UK Manufacturing Sector

Iain McKenzie Excerpts

Wednesday 5th June 2013 Westminster Hall

[Caroline Dinenage]

The perfect Minister is in the Chamber, and I hope he will speak about that when he has the chance to respond.

Businesses I have spoken to are really positive about some of the incentives the Government are introducing to help with innovation, including R and D tax credits and the financial incentives to innovate. Will the Minister assure me that his Department will continue to push for such incentives to be high on the Government’s priority list?

[Mr Iain McKenzie (Inverclyde) (Lab)]

The hon. Lady is being most generous with her time. I congratulate her on securing this important debate, but I just wish it had been longer than half an hour. I am sure she will agree that innovation in British manufacturing is nothing new. An example is an illustrious son of Inverclyde, James Watt, who innovated and dominated the market for 10 years. He is a prime example showing that innovation is nothing new for British industry.

[Caroline Dinenage]

Absolutely. We have a proud history of innovation and manufacturing going back centuries, and it is important that it be allowed to continue.

[Caroline Dinenage]

May I make a little progress? I will then be more than happy to give way.

The other catalyst for business innovation is the pull effect, and I want to say a little more about how public procurement could be used better to drive the demand side of the innovation equation. This is an area where the strategic spend of public money on goods and services has the potential to drive innovation and to create more efficient, cost-effective, high-quality public services, as well as to unleash economic benefits. The Associate Parliamentary Manufacturing Group recently held a seminar on this issue, where it listened to the manufacturing sector’s concerns about how the Government buy products, as well as hearing about current academic work on procurement as a tool to drive innovation. Many bodies, from the CBI to the foresight team at the Department for Business, Innovation and Skills, see public procurement as one of the most powerful policy levers at the Government’s disposal.

Globally, the UK is second only to the US in its scientific knowledge base, but both the US and Germany outstrip the UK in turning that knowledge into economic profit. Is that because the Americans and Germans have a greater desire to be cutting edge, or are they simply less risk averse? Either way, it seems highly inefficient to invest heavily in a knowledge base at the start of an innovation process and not capitalise on the potential economic benefits. With that in mind, will the Minister tell me what efforts we are making to learn from other nations about maximising the economic fruits of our innovation? That is something the US invests heavily in—the virtuous circle again. Demand for a product creates more jobs; more science, technology, engineering and maths-based graduates; more high-value-added companies; greater economic prosperity; and, in theory, more tax returns.

The Treasury clearly recognises that, which is why, in the 2013 Budget, the Chancellor of the Exchequer announced that all Departments must engage in the small business research initiative process and vastly increased the amount of money available through it. The Technology Strategy Board’s SBRI encourages the private sector to develop solutions to problems identified by the public sector. So far, it has had great success: 120 competitions have awarded 1,200 contracts to a value of £100 million. Those have involved 40 public sector bodies. SBRI therefore shows that in identifying new problems, the public sector has a mechanism through which it can procure innovative solutions.

However, despite its great success and even greater potential, the programme has not fully solved the procurement puzzle. It appears to be asking for solutions to new problems that are identified, but not looking for new and innovative solutions to age-old problems that cost the country so much money. Will the Minister say to what extent the SBRI encourages Departments to look again at problems that may already have a stove-pipe solution?

Let me give an example: QinetiQ has a subsidiary company called OptaSense, which has developed a way to use fibre-sensing technology to deliver real-time information to monitor assets such as pipelines or railways. In layman’s terms, that means turning fibre-optic cables into thousands of highly sensitive microphone devices capable of distinguishing between human footsteps and animal tracks. They are capable, in fact, of hearing someone walking alongside a railway track and then sawing through the railway cable, enabling the transport police to catch them red-handed before the damage has been done. That seems a good solution to all those wasted commuter hours resulting from rail cable theft.

The German railways and the north American oil and gas industry seem to think so. The technology has secured significant export contracts, and the number of employees has grown from three to 160 in the past few years. In fact, 99% of the company’s revenue comes from overseas. The problem is that, given that those countries are spending the money that is effectively sponsoring most of the ongoing research and development, OptaSense is under increasing pressure to move both that and the manufacturing overseas. The UK’s competitive tax regime for R and D is one of the main things keeping it here. Despite that world-leading solution being developed and manufactured here, Britain is in danger of being left behind by its own technology. Other companies would be tempted to move their ideas and their most brilliant scientists to where the market was, meaning that if we decided to buy back the product at some point in the future, we would effectively be buying back our own ideas, without all the economic benefits to the UK economy.

Realising the power of procurement to effect change in industrial competitiveness is a big challenge. It represents a step change in the way public bodies and Departments think about their budgets, and I think it is fair to say that risk taking—and, as a result, innovation—is not encouraged in public procurement. Public procurement still has a tendency to opt for low-risk solutions and mature technology, and innovation is not routinely welcomed or rewarded. In part, that is due to the competing objectives and bureaucratic barriers that public procurers face, which discourage risk-taking.

As we have seen, the fear of failure from doing nothing drives innovation in the private sector. My next question for the Minister is, what lessons can be learned from business to try to encourage that mentality in public sector procurement?

[Mr McKenzie]

Will the hon. Lady give way?

[Caroline Dinenage]

I will make a little more progress first. Some Departments, such as the Ministry of Defence, are more culturally competitive, more innovative in their approach to innovation, happy to manage technological risk, and have a more open architectural approach to procurement.

We should not be surprised that the procurement system produces the results that it does. If the discussions around procurement remain too closely linked to buying, without being linked to interaction with the private sector and horizon-scanning, procurers will simply keep buying as they always have. That behaviour has been compounded by the positioning of austerity policies against procurement; in the mission to try to cut costs, procurers should include in their calculations how, through the pursuit of innovation, money may be saved long-term, taking whole-life costs into account. Will the Minister tell me what more he thinks the Department can do to encourage Government bodies to be early adopters of innovation?

[Caroline Dinenage]

My hon. Friend makes an excellent point. One of the key issues seems to be communication between Government and business. The Manchester Institute of Innovation Research reported that, following a survey of 800 businesses, two thirds believe that engaging with the public procurement process had a positive effect on their innovation, with a quarter saying that an innovation had come about directly as a result of engaging with the public body.

With that in mind, a commissioning academy has been set up by the Cabinet Office that will bring commissioners from different parts of the public sector together to learn from best practice. In recognition of the fact that we need capable, confident and courageous people in the public sector to deliver more efficient and effective public services, it says that success will mean commissioners embracing new and innovative forms of delivery. It is interesting to note that, of the supporting Departments for the commissioning academy, the Department for Business, Innovation and Skills is not mentioned. Will the Minister tell me why, and to what extent BIS is liaising with the Cabinet Office work on procurement?

If we are to maximise the economic potential of the Government’s enormous purchasing power, there should be pressure on suppliers to come up with new ideas and innovative solutions to problems, while still meeting the requirement to show value for money.

[Mr McKenzie]

I thank the hon. Lady for again taking an intervention. Does she share my frustration that public procurement has not embraced, and moved as quickly as it should into, e-procurement, which the private sector has been using for 10 or 12 years?

[Caroline Dinenage]

That is an example of how we are a little slow to adapt to new technologies and innovative ideas, which is one of the problems we are trying to address today. There should be more opportunity for unsolicited, novel approaches to meeting public sector needs, particularly where new technology is involved.

--- Later in debate ---

[Mr McKenzie]

On skills and innovation not only in products but into new markets, Promedics in my constituency has taken the existing skills of sewing machine technicians and moved them into a totally new market, supplying the NHS and others across Europe with surgical supports. It has taken that skill and applied it to a new market. What recognition or support can the Minister give such businesses?

[Michael Fallon]

I am delighted to hear that and would certainly like to hear more details and to see whether there are ways in which Government can recognise that kind of development more officially.

A skilled work force is the key to providing the innovation that business needs. Apprenticeship starts in engineering and manufacturing have increased from 26,000 10 years ago to more than 49,000 last year. There were more than 2,000 apprenticeship starts in the constituency of my hon. Friend the Member for Gosport last year. The number was up by 18% on 2010-11. She will be interested to know that nearly 900 of those apprenticeship starts were in the engineering and manufacturing sector—an increase of 32% on 2010-11, so we are making changes.

The Daedalus enterprise zone members group, which I think my hon. Friend chairs, includes the provision of a new skills training centre that is due to be built on the site from 2013. The first students are due through the doors in September 2015. That is a major achievement in my hon. Friend’s area and shows that the enterprise zone there is open for business.

I thank all hon. Members who have attended the debate and those who have contributed to it through their questions. I thank again my hon. Friend for raising this subject for debate. Let me assure her and you, Mr Robertson, that this Government are fully committed to realising the growth of manufacturing through innovation, which we see as essential to building a better balanced, more resilient economy for the future.