Manufacturing

David Morris Excerpts

Thursday 24th November 2011 Commons Chamber

[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.

--- Later in debate ---

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

I am delighted to be called to speak in the debate, not only to highlight the needs of my constituents and the manufacturing industry, but to support my room-mate and hon. Friend—he is not right hon. yet, but headed that way—the Member for Hexham (Guy Opperman). I like to think that I have taught him everything he knows.

My constituency is heavily reliant on energy production and manufacturing. Like many north Lancashire constituencies, we make high-spec components for clients in the energy, defence and constructions industries. When we watch programmes on television about the amazing engineering feats involved in BAE Systems, in nuclear submarines at Barrow-in-Furness and in the nuclear power station at Heysham, in all likelihood the vital components we see will have been made or designed in my constituency. North Lancashire has a skills base that allows it to compete favourably with areas that have low labour costs. Manufacturers in China and India, for example, are unable to offer their products with a 10-year guarantee because they are often not of the same quality. The situation is similar to that of BMW in Germany: it has never produced the cheapest cars but is popular because of its build quality and reliability. Our manufacturing sector is struggling not as a result of a lack of orders, but because of the perennial problem of recent years: lack of money.

Any manufacturer of high-quality components needs to invest large sums in three keys areas: machinery, IT packages and training. It is worth going through each in turn. On machinery, I was talking recently to a manufacturer in my constituency who used to import 5,000 plumbing hoses a year. The products were no cheaper to order from China than they were in UK, but placing an order gave 30 days’ credit and the outlay is lower than buying a machine. It took the company several years to save enough money to buy the machine needed to make the hoses, but once it did it began making 7,000 a year. Obviously, British workers were employed to operate the machine, cutting unemployment in the constituency. Whatever we do in this difficult economic period, we must find a way of ensuring that businesses are able to access money and buy vital machinery.

On IT packages, the modern computer developed from an idea that came out of Bletchley Park during the second world war. We have always been world leaders in IT, but as computer packages have become more sophisticated the costs have risen. Although the packages save staff time and improve productivity, they also require capital outlay. I have heard plenty of examples of manufacturers being unable to turn ideas into viable products because the IT package required is just too expensive. I am not complaining about IT costs per se, as the people who design the products deserve to be properly paid. My complaint is once again that banks and the old regional development agencies were so poor at supporting businesses with the capital they needed to buy the products in the first place.

On training, I suppose a purist accountant would not view training as capital expenditure, but manufacturers are often required to pay for expensive training before a product is ever made. In practical terms, that means that lack of credit and poorly administered grants have an impact. Training for some IT packages can cost £1,500 per member of staff. When a company needs large numbers of staff to be trained, it is easy to see how costs soon mount up.

I have laid out three problems, but what are the solutions? First, we must accept that for small and medium-sized enterprises the regional development agencies simply did not work. They were too unresponsive and too focused on larger businesses. Many companies that I have spoken with got the impression, rightly or wrongly, that RDAs would step in only if a product would fail without them. That makes sense on paper, but in reality it is not about a product falling; it is about how quickly it can be brought to market and where it is made. Grants were not always available for speculative investments such as the machinery, IT packages and training I have mentioned. Things need to change and enterprise zones are a step in the right direction.

I know everyone will agree that we also need to get credit moving. I have now accepted that the big six banks cannot or will not help. We need greater diversity in our banking sector, so that the big banks are forced to serve business better. We need a regulatory environment that encourages more banks to enter the UK market and encourages more British companies to establish banks.

“Made in Britain” is still a mark of quality throughout the world, and our products still command a premium that makes our manufacturing viable. From the new plumbing system at Sidra hospital in Qatar to the A380 super-jumbo jet, British manufacturing is a vibrant part of our economy. Contrary to popular myth, we are still the world’s seventh largest manufacturer, but without solutions to the capital outlay problem we will never reach our full potential. We must give our companies the money that they need, because it is vital to invest in the future and in manufacturing. They maintain our skills base and are vital to the diversity of the British economy.

We should take this debate forward and act upon it. I again thank everyone for taking part in it, and my hon. Friend the Member for Hexham for bringing it forward in the first place.