Manufacturing and SMEs

Adrian Bailey Excerpts

Wednesday 4th September 2013 Westminster Hall

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

It is a pleasure, Dr McCrea, to serve under your chairmanship. I congratulate the hon. Member for Carlisle (John Stevenson) on securing this debate and the cogent and well-reasoned way in which he spoke. There was very little to disagree with. I will keep my comments brief as quite a number of hon. Members want to speak. It is a reflection of the importance of the matter across parties that so many hon. Members want to contribute.

In the past couple of weeks, there has been euphoria about manufacturing. There has been a revival, but we must put that in context because the current level is below what it was in 2010, when it was described as a disaster. There are welcome signs of a significant upturn that might be sustained, but the situation is still not good.

In so far as it is possible to discern what has provoked the sudden surge in confidence and production, it is led partly by an increase in confidence in the housing market, which is rising largely because of the funding for lending scheme, and an improvement in exports. Both are welcome, particularly the increase in domestic construction in the housing industry. However, exports are particularly difficult at the moment with the problems in the eurozone, although there are welcome signs of revival. There is a danger in basing a rise in domestic consumption and confidence on a housing boom that may be temporary and is fragile. Many of the criticisms levelled at the previous Government were that consumption was based on that.

I will not reiterate our debates at that time, but although there is a welcome revival, the long-term sustainability of a manufacturing industry must be based on two things, or three if exports are included. First, a sustained and rising standard of living domestically will underpin demand for manufacturing products in this country. Secondly, an appropriate level of investment in the manufacturing industry in the private sector will ensure that we remain competitive, that value is added to improve exports and our domestic consumption, and that cheap foreign imports are resisted.

The hon. Member for Carlisle rightly outlined investment issues. The funding for lending scheme is generating confidence in the housing market, but the indications are that, like the enterprise finance guarantee scheme and other well-intentioned Government schemes designed to boost bank lending to small business, that is not yet happening. When I talk to banks about that, their reaction is that they want to lend and they have the money but companies will not come forward. When I talk to companies, they say that they do not have the confidence to invest because of the current economic situation.

The recent improvement in confidence may stimulate further demand from small manufacturing businesses, and may make the banks look differently at the risk parameters on which they base their loans and improve bank lending.

[Mr Blunkett]

I will not detain the Chamber long. Surely one of the difficulties with the enterprise finance guarantee scheme—which, in theory, is an extremely good idea—is that many major banks are asking of small businesses, and particularly of the owners, far more than they can give in personal guarantees, given that the banks can recover not only from the individual owner, but the 75% from the guarantee scheme, if they believe that the business is no longer viable. I think that the term is the “going west route”, whereby the banks end up owning the business. That is bound to put the fear of God into entrepreneurs, no matter how brave and confident they are.

[Mr Bailey]

My right hon. Friend raises a valuable point. I talked about the risk profile. A huge body of evidence demonstrates that banks are excessive in the security they demand in order to lend to businesses, and that is one of the main barriers to businesses wanting to apply for loans. If there is a criticism of the Government, it is that while the Government have provided cheaper money for banks to lend to businesses, I do not think that has addressed the obstacles that are far more significant in terms of getting the money out where it is needed, into investment in small businesses.

[Caroline Dinenage]

Will the hon. Gentleman give way?

[Mr Bailey]

Certainly. I have to give way to my colleague from the Select Committee on Business, Innovation and Skills.

[Caroline Dinenage]

I apologise for interrupting the hon. Gentleman’s brilliant speech. Does he agree that it is also up to the local community to look at ways in which they can help businesses grow and invest? In my area, the local newspaper, The News, made a regional growth fund bid, which they used as a “bridging the gap” fund for small start-up businesses and those that wanted to grow, as a way of helping them to get access to the finance that they needed. Will the hon. Gentleman join me in welcoming that sort of initiative?

[Mr Bailey]

I certainly join the hon. Lady in welcoming that. In fact, one of the unintended, beneficial by-products of the problem has been the resourceful and inventive ways that communities and businesses have got together to overcome it. Peer-to-peer lending is an example of that. In my area, we have the Black Country Reinvestment Society, with which my fellow west midlands MPs will be very familiar. However, the scale of the entrepreneurial alternative lending sources still does not match what is needed for our manufacturing base as a whole.

I turn to a specific issue that applies not only to my constituency, but to the whole of the west midlands and the black country—other west midlands MPs may refer to this, too. First, I pay tribute to the Tata brothers for their investment in Jaguar Land Rover, which, I think it is fair to say, has transformed manufacturing prospects in the west midlands in a way that we have not known for 30 years. It is an indication of the value of our relationships with the Indian subcontinent and that growing market and growing access of capital, and of the historic association between the Indian diaspora in this country, and of course, the native India.

[Jeremy Lefroy]

I entirely agree with the hon. Gentleman. It is also testament to the wonderful co-operation between Wolverhampton city council and Staffordshire county council, which, together, put £40 million forward to build a motorway junction on the M54, without which that project might not have been able to go ahead.

[Mr Bailey]

I pay tribute to both of them. All the players in the i54 development on the borders of Staffordshire and Wolverhampton deserve credit for the united way in which they have seized the opportunity. For the benefit of non-west midlands MPs here, it is a huge expansion in the engine production capacity of JLR that will result in 1,400 jobs. It has really transformed the supply prospects of foundries in the area. In that context, I would also mention the £45 million that the Tata brothers have invested at Warwick business school’s centre for research and innovation. Collectively, they have transformed the prospects for manufacturing in the west midlands.

My constituency still has the highest number of foundries—I think—of any constituency in the country, but there are plenty in the surrounding areas as well. The prospect offered to them of being part of the supply chain to Jaguar Land Rover is very significant. In the regional growth fund applications, there have been a number of successful bids from JLR and companies locally. However—I mention this to the Minister, because it highlights some of the problems that we have with the support that the Government give industry—I understand from the Cast Metals Federation that the engine blocks for the new Jaguar Land Rover development at the i54 will have to be made in Germany, because there is not, would you believe it, the capacity for foundries to produce them locally.

I also understand that Jaguar Land Rover is happy to look at repatriating some of its supply chains, where it has to source from abroad at the moment, but obviously, that will depend on the capacity of local SMEs to deliver. Despite all the Government sources of support, the regional growth fund and the grants that it has given, a crucial gap still remains in the potential economic benefits that will accrue to the west midlands because of the failure to secure this vital market. Aluminium engine blocks for that development will be crucial.

The Society of Motor Manufacturers and Traders has identified something like £3 billion-worth of potential extra business in the supply chain—if the Government and the industry can get together to maximise that potential. Although I do not condemn any of the attempts that have been made to provide finance for business and for SMEs so far—but certainly with the regional growth fund, there are all sorts of issues relating to length of time and so on—I ask the Minister to look at working with the Automotive Council to develop some sort of package that would enable the existing gaps in provision to be filled. The potential benefits, both for regional policy and for our overall national economic situation, are absolutely enormous.

I have spoken for longer than I intended, partly because I have taken interventions, so I will cease my remarks with that plea to the Minister.

[Dr William McCrea (in the Chair)]

Six Members from Government parties desire to speak before we have the wind-ups, and there are 32 minutes before those commence. I therefore ask for Members to be considerate to their colleagues in order to allow them to speak, if possible.