Industrial Strategy

Chuka Umunna Excerpts

Monday 10th September 2012 Commons Chamber

[Mr Chuka Umunna (Streatham) (Lab)]

(Urgent Question): To ask the Secretary of State for Business, Innovation and Skills to make a statement on the Government’s industrial strategy.

[The Secretary of State for Business, Innovation and Skills (Vince Cable)]

Creating a strong and balanced economy continues to be the Government’s priority. This means creating an environment in which entrepreneurs find it easy to start and grow a business, and pursuing demand management policies that stimulate growth and maintain financial stability.

There is also a role for an industrial strategy, which I shall set out in detail tomorrow. This means addressing the need for a long-term vision and having the courage to take decisions that bear fruit decades later, and focusing on the things we do best. There are two main themes, one of which is the need for long-term decision making. Many industries operate on that basis, including a company that I worked for, Shell, which thought in terms of decades. The other theme is the need for partnership between business and industry. Very few countries have a purely laissez-faire approach, and we should learn from their experience. We also should draw on our experience; I have learned much from some of my predecessors, particularly Lord Heseltine, who has an office in my Department and is contributing valuably to thinking on this subject.

We have identified several specific fronts on which Government action can have a real and early impact, including access to finance; partnership with specific sectors; support for emerging technologies; creating a pipeline of skilled workers; Government procurement; and the development of supply chains. In the short time available, let me say a little about each of them.

On access to finance, we are living in the aftermath of a disastrous banking collapse. Big firms, by and large, can raise short and long-term finance via capital and equity markets. The latest SME Finance Monitor, however, shows that in the last 12 months, 33% of businesses that applied for loans were rejected. The big banks, including the semi-state-owned banks, are preoccupied with repairing damaged balance sheets and there is a real shortage of long-term patient capital for business. We are tackling these issues by launching the funding for lending scheme, which reduces the cost of funding for banks that increase their lending; running schemes such as the enterprise capital funds and the enterprise finance guarantee to help early-stage businesses without a track record or collateral to access venture capital finance or bank finance; and stimulating the development of non-bank financial sources through the £1.2 billion business finance partnership. The big banks have launched the £2.5 billion business growth fund to provide equity. We are now actively looking at a proposal to establish a business bank that could work through alternative providers such as the new challenger banks and non-bank lenders to direct private capital towards growth and innovation and to corral our existing interventions, such as co-investment and guarantees.

Secondly, let me say a word on the sectoral approach. The second strand of the industrial strategy is to build on a collaborative strategic partnership with key sectors. Of course, different industries require different degrees of business support and collaboration. At one end of the spectrum, much of the economy flourishes on its own. Here our efforts are best placed on making the UK a good place to do business, with attractive policies on taxation, regulation and free and efficient markets. At the other end of the spectrum, there are sectors that require a long-term, strategic partnership with Government; the Automotive Council and the aerospace leadership groups are good examples. Tomorrow, my Department will publish a new analysis of UK sectors, setting out those areas where support should be focused—in particular, advanced manufacturing; knowledge-intensive services, professional services and higher education; and industries that provide key inputs to our internationally traded activities, such as the digital economy and the energy supply chain.

Thirdly, on technology, one of the most powerful levers at our disposal is the potential of innovative technologies. Ground-breaking technologies are often too risky or resource-intensive for individual companies to nurture on their own, so the Government have an important role to play in accelerating the journey from academic research to commercial application. The Government Office for Science is in the process of updating its Foresight report on “Technology and Innovation Futures”, taking a fresh look at technologies with the potential to support sustained economic growth over the next 20 years or so. The report has identified a number of technologies that can have a material effect on future growth rates. The Technology Strategy Board is now concentrating on supporting the nascent disruptive technologies that have the potential to grow into new industries within a decade or more.

We also need a long-term commitment to world-class skills. The Government have focused on apprenticeships, and we have seen a 63% increase in the number this year, with 400,000 new starts in the first three quarters alone. However, we recognise that we cannot rest on our laurels, and Doug Richard will report next month with ideas on how we can gain even more value from apprenticeships.

As employers know better than anybody the long term-skills needs of their work force, we have launched an employer ownership pilot scheme which is giving business direct access to £250 million of funding for vocational training. Employers, working together in sectors or supply chains, have put together a wide range of innovative proposals to design and develop their own training programmes. One of the biggest long-term challenges will be the supply of engineers; we are chronically short of them at present, and have been for a long time. That is why we decided—as announced in the aerospace strategy—to fund, jointly with industry, 500 masters degree places in aerospace engineering between 2013 and 2016.

Lastly, on procurement, we acknowledge that we have a responsibility to take seriously the role that public procurement plays in creating the confidence that enables businesses to make long-term investment decisions—alongside, of course, value for money. We are overhauling the way in which the Government procure services in order to increase clarity for businesses, particularly small and medium-sized enterprises. In April we published data on £70 billion-worth of future Government contracts that are planned for 13 sectors over the next five years. We are also assessing what the 13 pipelines tell us about the strategic capabilities that will be required in the future.

Those are the broad contours of the industrial strategy on which we will work with industry in the months ahead. The strategy will contribute to the generation of the confidence that is needed to ensure that business invests for the long term, and I commend it to the House.

[Mr Umunna]

May I ask first why the Secretary of State is not setting out his strategy in full to the House of Commons, instead of doing so in a speech tomorrow?

Earlier this year, the Secretary of State rightly said that the Government lacked a compelling vision. Having made 15 speeches in which he told us that he wanted this strategy, he has at least set it out today. He said, as on previous occasions, that Lord Mandelson had bequeathed him a good platform on which to build such a strategy; for example, he has praised us for what we did in respect of the automotive sector. But why has it taken so long?

There is little controversy over the role of Government in creating the right business environment—improving infrastructure, access to finance, skills, corporate governance and so on—but an industrial strategy is about much more, which is why I broadly welcome the general approach that the Secretary of State has set out. We would not advocate a return to picking winners, but we do believe that Government can and should support and develop sectors in which we have a competitive strength and a comparative advantage. After all, success in the global economy will not come from being quite good at a lot of things; there is a premium on being the best.

It will, however, be impossible to implement the strategy without the unequivocal backing of No. 10 and the Treasury. Lord Mandelson was successful because he was fully supported by his Chancellor and Prime Minister. Can the Business Secretary say the same now? Does his strategy even enjoy the support of his ministerial team, let alone that of other Departments? While, in the 1970s and 1980s, he was working for the late great John Smith, his new deputy—the Minister of State, Department for Business, Innovation and Skills, the hon. Member for Sevenoaks (Michael Fallon)—was working for Lady Thatcher, and it is her approach that the Minister of State was going around advocating over the weekend. That explains why, while at the back of the business section of yesterday’s edition of The Sunday Telegraph the Secretary of State was making the case for the strategy that he has outlined today, his Minister of State was saying, in an interview featured in the front of the main section,

“Deregulation and privatisation worked before”,

suggesting that that was the answer to the problems that we are experiencing today. Who is in charge of policy in the Department? Who should businesses listen to when trying to make sense of the Department’s direction of travel?

Above all, the Secretary of State must give business the certainty that will enable it to invest, and that means aligning Government support, Departments, higher education, skills and regional structures with his strategy. Sadly, however, all those have been thrown into disarray by the Government.

In the short term, we need the growth on which we can build the foundations of the future. The Government’s overall economic policy, which the Secretary of State continues to champion, has pushed the country into a double-dip recession, and that needs to change as well.

[Vince Cable]

My opposite number challenges me to set out our approach to this in full, but I was trying to respect the conventions of the House, and in particular your emphasis on brevity, Mr. Speaker, which I have done. The hon. Member for Streatham (Mr Umunna) also quotes me as having said that his party bequeathed us a good platform. I cannot remember ever saying that, but I shall hastily correct the record if what he thinks I said is correct. Let me set out what that collapsing platform actually involved. In 1997, the share of industry in the British economy was 18% of GDP, yet when we inherited it, it was just over 10%, which represents the most rapid decline in any major western democracy. Employment declined even more, of course. On international trade, the share of British merchant goods in international markets halved, from 5% in 1997 to 2.5% in 2011, when we took over. That is the platform that we are trying to build from, and it is not a very strong one.

Of course, I acknowledge that there were good ideas, and Lord Mandelson, like Lord Heseltine and others, had a sensible approach to working with the public and private sector in a collaborative way. Institutions such as the Automotive Council are good, and I have been very happy to work on them and develop them.

We are not returning to picking winners, as it is sometimes called. As the hon. Gentleman kindly pointed out, I worked with the late—and, indeed, great—John Smith in the late 1970s. I worked in his office in the Department of Trade and Industry, and we saw evidence of the failures of picking losers. Vast amounts of public money were used in very unproductive forms of public intervention, but I think that subsequently the pendulum swung too far in the opposite direction. We must now get to a sensible middle point, often learning from the experiences of other countries, including South Korea, Germany and Finland, where there is a sensible balance between the role of Government and the role of the private sector, and that is what we are striving for.

The hon. Gentleman seems to imagine that there is some kind of one-size-fits-all policy for business, but there are many companies that do not want Government anywhere near them; they just want to get on with their job of making money. Large numbers of small companies are in that space, and we respect that and want to create an environment in which they can operate, but many others are quite different, such as those with long-term technological horizons and big and complex supply chains, and need a more collaborative approach, and we are seeking to develop that.

Let me just emphasise that this industrial strategy has the full support of the Prime Minister, the Chancellor and my colleagues behind me on the Treasury Bench, and that we shall be working together on a team basis to deliver it.