Industrial Policy and Manufacturing

Gerald Howarth Excerpts

Thursday 22nd November 2012 Commons Chamber

[Sir Gerald Howarth (Aldershot) (Con)]

I am delighted to follow the hon. Member for West Bromwich West (Mr Bailey), for it was in 1984 that I made my maiden speech in the House as the newly arrived Member for Cannock and Burntwood on the subject of manufacturing in the west midlands, so I yield to no one in my enthusiasm for manufacturing industry.

It has been a mistake in this country that for the past 40 years there has been an over-reliance on financial services as the salvation of our prosperity. The bust of 2008 has blown that apart and revealed that there is a pressing need for the United Kingdom to have a much more diversified economy. As a former international banker, I like to tell people that I am now going straight—I am a politician. For some curious reason, they think that is rather funny.

The point has been made about the decline in manufacturing industry in Britain. Let us look at the figures. In the case of Germany, 20% of its output is now manufacturing. It has maintained its position, and of course it is benefiting from a thoroughly depressed exchange rate. Nevertheless, it has seen that manufacturing can contribute, whereas as my hon. Friend the Member for Burnley (Gordon Birtwistle) pointed out, in the United Kingdom manufacturing has declined from 18.4 % of our national output in 1997 to 10.8% last year. I hope that the Opposition will not constantly deride those on the Government Benches for the decline in manufacturing industry on our watch, as it pretty well halved on theirs. I hope we can attain a consensus on the need to do something for manufacturing. There is good reason why we should be confident.

[Mr Bailey]

I think I know what the hon. Gentleman means, but he has not reflected that. Manufacturing did not halve under the previous Government. As a proportion of the economy it may have done so, but it actually grew. That has been acknowledged in the Government’s policy.

[Sir Gerald Howarth]

It is important to make the point that the contribution of manufacturing to output halved. That is a figure that the public will understand as indicative of what was happening.

I want to be positive, because the United Kingdom has historic and current industrial manufacturing flair and capability. I single out just two companies—JCB, a brilliant private family company in Staffordshire, and Dyson, the inventor of the bagless vacuum cleaner. [Interruption.] Indeed, Hoover too, as my hon. Friend the Minister says. Formula 1 as well has been a stunning success for advanced United Kingdom manufacturing, as has aerospace, which I shall come to in a moment.

I remind the House that JCB employs 10,000 people worldwide, of whom 6,000 are employed in the United Kingdom. JCB’s revenues rose last year by 37% to £2.75 billion. Dyson sold eight out of 10 of its appliances abroad, with revenues of £770 million and profits of £206 million—a serious success story.

[Jeremy Lefroy (Stafford) (Con)]

I am glad my hon. Friend mentioned JCB in my county, Staffordshire. Does he agree that one of the reasons why such companies have been successful is that remaining in family hands over such a long period, they are able to take long-term investment decisions without necessarily looking to the needs of quarterly reports to the market?

[Sir Gerald Howarth]

My hon. Friend in my old county makes my point admirably for me. A common feature of both companies that I mentioned is that they both invest heavily in research and development, which the chief executive of Dyson, Max Conze, describes as “the key to success on the world stage”.

I want to concentrate on defence. BAE Systems and QinetiQ both have their headquarters in my constituency and I make no apology for being a strong supporter of Britain’s defence industry. According to Peter Rogers, who was last year president of ADS—the aerospace, defence and security trade body—the UK’s defence industry employed 110,000 people, of whom 25,000 were graduates and engineers, and supported a further 314,000 jobs. Turnover was £22 billion and export sales were just short of £10 billion—a fantastic record and a fantastic success story in manufacturing industry.

The United Kingdom is a world leader in both civil and military aerospace—as you, Mr Deputy Speaker, know better than almost anybody in this House apart from myself, Sir—with Rolls-Royce in advanced aero engineering and propulsion and Airbus providing the most advanced wing manufacturing in the world. On the military front we have Typhoon, with SELEX supplying the radar and MBDA the missile systems. We have a range of companies, from Rolls-Royce and BAE Systems, to EADS UK, Thales, Ultra, Chemring, Cobham, and Marshalls, to tiny bespoke hi-tech companies that should not be ignored given the fantastic contribution that they make to the cutting edge of technology. We need to maintain our leadership of that cutting edge, not only to win wars but to enable us to compete against newly emerging economies.

If I can single out one man for his contribution to this, it is Lord Drayson, who in 2005, when he was the Minister with responsibility for defence procurement, produced a fantastic paper called “Defence Industrial Strategy” in which he said:

“Well targeted investment in R&T is a critical enabler of our national defence capability; it strengthens innovation in our defence industry, produces more capable equipment for our Armed Forces and underpins our ability to operate with high technology allies like the US or France”.

I could not put it better myself.

[Richard Fuller (Bedford) (Con)]

I agree that the defence industry is an important part of the manufacturing base of our country. Will my hon. Friend contrast the previous Government and this Government in terms of the leadership provided by the Prime Minister? Under Labour, QinetiQ, which now headquarters in his constituency, closed down just outside my constituency with no support from the Government. Under this Government, our Prime Minister went to China and won a contract on behalf of the Aircraft Research Association, which is based in my constituency, thereby securing jobs and securing its future.

[Sir Gerald Howarth]

My hon. Friend anticipates a point that I was going to make, so let me do so now. I fully concur. I do not think that people in this country really appreciate the extraordinary lead that the Prime Minister has given in the promotion of defence exports. Having been the Minister responsible for defence exports, I can testify to his determination, vigour, enthusiasm and commitment. There is every prospect that that commitment will pay off, because he has seriously re-engaged the United Kingdom with the rest of the world in a way that the previous Prime Minister was wholly incapable of doing.

In respect of defence exports, we are increasingly being required to transfer our technology as well; indeed, that appears to be the only way in which we will be able to win these contracts. In looking at the technology, it is very important to understand the significance of defence research. I have QinetiQ in my constituency, but I also have Roke Manor in Hampshire, which produces fantastic defence research and has 400 engineers. In 2009, BAE Systems invested £833 million in defence research.

We have a good record, but I am afraid that the previous Government do not have such a good record. In 1990-91, at 2009-10 prices, real defence R and D expenditure was £3.8 billion, but in 2009-10 that figure declined to £1.7 billion. In other words, it declined from 11.6% of the defence budget to 4.4% of it. As Lord Drayson said in his 2006 document, “Defence Technology Strategy”, today’s equipment is the result of yesterday’s investment in research. He also said:

“Current threats emphasise that science and technology is fundamental to UK military capability.”

Maintaining a vibrant defence industrial base is not a throwback to a 1960s socialist planning concept, as it appears that some of my colleagues believe, but an essential ingredient in the defence of the realm and in contributing to the export-led economic recovery that the Prime Minister wants and which, as I said, he is leading.

I salute my hon. Friend the Member for Mid Worcestershire (Peter Luff) for his sterling endeavours to ensure that the case for supporting British technology was made within Government, but I fear that the right balance has not been struck. People need to understand the consequences of simply buying abroad. Initially we might get a good price and the kit that we want, but then next time we are told, “The price has gone up, so I’m sorry but you can’t have the same capability.” We then find ourselves on a very slippery slope where we cease to be major players in the world and cease to be able to command our own operational sovereignty. We are facing that issue with the joint strike fighter. There is ongoing argument over our access to the technology. I know that you, Mr Deputy Speaker, know a great deal about that. It is imperative that, as equity partners in the joint strike fighter programme, we have that operational sovereignty.

Seeking to grow the UK’s defence industrial base must not be an excuse for the military to over-specify its requirements or for the industry to inflate its prices. Competition clearly has a role to play in restraining such excess, as the hon. Member for Stalybridge and Hyde (Jonathan Reynolds) suggested. However, other nations, including an increasing number of emerging countries, are investing in military capability development and their demand for our products is likely to decline. That raises the inevitable question: from where will the United Kingdom derive its income in the future? I submit to the Minister that the answer has to be in upping our expenditure on defence research, for all the reasons that I have set out.

As a former Bank of England man and adviser to my right hon. Friend the Chancellor, I say to the Minister that the position of R and D tax credits needs to be looked at again. QinetiQ has pointed out to me that it is being seriously disadvantaged by the Treasury’s proposal to change R and D tax credits to make them above the line, which would remove the fiscal incentive for companies that focus mainly on research, rather than development, to locate their activity in the United Kingdom. Given the strength of feeling around the House this evening about the importance of our manufacturing industry, I hope that the Minister will take back to his friends in the Treasury the need to ensure that we incentivise industry and the Government to invest in our technology. That will be hugely important for the defence of Britain and for our defence industrial base.

[Mr Deputy Speaker (Mr Nigel Evans)]

I remind the House to observe the conventions of the maiden speech.

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[Eric Ollerenshaw (Lancaster and Fleetwood) (Con)]

It is a pleasure to follow the new hon. Member for Corby (Andrew Sawford). Clearly, my two Saturdays in Corby did not turn out too well. I remember the rain in Thrapston. I offer him many congratulations. Obviously he is a man of strong views, and he puts them across clearly. I have known him before—briefly—in his professional life. He proves that he does his homework and research, and will make a great addition to the House. Unfortunately for Government Members, it looks like he will stay the course.

I congratulate the hon. Member for Stalybridge and Hyde (Jonathan Reynolds), as well as my hon. Friends the Members for Warwick and Leamington (Chris White) and for Burnley (Gordon Birtwistle), on getting this debate under way. I declare an interest in Stalybridge and Hyde—I spent my childhood at Hyde county grammar, and used to live in Dukinfield, which is in the constituency of the hon. Member for Stalybridge and Hyde. My sister still lives there and works at the company the hon. Gentleman mentioned. I am also grateful to the Backbench Business Committee for the debate.

We need to rebalance the economy in terms of the types of the businesses we have, but getting manufacturing and industrial policy right is critical in rebalancing the economy regionally. I am pleased the hon. Gentleman said we do not want to go back to the failed policies of the 1970s in trying to pick company winners—he agrees with Government Members on that. Surely the Government’s job will be to identify sectors where we already have a world lead, such as life sciences, higher manufacturing and aerospace, as well as sectors of high growth, such as the automotive industry.

As the hon. Member for Ogmore (Huw Irranca-Davies) pointed out, we need a strategy that resolves the country’s energy needs, which will give stability for investors on which to build an increased manufacturing base. We also need a positive climate for inward investment and business start-up.

The hon. Member for West Bromwich West (Mr Bailey) mentioned a competitive tax regime. I congratulate the Government on what they have done on corporation tax, which I believe is having an impact. We need a competitive tax regime, but we also need a regime under which tax is collected.

My hon. Friend the Member for Warwick and Leamington emphasised education policy and the reforms the Government are introducing to ensure that we have properly trained and qualified workers, which hon. Members on both sides say we need. When we meet local employers, they complain about their employees.

I agree with other hon. Members on apprenticeships. I congratulate the Government on what they have done—we have nearly half a million new apprenticeships. A couple of weeks ago, I visited a small manufacturing factory in my constituency—it is essentially small scale, as described by my hon. Friend the Member for High Peak (Andrew Bingham). A and G Precision and Sons Ltd has only 40 employees, but as my hon. Friend the Member for Aldershot (Sir Gerald Howarth) will be pleased to know, it supplies parts to BAE Systems for the Typhoon fighter. Only this year, it decided to make two work experience lads from the local school into full-time paid apprenticeships. I see the beginning of that welcome change throughout my constituency. The other part of that—my hon. Friend has just touched on it and it is one of my main points—is the encouragement of R and D, so that our companies remain at the cutting edge in their field.

My constituency benefits from having Lancaster university in it—one of the top 10 universities. The university has recently been made a centre of excellence for cyber-security, and has the potential to generate multi-billion pound business across the world. We need to build on that. In my constituency, ideas have been developed and transferred. For example, First Subsea Ltd took a design from the university and has now produced an engineering mechanism to pick up pipes and buoys from under the sea for the oil industry. It employs 45 people and has sales departments in all the major oil-producing parts of the world.

I have previously made this point, but we have missed a trick with local enterprise zones. I have never understood why we could not give every university the potential to have their own enterprise zone. The purpose of enterprise zones is to encourage start-ups. Where do start-ups start? Many of them at the high end start with universities. We also want enterprise zones where businesses, as they expand, eventually move off and pay their taxes like every other business.

[Sir Gerald Howarth]

My hon. Friend is making an important point. May I remind him that Surrey Satellite Technology, a fantastic world leader in satellite technology, was spun out of the university of Surrey? That reinforces his point about the role that universities can perform in advancing high technology.

[Eric Ollerenshaw]

I am grateful to my hon. Friend for that example.

When I make inquiries, I am told that the problem in defining and facilitating university enterprise zones lies apparently with the Treasury. The Under-Secretary of State for Skills, my hon. Friend the Member for West Suffolk (Matthew Hancock), is an expert in these areas and I am not. However, I am told that the Treasury rules are that it has to make a calculation about the taxes it would have received from companies that have not yet been set up in order to make a decision about whether to allow an enterprise zone to be created. How civil servants can calculate the tax of non-existent companies—or new companies that have not even been dreamed up—I am not quite clear, but to me there is something wrong with the system.

Our universities have pushed forward the science park idea—Cambridge is a notable example—and it is being pursued by Lancaster university to enable graduates with skills and ideas to stay in the local area. To underline my theme, we have to use this policy to rebalance the contribution to growth that the regions make. The council, under general powers of competence, has the power to vary business rates. The concept suggested by the university, the council and myself was to have an enterprise zone-lite. The local council could define the area of the science park and lower business rates. The problem then—going back to the Treasury rules—is that the local council would then have to calculate the difference between the full business rate and an estimate of what those companies, some of which might not have even been set up, might have to pay. That seems to defeat the whole object, but watch this space. We are still trying to pursue where we can go with this. It is key that policy is not only about what Government can do—I will say a little bit more about that—but about what local councils and local authorities can do, on their own volition, with the new powers that the Government are giving them. That policy, based around universities, is the key to top-level manufacturing and to growing the economy of the north and, in particular, my constituency.

Hon. Members have mentioned exports. Lots of companies in my constituency export. I have mentioned before a company in Fleetwood that exports 50 tonnes of whelks to Korea. Only the other week, I was called by someone from another company in Fleetwood. I do not know if this counts as manufacturing, but the gentleman there reconditions and patches up end-of-life heavy trucks. He has found that the market in developing countries is either for brand-new Chinese trucks or British Bedford ex-defence vehicles—probably the kind that my hon. Friend the Member for Aldershot secured the contract for many years ago. He says that the Chinese trucks do not last five minutes. I have no comment to make—I am not a truck expert—but he says that although they are glittering they do not survive very long.

The gentleman in question, then, has found a market in the developing world for reconditioned heavy vehicles, so why did he approach me? He wanted to know whether I had contacts with other countries that might want to get involved. Having been a member of the all-party group on Kurdistan, I mentioned Kurdistan. That taught me a lesson, because he came back and said, “We’re looking at Kurdistan”. Where was UK Trade & Investment? Through contacts in the all-party group, he contacted the consular staff, who were extremely helpful, and now he is on his way to selling reconditioned trucks to Kurdistan. Where was UKTI? Its role is pivotal. A small business that wants to be in the export market needs a simple lead.

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[Mr Geoffrey Robinson (Coventry North West) (Lab)]

I congratulate my hon. Friend the Member for Stalybridge and Hyde (Jonathan Reynolds) and my parliamentary near neighbour the hon. Member for Warwick and Leamington (Chris White) on securing the debate. It was a good initiative of the all-party group on manufacturing to secure this debate about a year after we had the last one. This is a year in which we can see ever more clearly just how important manufacturing is to the country, but also how far we still have to go because of the relatively little progress we have made.

I do not want to interject any party political emphasis into anything I say. Indeed, I think that, on the whole, the debate has been remarkably clear of that. That shows one of the great advantages of having Backbench Business Committee debates. Although it is delightful to see the Minister and the shadow Minister in their places to respond to the debate—we can take advantage of that—I do not think it was ever intended that they would engage with each other in Dispatch Box altercations. On these occasions, Back Benchers can speak for their constituencies and for the whole country without the sort of pressures that inevitably arise on party political occasions.

Having said that, as far as the industrial strategy goes, I very much take to heart what my hon. Friend the Member for Luton North (Kelvin Hopkins) said in his brilliant tour d’horizon of post-war economic history, highlighting the great advantages that Germany has had. I do not think, however, that we should look wistfully or enviously at Germany’s position, as a period of prolonged devaluation or low-value exchange rate will not be available to us. Looking to the future, it might be less important to us than it was for Germany over long periods and still is within Europe. The one good thing is that we are outside the euro, but I do not think that long-term depreciation of sterling will ever be allowed, even with a floating exchange rate such as the one we have now.

From my experience both inside and outside the House, the basis for an industrial strategy comes back to the Government not only in respect of the provision of finance, but—and this is of equal importance—in respect of the intelligent and unobtrusive use of Government purchasing. Those two things go together. What the country desperately needs—this is agreed throughout the House—is a major infrastructure programme. However, it is proving extraordinarily difficult to get one under way. One of the two or three questions that I want to ask the Minister—I am sure that he will have time to deal with all of them—is this: what is the real stumbling block? Is it a lack of confidence outside, or is it a lack of Government confidence in the projects?

There is a lot of talk about a lack of confidence in the market at present—many Members have referred to it—and there is no doubt that it exists; but, as I have said many times, although the House is yet to be as seized of it as I am, the Government are showing a lack of confidence in British manufacturing, from the Treasury down through various other Departments. As was pointed out by the hon. Member for Stafford (Jeremy Lefroy), they are afraid to invest real money on a long-term basis. Unless we can get over this fear of failure, invest in the long term, and stick with projects despite the difficulties, we shall not succeed.

In that respect, the Government’s role is vital. An industrial strategy comes down to this. Government finance for infrastructure is desperately needed now, for economic and other reasons. What is holding it up? The process is stuck: the Minister knows that, and the Government know it. It would be helpful if the House could be told what we can do, or what anyone can do, to get these projects under way.

Some aspects of the second issue that I want to raise were dealt with by the hon. Member for Aldershot (Sir Gerald Howarth), who, as is recognised in the House and widely outside it, speaks with great authority about high-technology industries. Several sectors are involved, and I want to ask the Minister about one in particular. The Government took a bold initiative in becoming a partner and stakeholder in the joint strike fighter project. What I want to know is whether we are being given access to the software technology that is so vital to the process of landing on and taking off from British aircraft carriers.

I understand that the problem lies with Congress rather than with the President or the White House as such. I do not think that it is to do with the political side of things. However, I understand that there is still some reluctance in Congress. It seems that, having taken a risk and invested, I believe, $2 billion many years ago when that was real money, we are now being denied key access to points of software interface between landing and taking off involving aircraft carriers that are different from those that the Americans had. Can the Minister assure us categorically that the problems have now been solved and that we are being given access to what we vitally need?

[Sir Gerald Howarth]

Although the joint strike fighter aircraft was not part of my portfolio in the Ministry of Defence, I believe that Lockheed Martin’s argument was that it was still struggling with the technology itself. However, the hon. Gentleman has made an important point. It is imperative for the United Kingdom to be insistent in this regard. The United States is our closest ally. It has looked to us for political support, which we have given, and it needs to return that support.

[Mr Robinson]

I agree with every word that the hon. Gentleman has said. There are always problems with those crucial software interfaces, but this was not really that sort of problem. It was made clear by members of Congress, both in the Senate and in the House of Representatives, that they were unhappy about releasing the key elements that we needed, for various spurious, specious reasons. I hope that the Minister will be able to reassure us that the problem has been resolved.

As I said, public purchasing is vital, and I hope that the Minister will bring us up to date on it. We are looking for a new approach from the Government. I hope that it will not amount to an overtly “Buy British” campaign; indeed, I cannot conceive of its doing so, because that is not in the nature of the civil service. It would be counter-productive, and in any case it would not be allowed. As I said earlier, we must be intelligent and unobtrusive, which implies that we must have confidence in British companies.

One Department to which that applies particularly is the Department for Transport. There seems to be a tremendous anti-British bias within that Department, which was especially noticeable in regard to the Bombardier project. The Department said that the decision must be based strictly on price, fundability and the strength of the company. However, there are other factors, to which the Government’s new public purchasing policy should refer and which are allowed under the treaty of Rome. May we please have some indication of when we will see the policy, and some assurance that it will allow us at least as wide a margin of appreciation in assessing such projects as is taken by the French and, for that matter, the Germans? The Germans have a simple policy—German is best. So they buy German and they do not have to do any more. The French pretty much have a policy that says, “Buy French”, but nobody ever says it. We cannot find examples of that being said, even in writing, but the policy does exist. Will the Minister let us know when we will see the new public purchasing policy and what we might expect to see in it?

On the banks, what are the Government really doing to provide finance for small companies, a matter to which several hon. Members have referred? We know that the money is there, but the cost involved is huge and no real solution has yet been found by government. Why do we not do something with the Royal Bank of Scotland? We could turn it into a bank for industry and give a long time for its sale and the repayment of the money. I hope that the Minister will answer my questions when he winds up.