Manufacturing and SMEs

Iain Wright Excerpts

Wednesday 4th September 2013 Westminster Hall

[Mr Iain Wright (Hartlepool) (Lab)]

Good afternoon. It is a pleasure to serve under your chairmanship, Dr McCrea. I join others in congratulating the hon. Member for Carlisle (John Stevenson) on securing this important debate. I am pleased that there have been so many contributors to a well-informed and consensual debate.

It is clear that manufacturing matters to this country and to the House. Indeed, manufacturing is essential to any advanced economy that wishes to maintain or enhance its living standards. An effective manufacturing policy, based on innovation, is the means by which productivity and wage rates will grow. It is equally clear from listening to hon. Members’ contributions that in every corner of the country we have dynamic, enterprising manufacturers—Mallinson Fabrications in Carlisle or Burgon and Ball in Hillsborough, among others—keen to expand, export into new markets, invent new products or processes and employ more people. An effective and proactive industrial policy will ensure that Government can work with industry for the long-term and tap into that huge potential.

We warmly welcome recent increased output in manufacturing and order books, and the Opposition will encourage any sign of recovery. There is a long way to go however: manufacturing output remains 10% below pre-crisis levels and is still performing below the wider economy, which is 3% off its peak. Despite the positive news, manufacturing is still expected to contract by 0.5% this year. Despite the good news, we are not seeing the much-vaunted march of the makers that the Chancellor promised. Will the Minister comment on that and on today’s news that the World Economic Forum’s global competitiveness report shows that we have slipped down the competitiveness rankings from fourth to seventh and down the infrastructure rankings from fourth to 28th? It is a long-term concern for the productivity and innovation of our manufacturing base, so will he comment?

Every Member who spoke mentioned access to finance. It remains the most significant barrier to manufacturing businesses’ growth. Every initiative the Government have attempted to put in place, from Project Merlin to funding for lending and from the national loan guarantee scheme to the enterprise finance guarantee, has failed in its objective. Net lending to businesses has contracted in 21 of the past 24 months. Commenting on the funding for lending figures, Dr Adam Marshall, director of policy at the British Chambers of Commerce, said that

“the credit environment is not where it could or should be, and many dynamic, new businesses are still struggling to find the funds they need to fulfil their growth potential….A fully functioning Business Bank is essential to plug this gap, but it must be delivered with greater urgency and scale than is currently being proposed by the government.”

Will the Minister comment? Businesses are not confident that the Government’s business bank will help them. A recent survey by Bibby Financial Services showed that only 6% of small and medium-sized businesses believed that the business bank would benefit their firm. David Petrie, head of corporate finance at the Institute of Chartered Accountants in England and Wales, of which I am a proud member, stated:

“The proposals put forward don’t appear to address the needs that businesses have and the finance gaps that exist. It is shaping up to be a missed opportunity to make a real difference, especially to micro and smaller businesses.”

Will the Minister outline how he will ensure that the British business bank works for manufacturers to ensure that long-term capital is put in place to allow manufacturing firms to innovate and grow?

I think that every hon. Member also mentioned procurement, which can be an effective lever for Government to enhance skills, attract apprentices, improve and incentivise innovation and ensure that we have a resilient manufacturing base. What are the Government doing to ensure that smaller and medium-sized businesses, particularly in the manufacturing sector, benefit from Government contracts?

[Mr Andrew Smith]

My hon. Friend is making an excellent speech. Will he also ask the Minister whether he saw the report in The Daily Telegraph that quoted research by Opinion Leader? It said:

“Despite efforts to cut red tape and promote competition, only 6pc of small and medium-sized enterprises…believe it has become easier to win public sector contracts”

in the past two years,

“and 26pc say it has become more difficult”.

Should the Government not explain why they think that is?

[Mr Iain Wright]

My right hon. Friend makes an excellent point. The article goes on to say that the Government have a target of awarding 25% of public contracts to small and medium-sized businesses, but the figure for 2012-13 is only 10.5%. We are a long way from the target. Is the Minister confident that he will hit the target and ensure that small and medium-sized businesses in the manufacturing supply chain have a chance of winning Government work?

Business investment is the means by which we can enhance and strengthen manufacturing growth, as the hon. Gentleman for Warwick and Leamington (Chris White) mentioned in his thoughtful, well-informed speech. Since 2010, Britain has experienced the biggest fall in investment as a share of national income of any G8 country, other than Italy. We have seen a 0.8 % drop in the level of capital investment. Our competitors, such as Canada, France, Japan, Russia and the United States, are improving their business rates. Most other nations do better than us; according to The Economist, we are ranked 159 out of 173 countries for investment as a share of GDP. We are on a par with Mali.

The situation is not improving. According to last week’s figures from the Office for National Statistics, general investment for quarter 2 of 2013 fell by 4.8% from a year ago and investment in machinery and equipment, which is probably most related to manufacturing, fell across the same period by 3.4%. To improve our competitiveness, our business investment performance must improve. Will the Minister acknowledge that the levels of business investment are unsatisfactory? They are getting worse on his Government’s watch and are inconsistent with the House’s and the country’s aspirations to being an innovative and competitive high-value manufacturing nation. What will he do to ensure an environment of better business investment?

Supply chain resilience is key. Over the past 30 years, with de-industrialisation, we have seen the hollowing out of the UK manufacturing supply chain, and that is hindering the potential of manufacturing and growth. In an excellent speech this afternoon, the Chair of the Business, Innovation and Skills Committee, my hon. Friend the Member for West Bromwich West (Mr Bailey), made that point in relation to aluminium foundings—I think I have that right. He pointed out that the Society of Motor Manufacturers and Traders stated that the lack of an adequate supply base is forcing some vehicle manufacturers, such as Jaguar Land Rover, but also Nissan and others, to limit their activities in the UK to final assembly operations, relying on foreign R and D and component development and manufacture. The Automotive Council concluded that at least 80% of components in vehicle assembly could be sourced from UK suppliers, but at present only about 36% are. There is enormous scope and potential for manufacturing here, and I hope that we can work together in the House to support it.

In that vein, I applaud what the Government were trying to do with the advanced manufacturing supply chain initiative: trying to improve the global competitiveness of UK advanced manufacturing supply chains, by supporting innovative projects where the UK is well placed to take a global lead. It is an important initiative, and I want to see it succeed for the good of the British manufacturing base. Will the Minister let the House know how much of each funding round—I think we are up to the fourth round—has been not just allocated but provided to the relevant firm, how much of each round has been spent, and how many jobs have been created or safeguarded?

In the short time I have available, I want to finish on skills. Several hon. Members have mentioned that manufacturing firms are finding it difficult to recruit appropriate skills, and a recent CBI/Pearson survey found that two fifths of employers who required employees with skills in STEM—science, technology, engineering and maths—found it difficult to recruit. The hon. Member for Carlisle placed the issue in the context of demographic changes—more and more workers will be retiring shortly. How are the Government dealing with that urgent issue? Does the Minister believe that recent changes, such as the downgrading of the engineering diploma and the dismantling of impartial information, advice and guidance, provide a co-ordinated, cross-Government approach to business and industrial needs? He straddles the Departments for Business, Innovation and Skills and for Education, so what is he doing to ensure that we have a co-ordinated approach to providing the skills that manufacturing needs?

It has been clear, in what has been an excellent debate, that manufacturing matters to this country as a means of improving our competitiveness and raising living standards. We all want manufacturing to succeed and a Government who support it, and I hope that the Minister can address the concerns raised.