Manufacturing in the UK

Iain McKenzie Excerpts

Tuesday 14th January 2014 Westminster Hall

[Mr Iain McKenzie (Inverclyde) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Streeter. I thank the Minister for taking time out of what must be a busy diary to come to this debate. I am delighted to have secured this debate because I believe that manufacturing plays a very important part in the UK economy, and I wish to see manufacturing encouraged and assisted to grow and prosper in every region of the UK.

Today, the manufacturing industry employs some 2.6 million people in the UK, which is just 8% of all jobs in the country. In 2011, manufacturing accounted for 11% of national economic output, some £145 billion. Still, manufacturing comprises only 12% of the UK’s economy, compared with more than 23% in Germany. As we are only too aware, manufacturing in the UK has underperformed compared with the service sector for many years—one reason being that manufacturing output declined particularly sharply during the recession and, after a short period of growth, again fell in March 2013 compared with March 2012. In the past few months, however, some manufacturers have started to grow and to increase their market share once more. Such businesses have embraced invention, innovation, quality and design, which I will discuss further as I make progress.

[Mr Andrew Smith (Oxford East) (Lab)]

I am grateful to my hon. Friend for giving way and I congratulate him on securing this enormously important debate. It is important to celebrate the success of our leading-edge manufacturers, so will he join me in congratulating MINI, which has its plant in my constituency, on its sales going above 300,000 last year, which is up 6% on the year before? That helps to make my hon. Friend’s point that, with the right investment, the right product, the right work force and partnership between trade unions and management, we can do great things.

[Mr McKenzie]

I could not agree more with my right hon. Friend. That example underlines what I am about to discuss, which are quality, design and improving market share. MINI is a true example of that.

The success of such businesses highlights that, without a strong manufacturing base, there can be no rebalancing of the economy, which we are told is a priority for this Government. Great importance should be placed on invention, quality and design in manufacturing. The importance of development to creating a product cannot be under-stressed. Research and development are essential to build businesses and to dominate markets.

[David Simpson (Upper Bann) (DUP)]

I thank the hon. Gentleman for giving way. I congratulate him on getting this important debate and must declare an interest in the manufacturing sector. Does he agree that this or any future Government need to remove the bureaucracy that affects companies, in particular SMEs, so that they can concentrate on market research and exports?

[Mr McKenzie]

I share the hon. Gentleman’s comments. SMEs clearly need all the help they can get to close in on markets and to increase their market share.

[Several hon. Members]

rose—

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[Mr McKenzie]

I will make a little progress and will then give way.

I offer as evidence the innovation of a well-loved son of Greenock in my constituency. I dare say that hon. Members have heard of him. His name is James Watt. While his product has been consigned to history, his name lives on as a unit of power, which is testament to his innovative genius. It was the innovation of the steam engine that saw him and his business partner go on to dominate the market for such machinery for over a decade. As James Watt would have put it, research and development are vital to the pursuit of excellence. In technology-based sectors, research is a primary driver of innovation.

[Mr Jim Cunningham (Coventry South) (Lab)]

I thank my hon. Friend for giving way. Successive Governments have supported manufacturing in the west midlands, in particular Coventry, through their support for Jaguar Land Rover. The London Taxi Company was recently saved through useful agreements between the company and Jaguar Land Rover, because the trade unions were prepared to negotiate to save the company. We should welcome that and give credit to successive Governments. My hon. Friend mentioned research and development, and the university of Warwick and Coventry university have done a lot in terms of design and research in manufacturing.

[Mr McKenzie]

I note and accept my hon. Friend’s points and will develop them later in my speech.

The town of Greenock was not only the manufacturing birthplace of the personal computer back in the early 1980s but the innovation centre for surface-mounted technology and multi-layered processors, which have led to the powerful hand-held IT devices many of us rely on today. Sadly, that manufacturing base has moved to continents that can offer cheaper labour costs to satisfy the need for ever-reducing product prices, with the short-term justification of the need to maintain a healthy profit margin.

[Caroline Dinenage (Gosport) (Con)]

The hon. Gentleman is being generous in accepting so many interventions. As he says, innovation is the key to the future of a successful manufacturing industry. Does he agree that by incentivising R and D tax credits we are holding on to British manufacturers that might otherwise have gone overseas?

[Mr McKenzie]

I will go on to describe that as a positive step forward later in my speech.

The manufacturing base moved and was lost when investment and encouragement in research and development stopped, and that is not the first time we have seen this. Indeed, history could be said to be repeating itself. My constituency suffered greatly when shipbuilding manufacturing went into steep decline.

[Chris White (Warwick and Leamington) (Con)]

I thank the hon. Gentleman for giving way and apologise for not informing him that I intended to intervene. I congratulate him on securing this important debate. It is vital that we achieve consensus on the role and importance of manufacturing in the UK, and I only wish that more Members from all parties were here to listen to what he has to say.

Is the hon. Gentleman aware of “Making Good”, the report of an inquiry chaired by the hon. Member for Stalybridge and Hyde (Jonathan Reynolds) and myself that forms part of the work of the all-party group on manufacturing, which is co-chaired by myself and the hon. Member for Huddersfield (Mr Sheerman)?

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[Mr Gary Streeter (in the Chair)]

Order. This is a half-hour debate. The more interventions that Mr McKenzie allows, the less time there will be for the Minister to make his response. I am sure that he will bear that in mind.

[Mr McKenzie]

Where once our shipbuilding industry pushed the boundaries of design and introduced propellers, double-skinned hulls, bulbous bows and countless other improvements, we stopped pushing the boundaries and proclaimed as a nation that anyone could build a ship. Instead, we should have been saying that not everyone can build the ships of tomorrow. We stopped asking, “How can we improve this product?” and stopped challenging the accepted conformity to regulation.

In other sectors, the rapid adoption of technologies is essential to innovation, and has transformed existing industries. The success of our economy depends on the extent to which businesses in all industries and sectors invest in adapting technologies and building capacity in order to get ahead. This is particularly true now. Since the industrial revolution, economic downturns have, on the whole, always been followed by surges of innovation. Manufacturing can have a prosperous future, but only if we prioritise research and development.

[Rehman Chishti (Gillingham and Rainham) (Con)]

Will the hon. Gentleman give way?

[Mr McKenzie]

I will make some progress and then give way.

Innovation and the speed at which innovative ideas are put into action are the keys to success. However, the costs of cutting-edge research and the latest high-tech processes are greater than ever before and are often too large for one company to bear. No competitive economy should leave universities, research laboratories and the private sector’s innovation arms to their own devices. The UK’s competitors understand that a country’s research and innovation capability is a key part of the national infrastructure, yet the UK spends relatively less on pure research development compared with its peers, and a significant part of that 23% is in the pharmaceuticals industry.

[Rehman Chishti]

I am grateful to the hon. Gentleman for giving way and congratulate him on securing this important debate, about which I know he is passionate. On research, does he agree that we need to get more students and pupils to study engineering, which would lead to an increase in manufacturing and construction? If so, does he welcome the Government’s initiative of creating university technical colleges around the country, one of which will be in Medway, to help to achieve that aim?

[Mr McKenzie]

I thank the hon. Gentleman for his intervention. I will touch on education later in my speech.

The UK’s innovation performance is generally weak, although I concede that there are some exceptions. However, UK manufacturing companies overall spend less of their turnover on innovation than their European peers, while, oddly, the opposite is true for UK service companies. Other countries, notably the Nordic countries, Singapore, South Korea, Taiwan, and Israel, have significantly increased innovation as measured by US patenting. The UK has grown innovation output slowly and from a relatively low base.

[Graeme Morrice (Livingston) (Lab)]

I am grateful to my hon. Friend for giving way and of course congratulate him on securing this important debate. We both represent Scottish constituencies, and my hon. Friend will be aware that some 70% of Scotland’s exports are to England, Wales and Northern Ireland. As we strive to develop the manufacturing base in Scotland and seek to become more innovative, does he agree that it makes no sense whatever to turn our biggest customer into our biggest competitor, which is what would happen if the Scottish Nationalists got their way?

[Mr McKenzie]

I will not try the Chair’s patience by travelling down the route of an independence debate, but I and—I hope—Scotland could not agree more with my hon. Friend.

Current levels of UK innovation are insufficient to drive growth and to close the gap with key competitors. UK business enterprise research and development as a proportion of GDP has remained below that of other leading economies such as Japan, the US, Germany and France. Furthermore, there has been a slight downward trend in the intensity of business enterprise research and development in the UK, unlike in most other advanced economies. We need to combine public and private investment better to ensure that we do not fall behind.

Jason Lippitt, managing director of TMAT, which is an acoustic components manufacturer, argues that even with limited resources, smaller businesses must find a way to use research and development if they want to survive.

[Mr Barry Sheerman (Huddersfield) (Lab/Co-op)]

My hon. Friend is making a fine speech. Would he compare the experience in his constituency with that in mine? I find that many of my manufacturing employers are worried about, first, access to finance—they are increasingly moving towards crowdfunding and crowdsourcing, which the Government are about to regulate and might destroy —and, secondly, the lack of highly skilled technicians. Yes, graduates are good, but technicians are what most of my employers are desperately looking for.

[Mr McKenzie]

I will explore later business demand for graduates and highly educated people to bring into the manufacturing process.

Jason Lippitt said:

“Research and development is of paramount importance. We haven’t yet invented the products we will be making in five years. Research and development is the lifeblood of business.”

How true that there are products we have yet to discover. In five years’ time, we could be dominating markets, but only if we prioritise and plan for the future of manufacturing in the UK. If we look at the phones or tablets in front of us now, could we have imagined them five years ago, or even believed how essential to everyday life they would become? Devices that we are doing without now will make us wonder in five years’ time how on earth we managed without them. With them will come new careers that we also could not imagine.

That vision is shared by Andrew Johnson, senior economist at the manufacturers’ group EEF, who said:

“There are countries on other continents that Britain will never be able to match labour costs with, but they will never be the dominant part of the selling equation if we continue to develop innovative new products and develop new technology.”

How true. What is the position of the Minister and of the Government on forming a partnership with manufacturers to invest in research and development to create new products and to win existing markets and create new markets? Government policies can either make or break a nation’s manufacturing sector.

For example, Germany has an interventionist industrial strategy. Public-private collaboration enables innovation and technology advancement and promotes talent development. Global leaders in innovation, such as the US, Japan, Germany and Sweden, have well-connected systems that enable the public and private sectors to work together to maximise the economic benefits of manufacturing and innovation.

What of the UK? The UK system would seem not to be as well connected or orientated to the needs of business compared with that of, say, the US Government, which plays a major role in shaping innovation. The USA has a systematic and comprehensive approach to driving innovation and to supporting small businesses through its small business innovation research programme. The Dutch Government, too, have introduced a new policy to promote innovation in strategically important economic sectors.

In contrast, the lack of any coherent manufacturing and industrial strategy from the Government can only prove to be a disaster for the UK economy, as highlighted by Lord Heseltine’s report, “No stone unturned”, which received a positive response from industry and the manufacturing unions and was welcomed by the Prime Minister. Nevertheless, the lack of any real Government economic and industrial growth policy and their failure to take urgent action in developing a manufacturing policy are worrying.

On the whole, manufacturing continues to suffer throughout the UK. We need urgently to see the green shoots of recovery spring to life in all parts of the UK. Research and development tax credits are a move in the right direction, as I said, but what else might the Government do? Education and stimulation of the next generation of manufacturers could be a start, and I recognise the focus placed on that by some education providers throughout the country.

[Lindsay Roy (Glenrothes) (Lab)]

I congratulate my hon. Friend on securing this important debate. Does he agree that the Scottish Government are hampering manufacturing growth in the UK by cutting severely the budgets of vocational colleges, in particular in the STEM subjects—science, technology, engineering and mathematics?

[Mr McKenzie]

I agree fully with my hon. Friend, but I fear that this debate is not the one in which to comment on the failures or otherwise of the Scottish Government to stimulate manufacturing or business.

In the past, universities did basic science, while companies worked separately on applications for commercial use. Today, such boundaries have blurred, and successful research and development often involves co-operation throughout the innovation process. Design and, more importantly, quality in design will also give a manufacturer the edge in competitive markets, as we have heard. We have also witnessed improvement by Jaguar Land Rover in quality and design. That is how important design and recognised quality in design are in improving market share. Furthermore, I dare say that Mr Dyson is not resting on his laurels and will continue to show competitors a clean pair of heels through design improvements.

What of the process of manufacturing itself and the innovation there? I was always told by my previous employer to take inspiration from and look no further for success in process change than the high jumper Dick Fosbury, whose revolutionary approach to high jumping is now the accepted method, or process, by which all athletes approach the bar. Similarly, many of our innovative manufacturing processes, such as constant flow, “just in time” and fully integrated supply chains, are now accepted methods.

That brings me to the importance of manufacturing clusters and supply chains. Clusters such as IT in silicon valley or high-performance cars in southern Germany can be located in a particular region within a larger nation and sometimes even in a single town. Clusters affect competitiveness in three broad ways. They increase the level of productivity at which constituent firms can operate; they increase the capacity for innovation and productivity growth; and they stimulate and enable new business formation that further supports innovation and expands the cluster.

[Caroline Dinenage]

Will the hon. Gentleman give way?

[Mr McKenzie]

I thank the hon. Lady, but I will push on.

What are the Minister’s plans for and position on mounting a sustained programme of cluster development to create a more conducive environment for productivity, growth and innovation? That would of course bring employment opportunities throughout the United Kingdom. More of our large companies should be encouraged to expand the number of UK-based companies in their supply chains. Also, what is the Minister doing to encourage the establishment of manufacturing supply-chain associations throughout the UK?

Labour is committed to implementing a comprehensive industrial strategy to form the cornerstone of how the UK will build competitive businesses in the long term, and that has been welcomed by the CBI and others. We are an industrial nation, a nation that still has much to offer the world through invention and innovation, and a nation that has a future with manufacturing, but only if we plan for manufacturing in the future.

[The Minister of State, Department for Business, Innovation and Skills (Michael Fallon)]

I join in welcoming you to the Chair this evening, Mr Streeter. I also congratulate the hon. Member for Inverclyde (Mr McKenzie) on securing this important debate and on the participation and audience that he has attracted from among both Opposition and Government Members.

A strong manufacturing sector remains crucial to the UK economy, now and in the future. It contributes disproportionately to our overall productivity growth. It drives innovation and business research and development; it accounts for 72% of all our business R and D. Manufacturing accounts for more than half of all our exports, and it provides skilled and well-paid jobs and employment opportunities for people of all educational attainment levels throughout our country, and particularly in the less affluent regions. The recent Foresight report, “The Future of Manufacturing”, pointed out that it is also one of the keys to resilience. It is one of only two sectors able to drive growth right across the economy through cross-sectoral supply chain linkages.

Of course, some manufacturers have not had an easy time during and after the recent financial crisis, but there has been some encouraging news of late. We know from the Office for National Statistics that manufacturing output rose by 0.6% in the three months to November, and industrial production rose by 0.3%. Two weeks ago, an executive survey by the Engineering Employers Federation and Aldermore told us that 2014 looks set to be better for the UK and for manufacturing than each of the past two years. Projected manufacturing expansion of 2.7% will put us top of the European Union growth league. The Deloitte chief financial officer survey, published on 6 January, reported that business optimism was at a three-and-a-half-year high. It is true that macro uncertainty and capital constraints, two of the biggest blocks to business activity, have begun to recede.

[Mr McKenzie]

We welcome the statistics that the Minister is rehearsing. Will he advise us of the spread of manufacturing across the length and breadth of the UK?

[Michael Fallon]

I do not have a figure on that immediately to hand, but perhaps the hon. Gentleman will allow me to write to him to fill in the picture across the regions. We have some statistical knowledge of that through the regional growth fund and our other funding instruments.

We have significant strengths in key manufacturing sectors, including automotive manufacturing, aerospace and pharmaceuticals. We need to make more of those competitive advantages and to sustain them. That is why we have a long-term plan in the shape of our industrial strategy, enabling Government and industry to work together to support the long-term direction that is needed to create more opportunities and jobs and to make this country more competitive. One of the most encouraging things about the industrial strategy has been the consensus that has built up around it, not simply among all parties in this House and in the all-party group on manufacturing, but between the CBI, the TUC, Lord Heseltine and others.

The strategy has five main strands: the sectors themselves, procurement, skills, technologies and access to finance. Through those strands, we are planning 10, 20 or even 30 years ahead. For example, with industry we are jointly funding the Aerospace Technology Institute to enable us to meet the challenges ahead and respond to the demand for up to 27,000 new civil aircraft between now and 2030.

[Mr McKenzie]

The Minister referred to the all-party group on manufacturing. What are his thoughts on that group’s call for a hotline to Government and a go-to man for manufacturing needs?

[Michael Fallon]

I was rather hoping that I was the go-to man and the contact figure within Government. Not only have I had the pleasure of addressing the group in this place, but the group has been to see me at the Department for Business, Innovation and Skills, and although titles vary, if there is a Minister for Manufacturing, I suggest that it is probably me. I am certainly happy to add to that a specific hotline, or an official with whom the group can have contact.

I have already mentioned the Aerospace Technology Institute. Through the construction strategy, we are trying to make the UK the global leader in sustainable construction by 2025, in a market that will grow by 70%. As part of the automotive strategy, we are investing around £1 billion over 10 years in a new advanced propulsion centre to develop, commercialise and manufacture advanced propulsion technologies in the UK. That strategy, too, looks 20 or 30 years ahead.

Hon. Members have referred to the renaissance of our motor manufacturing industry. There is the success of Jaguar Land Rover and Nissan, and also of the MINI plant at Cowley, which I have visited.