Manufacturing

Adrian Bailey Excerpts

Thursday 24th November 2011 Commons Chamber

[Graham Evans (Weaver Vale) (Con)]

I congratulate my hon. Friend the Member for Hexham (Guy Opperman) on securing the debate. Apart from a brief spell stacking shelves in my local Co-op in Poynton, I have worked in the manufacturing industry for my entire career. Interestingly, my first manufacturing job as a young man was working for BAE Systems on the mark 3 airborne early warning Nimrods. After a lot of taxpayers’ money, that was rightly cancelled because it was over budget and out of date and did not work.

When Britain was described as the workshop of the world nearly a century and a half ago in 1870, the UK accounted for almost half—46%—of the world’s manufacturing output. Today, that title has been bestowed on China, which produced a fifth of the world’s manufactured trade in 2007. The term seems to have lost some of its meaning over time, as has the notion of Britain as an industrial nation.

Everyone appears to believe that the UK is doing fine when it comes to manufacturing, citing the fact that we are the fifth largest manufacturer in the world in terms of value of output. That attitude has bred complacency and allowed successive Governments to believe that they are doing enough to maintain that position. However, that belies the truth. If we measure manufacturing in terms of per capita value added, we realise that Britain is only around 12th in the international league tables, and suddenly the picture changes dramatically.

It is clear that if we are to rebalance our economy, much more must be done to push us up the rankings. That means providing support for all forms of manufacturing, rather than just the high-tech sectors that seem to be so fashionable at the moment. It has been calculated that those sectors make up only 14% of British manufacturing and it has been argued that the support for manufacturing should be based on value, not the complexity of the product. For example, the UK still produces basic metal turbine blades, but they are cut by some of the most precise machines on the planet. The product is simple but very high value, thanks to the advanced production process.

There is no question but that such a shift must take place. The financial crisis made most people aware that the UK cannot rely on the financial services trade surplus to prop up the industrial trade deficit. However, it is less well known that, according to the Office for National Statistics, even the financial sector’s maximum export volume of £55 billion in 2008 was eclipsed by manufacturing’s £195 billion of exports.

The problem is twofold. First, our manufacturing ability is only rivalled by our insatiable appetite for other people’s goods. That has led to the latest trade in goods deficit of almost £100 billion—a new record. Secondly, Britain has grown complacent. Our manufacturing output has remained constant for the past 13 years under Labour, which is a reduction of £3.5 billion per annum in real terms.

Where did it all go wrong for UK industry? Contrary to popular assumptions, although some deindustrialisation did occur under Margaret Thatcher, the bulk of the factory closures came later. Indeed, when Labour took office in 1997, manufacturing comprised exactly a fifth of the UK economy. By 2007, it had declined to an eighth. In comparison, under the whole of the Thatcher Administration, the decline was 3.3%. The loss of our manufacturing capabilities is a very recent concern, which should fill us with a certain level of optimism.

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

So far, the debate has been conducted on a reasonable cross-party basis. However, given the fact that the hon. Gentleman has made a political assertion, can I point out that in the black country, at least four huge manufacturing employers—Round Oak steelworks, Patent Shaft steelworks, Bean Cars and Cannon—were closed during the Thatcher era? That had a devastating impact on the level of employment in the black country.

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

My constituency borders that of my right hon. Friend the Member for Wolverhampton South East (Mr McFadden), so if my remarks echo his it is because of our shared experience of black country manufacturing and the challenges that it faces. My constituency, consisting of Oldbury, Tipton and Wednesbury, was at the heart of British metal-bashing for centuries. When Britain was the workshop of the world, the black country was the centre of that. It has a proud manufacturing tradition, and I am equally proud to say that, even given the hard times that the industry has gone through, there are still more foundries in my constituency than in any other in the country. The number of people employed in traditional manufacturing, while nothing like what it was, is still higher than in most areas of the country. My constituency is thus second to none in having an interest in the particular theme of this debate.

I know that many people, particularly within the black country business community, welcome the Government’s rhetoric on boosting manufacturing, rebalancing the economy and securing export-led growth. I certainly share both the Government’s and the local business community’s enthusiasm for all of those. I think, however, that we need to measure this with a touch of realism.

My right hon. Friend the Member for Wolverhampton South East made it clear that although we might want to extol the virtues of manufacturing, we must not do that to the detriment of the contribution made by other sectors of the economy, particularly our creative industries, which are world leaders and provide a significant proportion of our national output and a large number of employees. This applies to our service industries as well. Although manufacturing might have declined relatively, that is partly because we have an expertise in the service industries that is recognised throughout the world and provides potentially exportable market opportunities.

Manufacturing has a crucially strategic role. Although it provides something in the region of only 11% of national output, it provides nearly 50% of our exports. If we are to export our way out of recession, the service industries might play a significant part, but we cannot overlook the potential of manufacturing industry. It contributes something like 74% of research and development. The more R and D there is, the more competitive we become: the two are crucially linked.

We must recognise that without having more R and D and without providing a higher value-added manufacturing base, we might not be able to generate the levels of employment that we have had historically in manufacturing. We might well pursue policies to help businesses expand manufacturing as a proportion of our national output, but that might not necessarily result in a huge increase in the number of people employed because as we become more competitive and productive, we might be using fewer and fewer people to achieve it. That can sometimes blur the distinction between manufacturing employment and service employment—hence the reference made by my right hon. Friend the Member for Wolverhampton South East to “manu-services”. Increasingly, as our high value-added manufacturers export abroad, they follow it up with service contracts, which provide a lot of employment for people who are technically in a half-way house between servicing and manufacturing.

[Mr Sheerman]

I know that my hon. Friend, as Chairman of the Select Committee, has a great deal of knowledge on this subject. I wonder, however, whether we are avoiding the fact that Germany is also good at services and at design and many other things, yet it still has a manufacturing base that is twice as big as ours. That is why I keep coming back to “It’s Germany, isn’t it?” that we need to copy.

[Mr Bailey]

My hon. Friend is quite right—for a whole range of reasons that, unfortunately, time constraints prevent me from developing. Germany has a far stronger manufacturing base than we do, and a much stronger manufacturing culture throughout the country. I would like to discourse at length on that, but time constraints prevent me from doing so.

Notwithstanding the German experience, it is generally recognised that our expertise in some of the service industries may well give us greater export opportunities to countries such as China. Because of Germany’s expertise in manufacturing, it has done very well in what we might term the first wave of exports to China, but we may do better now because of our superiority in some service industries.

[David Morris (Morecambe and Lunesdale) (Con)]

I serve on the Science and Technology Committee and we recently examined how the Germans fund their new technology infrastructure. They have the Fraunhofer institutes, which have been running for more than 100 years. We are now trying to emulate that through the Turing centres. German manufacturing is good, but ours could be equally good, if not better.

[Mr Bailey]

That issue was recognised by the previous Government, and measures were being put in place to replicate that approach in the context of the British industrial scene. The current Government are, to their credit, taking that up.

Bank lending is a hugely significant issue for small and medium-sized enterprises in my constituency and nationally. The Merlin targets are not being met. That, combined with low consumer confidence and low business expansion expectations on the basis of the domestic market, means that companies are not applying for loans because they do not feel positive about future market opportunities and because they are wary of the banks making their credit lines even more difficult than they already are. That is having a stultifying effect on the ability of small businesses to expand.

Quantitative easing in order to address that issue may, indeed, keep interest rates low, but I have yet to meet a bank that knows how that will help SMEs directly, and I have yet to meet a business that knows how it would make any difference to its relationship with its local bank. Although lower interest rates may be welcome in general, that will not necessarily feed through to more investment in small businesses. I am concerned that the effect low interest rates are having on pension fund incomes could lead to some manufacturing businesses having to pay more into their pension funds, thereby diverting money from other areas in order to sustain their pension levels. This could be a counter-productive step, therefore.

There is now a lack of provision in the crucial area of small grants and loans for small businesses that want to expand to take the market opportunities that will be available to them. The regional development agencies will not be reintroduced—that is a debate for another day—but they did provide small loans to businesses that wanted to expand. Those loans are gone now, and they are not being replaced by the banks. The regional growth fund is not yet delivering for small businesses. If we are to expand the capacity of manufacturing SMEs in the time that they have available to make an impact on employment, that vacuum needs to be filled. Either local enterprise partnerships must be given more powers or the RGF needs quicker and more localised means of distributing money.

[Guy Opperman]

Will the hon. Gentleman give way?

[Mr Bailey]

No; I am sorry, but I am running out of time.

I reiterate the points made about research and development tax credits and capital allowances—they might go some way to dealing with that problem. As they have been mentioned, I will not repeat the discussion of the issue.

The second issue to address is skills. As has been said, Tata has invested £300 million in Jaguar Land Rover in a site to the north of Wolverhampton, with enormous employment potential locally. The concern within the industry is that the extended supply chains of small and medium-sized enterprises that could service JLR may have a shortage of skilled apprentices, and I have already mentioned the potential need for capital investment to improve the capacity to meet the demand from JLR. I have no doubt that JLR will attract all the people it needs, because it is a high-paying iconic company that is very attractive to everybody. It will be the SMEs in the area that will need to recruit, and we need to expand our vocational skills base to ensure that that happens.

The Government have rightly concentrated on apprenticeships. However, there is emerging a picture of apprenticeship provision that will not necessarily address that need. First, a high proportion of the new apprentices are over 24, and there is considerable concern that these are just Train to Gain people rebadged. There is nothing wrong with Train to Gain, because it has an important role to play, but it will not necessarily meet the skills need that it is directed at. Secondly, there is increasing evidence of private providers coming in with short-term courses, which do not meet the historically longer-term need for training in a particular industry to meet capacity. I believe that the black country local enterprise partnership is examining the issue to try to scope out the skills provision that will be needed and ensure that it is provided. That LEP will be able to its job far more effectively if the Government were prepared to back their localism agenda by providing it with the resources to assess the skills need and to deliver on it locally.

[Several hon. Members]

rose—

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[Mr Wright]

I heartily agree with my hon. Friend. My questions for BIS Ministers relate to having an active industrial policy. Where is the assessment of the sectors in which Britain has unique competitive advantages and of where we can sell our unique products to the rest of the world rather than lamely following the rest of the pack? Where are the clear milestones along the way that would allow investment and business decisions to be taken with some degree of certainty and stability?

A recurring theme of today’s debate has been the role of research and development and associated capital allowances. Again, I want this country to be the best place for any investor in manufacturing to invest in research and development, but R and D tax credits, the industry tells me, are not working. What can we do on capital allowances and R and D spend? When can we expect some clear vision from the Government about the road map that is needed as part of an effective and active industrial policy? We have had welcome announcements about funding for technology and innovation centres—I think the Minister mentioned them in his remarks—but the ad hoc decision is a diluted version of what was set up and planned under the Labour Government, with businesses now unclear about how they fit into the bigger picture. The Department promised us its manufacturing framework document over a year ago, but it has still not been published. Where is it?

Another common theme has been the concern—expressed by the hon. Members for Hexham and for Burnley (Gordon Birtwistle)—about the inability of manufacturers to secure access to finance for growth. The Secretary of State’s initiatives have not worked. Project Merlin has not secured its aims and the regional growth fund is not delivering on the ground. In the space of 55 seconds—I timed it—in yesterday’s debate, the Secretary of State went from claiming that as a result of the RGF,

“factories have been built and the jobs are being created”—[Official Report, 23 November 2011; Vol. 536, c. 333.]

to acknowledging, in response to the Chair of the Select Committee on Business, Innovation and Skills, that he could not provide a figure on the number of jobs created by that fund at all. Will the Government look again at this crucial issue of access to funding?

Many companies are sitting on a pile of cash on their balance sheets, largely because they have little confidence in economic prospects, but is anything being done by this Minister and the Department to free up some of that cash to provide much needed finance to manufacturers? I hope that the Minister will intervene to provide a degree of clarity on that; otherwise, I am happy to wait for the Chancellor’s autumn statement on Tuesday.

Several hon. Members mentioned the huge opportunity for export markets. We have been behind the curve in emerging markets for some time. The CBI and Ernst and Young have just published a report, which demonstrated that UK businesses tend to rely on the US and continental Europe for their main export markets. The report quotes the chairman of a Mexican automotive parts manufacturer, stating:

“Overall I think the UK and its companies should pick the right battles and the right countries, and focus on specific sectors within those markets. There’s a lot of goodwill out there that’s not been exploited.”

Will the Minister respond to that and set out what has been done—he touched on it in his opening remarks—to strengthen our export capability? Time and again, firms say that they cannot exploit their potential by gaining access to export finance, that the range of such finance is limited and that things such as the export credit guarantee do not specifically address business needs. How can the Government address that?

Industry states that the supply chain to UK manufacturing needs to be improved. That is crucial in ensuring that British manufacturing is competitive in global markets throughout the world. The Secretary of State acknowledges that. In his speech to the Policy Exchange last month, he talked about how

“Government can support UK supply chains across a number of sectors critical for future growth.”

Since then, however, we have had no information or detail, or even an announcement as to when we might be given any. Industry is crying out for that as a means of boosting its competitiveness, so it would be helpful if the Minister could provide further detail.

[Mr Bailey]

Will my hon. Friend give way?

[Mr Wright]

Yes. I would very much like to hear from the Chair of the Business, Innovation and Skills Committee, as he has great expertise in this area.

[Mr Bailey]

Given the potential to expand the supply chain in the west midlands through the Jaguar Land Rover development and the possible repatriation of the supply chain for many of the Japanese manufacturers because of the problems in Japan, does my hon. Friend agree that the Government must come up with measures to bridge the capital funding gap, so that small businesses can exploit these opportunities?

[Mr Wright]

I entirely agree. One of the central themes of my remarks is that we have a huge opportunity, and that in the long term we can thrive as a leading manufacturing nation, but first we must overcome some very serious short-term difficulties involving finance and both domestic and international demand. Despite the warm words and fine rhetoric from the Government, I am not convinced that we are addressing the issues that industry wants us to address.

Manufacturing can play a leading part in Britain’s 21st-century economy, but in order to succeed in the modern era we need an active industrial strategy of partnership, where the join between industry and Government is not visible. Instead, we have a Department and a Government who lurch from one ad hoc announcement to another, via a series of wrong industrial policies. We need something better and more ambitious, so that we can tap into this country’s enormous potential and ambition in manufacturing, including in innovation. I want Britain to be the best place anywhere in the world in which to carry out manufacturing, but in order to secure that for the long term we need Government to act now.