sheffield Forgemaster's loan. We thought it was an appalling decision by the Government not to carry on with that investment, which we believe would have proved to be not only a necessary but a profitable investment. There is still time for them to reconsider that.

We need a favourable climate. I turn to the question of skills and the skills deficit. I note that the Government's policies, which are now in a number of documents, whether the strategy for sustainable growth or the more recent document, The Path to Strong, Sustainable and Balanced Growth. I noticed that the Government stated in the latter that they are abandoning the targets set by Leitch. That is unfortunate. How will we measure progress on reducing the skills deficit?

I notice that we are not totally abandoning targets, because the Government have set themselves a target of 75,000 more adult apprenticeships. I am puzzled at that, because it is not just adult apprenticeships that we need; we need apprenticeships for the 16 to 18s. I have always described them as little beacons of hope to every young person. If we want to encourage young people into manufacturing, we need those apprenticeships, not just adult apprenticeships. I am puzzled that that is where the Government see the growth in apprenticeships.

The noble Lord, Lord Cotter, referred to the perception of manufacturing. We need a couple of programmes, “Strictly Manufacturing” and an “X-Factor” for manufacturing, to enhance the view that manufacturing is a great career choice for young people. We need to mean that and get the careers advice right. I agree with the noble Lord, Lord Cotter, on that, as well: schools still do not seem to understand the value and importance of apprenticeships. Recently, I went to a school for a prize-giving. I asked people about apprenticeships and they said, “Oh yes, well there might be one or two”, but they are seen as an add-on. It is unfortunate that in our correct drive to increase the number of young people wanting to go to university, a vocational career was seen as a second-class option. It is certainly not. I looked at the latest figures on apprenticeships. We have a remarkable 270,000 starts on apprenticeships by the end of 2009-10. If the Government can match the progress that we made from 1997 until then from 65,000 to 270,000, I promise that I will applaud their success.

We are in a short time trying to cover a very complex subject. Another question was the decision to abolish the regional development agencies—something which attracted quite a bit of criticism by business. The Government have taken that decision and decided that local employment partnerships will be a success in future in encouraging manufacture. My question for the Minister is: there seem to be areas of the country that are not covered by local employment partnerships; what are you going to do about that? Secondly, the papers that the Government have produced to date define a number of key activities that they expect the LEPs to undertake. If that is serious, what about the funding for those organisations?

I have to say to the noble Lord, Lord Willis, that he is wrong when he said that we had no manufacturing strategy. We did have a number of manufacturing strategies; the last one was “New industry, new jobs”, when we tried to look at the emerging jobs that would come from a new, greener economy. He himself talked about the manufacturing framework. I would not say that we had everything right—I do not think that any Government have got everything right on manufacturing —but to say that we did not have any manufacturing strategies is a bit of hyperbole.

I conclude by endorsing many of the points that the noble Lord, Lord Broers, made when he talked about the importance of manufacturing. He got the value bit right when he talked about the effect of a 10 per cent increase in exports, if we could achieve that. That is the target of this Government to build on some of the things that we did in trying to ensure that we had the skills base that manufacturing needs and the strategies for us to ensure that in this key period of our recovery, manufacturing can make the contribution that it needs to make.

[Baroness Wilcox]

My Lords, I begin by thanking the noble Viscount, Lord Montgomery, for securing this debate on the value of manufacturing to the United Kingdom. As he said, he set the scene; as far as we are concerned, it could not have been more timely given some of the announcements that we have made. The noble Lord, Lord Willis of Knaresborough, is to be thanked for giving up his birthday to be here and for his thundering good speech, on which we will reflect carefully. Of course, we welcome his celebration of UK manufacturing, which was very heartening to hear. Contrary to something that he said about the manufacturing framework, it has not been pulled; we are planning to announce it shortly and it will be set up with the necessary conditions.

The principal aim of the coalition Government is to return the United Kingdom economy to growth, but it needs to be a different sort of growth from what we have seen in the past, as the Chancellor and the Business Secretary reiterated yesterday. We must achieve growth that is more evenly balanced across the country, in the north as well as in the south, and growth across the range of business sectors, because we can no longer rely on just a handful of industries. We need growth that is sustainable and not so heavily based upon household consumption that is driven by personal debt or ever-increasing government spending. The alternative is an economy founded on greater levels of business investment, more export sales and a strong manufacturing base. Indeed, manufacturing already accounts for more than 50 per cent of United Kingdom exports, and contributes £140 billion annually to our economy. To respond to the question from the noble Viscount, yes, £140 billion is directly generated by manufacturing, but it also generates a lot of additional revenue. For every factory producing goods, there are accountants, designers and other service providers employed as well. Manufacturing accounts for 75 per cent of all industrial research and development investment and, with about 2.5 million jobs, accounts for roughly 8 per cent of total UK employment.

In the spending review, we took a number of tough decisions in order to tackle the deficit bequeathed to us by the previous Government, but we have also announced the areas in which we intend to invest what are, inevitably, limited financial resources at the moment, all with a view to growth. That investment will be in such things as in transport links and digital infrastructure, as well as £250 million in an additional 75,000 adult apprenticeship places, along with the apprenticeships that we already look to.

I have a question here about apprenticeships from the former Minister himself: are we ignoring the 16 to 18 apprenticeships? No, we are not. We are just trying to expand it and allow people the opportunity to retrain in adult life, and we are looking at the sort of apprenticeships that girls take up; they take up 50 per cent of the apprenticeships in this country but they tend to be in the caring, hairdressing or beauty professions, and we would like to see our girls encouraged at school with, as the noble Lord, Lord Cotter, mentioned, much better careers advice than we have seen so far—careers advice that goes right through from schools to further and higher education, so that that advice can be at all ages, at all times in life, to get those changes through.

We are creating a green investment bank with an initial budget of £1 billion so that the UK gains a technical and competitive edge in clean technologies and, perhaps more directly relevant to this debate, we are investing about £200 million to support the small and medium-sized enterprises in manufacturing. However, I take on board what the noble Lord, Lord Willis, said; we will reflect on the fact that we must remember that our big industries are very important.

All these measures, however, will benefit the manufacturing base, as will our reforms aimed at simplifying the tax system. Three or four of your Lordships talked about the tax system and simplification. We are well aware of trying to pull the Government off people who are trying to get their businesses going and instead simplify the tax system so that people know exactly where they are. We are reducing the main rate of corporation tax from 28 per cent to 24 per cent over the four years from April 2011, and the small-profits rate from 21 per cent to 20 per cent. The same goes for our assault on unnecessary red tape. New regulations are permitted now only a “one in, one out” basis.

Yesterday’s growth review announcement is the next stage in the process. Each government department must now identify and remove further barriers to economic growth. The review will also include a detailed look at advanced manufacturing, for which we will publish an action plan to coincide with next year’s Budget.

I know that we are time-limited, so I will briefly address some of the points that were made. The noble Lord, Lord Wade, made a blizzard of a speech on behalf of the north-west that picked up on so many things: inertia, lack of urgency, the fact that business wants “Yes” so let’s get it done, and so on. I hope that pulling the Government back off and some of the other things that I have talked about so far will help with that. He talked about local government not really getting to grips with the task.

We have also talked about LEPs, and we are certainly going to be moving on that. We have invited 25 local enterprise partnerships to form the local boards. The department has already held a workshop with the first 24 successful LEPs to discuss a wide range of policy issues, and that dialogue will continue. To answer the noble Lord, obviously we know that there are a lot more of these LEPs to come, but some of the contributions that they put forward were not going to work in the form in which they were submitted the first time around, so we are working with them right across the country to get the LEPs through. We have used them to replace a system that was using an enormous amount of money, the sort of money that we do not have left any more, and was not bringing the north and south together at all.

[Lord Young of Norwood Green]

Before the Minister sits down, the question that I would like answered, perhaps in writing if she cannot answer it today, is on funding for LEPs.

[Baroness Wilcox]

Unless I get this terribly wrong and they make me sit down—no, I had best not answer. Shall we write? It would be easier. We shall make a minute now, and I shall get through my brief. I will come back to the noble Lord, although I think that we have explained this fairly well.

Where is the growth White Paper? Our priority is to secure the economic recovery. Our growth paper and review, launched yesterday, set out how we will create the conditions for private sector growth. The decisions of business leaders, entrepreneurs and individual workers will build our future economy, which is why we are launching a growth review where the Government are inviting business to take part in a review of how each part of Government can address the barriers that are facing industry. It will include a detailed look at advanced manufacturing, producing an action plan at Budget 2011.

The noble Lord, Lord Bhattacharyya, is one of the great gurus of this country and it is always a great delight to listen to him speak. It does not matter to me which side of the political spectrum he stands on to speak; it is wonderful to hear him. On foreign direct investment, the UK has the third-largest stock of inward foreign direct investment in manufacturing in the OECD, for what that is worth. About one-third of the 1,600 new inward foreign direct investment projects in 2009 were in the areas of advanced manufacturing, life sciences, ICT and environmental technology. However, I will reflect on the noble Lord’s words today. I can always learn something whenever he speaks.

The noble Lords, Lord Brooke of Sutton Mandeville and Lord Cotter, talked, rightly, about the shortage of engineers. We recognise that it is still a problem for us. We welcome the comment by the noble Lord, Lord Cotter, and we support the move towards vocational training. He spoke in particular about apprenticeships. I think that is about all I can manage at the moment. Two minutes left—okay.

There is no question that manufacturing has a central role to play in the growth agenda. The UK has strengths in a diverse range of sectors from well established industries, such as aerospace and chemicals, to fledgling ones such as plastic electronics and composite technologies. We also know that major opportunities exist in new materials and new markets, especially in low carbon. Britain is the largest single market for offshore wind in the world and is already an attractive place for inward investment. Gamesa, a Spanish wind turbine manufacturer, is just the latest company to announce its intention to move here. It intends to invest £130 million by 2014 and expects to create more than 1,000 jobs, stimulating about 800 more jobs in the supply chain. There are further signs that manufacturing is beginning to move in the right direction after weathering what was, we hope, the worst of the global recession. For example, in 2009-10, inward investment in manufacturing generated 94,000 jobs, which was a 20 per cent rise on the previous year. Last week, a survey of 300 companies conducted by the Engineering Employers Federation found that UK manufacturing is growing at its fastest rate since 1994.

Let me see how quickly I can go. Both government and industry want to see UK manufacturing grow further. We cannot leave this to chance. We will shortly be launching a new manufacturing framework setting out the necessary conditions for a resurgence in UK manufacturing. The opportunities are there in overseas markets characterised by rising incomes and burgeoning demand, in the availability of new technologies and materials from our own science base and in the new business models that combine manufacturing and services to maximise revenue. Indeed, the framework will lay the foundations for a more co-ordinated approach that will complement the review of advanced manufacturing that I referred to previously.

Although it is the conviction of this Government that growth will best be achieved through a combination of private investment and a propitious business environment, we are under no illusions that the latter is yet within reach. Indeed, the former is heavily predicated upon the latter, and investors expect much more than warm words. Nevertheless, we are confident that our approach is the right one, and we will pursue it with vigour in order that Britain once again becomes synonymous with manufacturing. It only remains for me to thank the noble Viscount, Lord Montgomery of Alamein, for raising this issue of such national importance today.