Manufacturing and SMEs

Jeremy Lefroy Excerpts

Wednesday 4th September 2013 Westminster Hall

[John Stevenson]

I do not disagree. The improvement in the view of apprenticeships is helping enormously, because people now view apprenticeships as a serious career choice, rather than people always going off to university.

We need to move to a more balanced economy so that we become a balanced country in which manufacturing has a central role. In my own county of Cumbria and constituency of Carlisle, we still have a very strong manufacturing base. There is defence, power, engineering and food, and in Carlisle itself 20% of the local economy is still based on manufacturing.

In my constituency, we have large players such as Pirelli, Nestlé and McVitie’s, and there are also smaller players that are significant locally such as Carr’s Milling Industries, Clark Door and Mallinson Fabrications. For both local and national reasons, I am delighted that the role of manufacturing is back on the Government’s agenda. A huge amount of credit must be given to the Government and to Parliament for achieving that change.

We all acknowledge that there has been a steep decline in manufacturing over many years, which has created a number of problems. Obviously, there is the balance of payments issue, because we are simply not paying our way in the world. The decline has also created a skills problem. Many skills have gone overseas, with some potentially lost for ever. We have an ageing work force in some sectors, with the food and drink sector being an obvious example of where many thousands of people need to be recruited over the next few years just to stand still.

The decline in manufacturing has created a problem for the long-term success of our economy. Thankfully, there is growing recognition that we, as a nation, need to produce goods, as well as to provide services. Growth in our economy can only be helped by the expansion of industrial production—the rise of the makers once more. Such a revival would immediately help to correct our trade imbalance, and more tax would be paid, so the Government could start to balance their books.

[Jeremy Lefroy (Stafford) (Con)]

Does my hon. Friend recognise that, with an increase in manufacturing, we would also see a positive knock-on effect for services? Manufacturing and services cannot be split from each other; one gives rise to benefits for the other.

[John Stevenson]

Yes, I agree. Ultimately, we want to see all sectors of the economy grow, and they are all interlinked. Clearly, if manufacturing improves, the services side will also benefit. The reverse does not always work in quite the same way; there is a greater benefit for services when manufacturing succeeds.

As for my personal involvement, I have to confess that in my previous life I had little knowledge of or involvement with manufacturing. My constituency has a significant number of employers in the manufacturing sector that make a major contribution to the local, national and international economies. I recognise the importance of those employers, and I want to support them wherever possible. That is why I became heavily involved with the all-party group on food and drink manufacturing, which is well supported across the House and which I now chair, and with the associated all-party group on manufacturing—I am delighted to see leading members of that group here this afternoon. There is much overlap between those all-party groups and others, and it is useful to have such differentiation because it demonstrates that although there are many similarities between manufacturers, there are also many important differences.

--- Later in debate ---

[Mr Bailey]

I certainly join the hon. Lady in welcoming that. In fact, one of the unintended, beneficial by-products of the problem has been the resourceful and inventive ways that communities and businesses have got together to overcome it. Peer-to-peer lending is an example of that. In my area, we have the Black Country Reinvestment Society, with which my fellow west midlands MPs will be very familiar. However, the scale of the entrepreneurial alternative lending sources still does not match what is needed for our manufacturing base as a whole.

I turn to a specific issue that applies not only to my constituency, but to the whole of the west midlands and the black country—other west midlands MPs may refer to this, too. First, I pay tribute to the Tata brothers for their investment in Jaguar Land Rover, which, I think it is fair to say, has transformed manufacturing prospects in the west midlands in a way that we have not known for 30 years. It is an indication of the value of our relationships with the Indian subcontinent and that growing market and growing access of capital, and of the historic association between the Indian diaspora in this country, and of course, the native India.

[Jeremy Lefroy]

I entirely agree with the hon. Gentleman. It is also testament to the wonderful co-operation between Wolverhampton city council and Staffordshire county council, which, together, put £40 million forward to build a motorway junction on the M54, without which that project might not have been able to go ahead.

[Mr Bailey]

I pay tribute to both of them. All the players in the i54 development on the borders of Staffordshire and Wolverhampton deserve credit for the united way in which they have seized the opportunity. For the benefit of non-west midlands MPs here, it is a huge expansion in the engine production capacity of JLR that will result in 1,400 jobs. It has really transformed the supply prospects of foundries in the area. In that context, I would also mention the £45 million that the Tata brothers have invested at Warwick business school’s centre for research and innovation. Collectively, they have transformed the prospects for manufacturing in the west midlands.

My constituency still has the highest number of foundries—I think—of any constituency in the country, but there are plenty in the surrounding areas as well. The prospect offered to them of being part of the supply chain to Jaguar Land Rover is very significant. In the regional growth fund applications, there have been a number of successful bids from JLR and companies locally. However—I mention this to the Minister, because it highlights some of the problems that we have with the support that the Government give industry—I understand from the Cast Metals Federation that the engine blocks for the new Jaguar Land Rover development at the i54 will have to be made in Germany, because there is not, would you believe it, the capacity for foundries to produce them locally.

I also understand that Jaguar Land Rover is happy to look at repatriating some of its supply chains, where it has to source from abroad at the moment, but obviously, that will depend on the capacity of local SMEs to deliver. Despite all the Government sources of support, the regional growth fund and the grants that it has given, a crucial gap still remains in the potential economic benefits that will accrue to the west midlands because of the failure to secure this vital market. Aluminium engine blocks for that development will be crucial.

The Society of Motor Manufacturers and Traders has identified something like £3 billion-worth of potential extra business in the supply chain—if the Government and the industry can get together to maximise that potential. Although I do not condemn any of the attempts that have been made to provide finance for business and for SMEs so far—but certainly with the regional growth fund, there are all sorts of issues relating to length of time and so on—I ask the Minister to look at working with the Automotive Council to develop some sort of package that would enable the existing gaps in provision to be filled. The potential benefits, both for regional policy and for our overall national economic situation, are absolutely enormous.

I have spoken for longer than I intended, partly because I have taken interventions, so I will cease my remarks with that plea to the Minister.

--- Later in debate ---

[Jeremy Lefroy (Stafford) (Con)]

It is a pleasure to serve under your chairmanship, Dr McCrea, and I congratulate my hon. Friend the Member for Carlisle (John Stevenson) on securing this welcome debate.

Government support for business has always been crucial. My first job was as a production foreman at Ford Motor Company in Bridgend, a plant brought to the UK under Prime Minister Jim Callaghan in the late 1970s. I am glad to say that that factory has expanded since then; it is one of the largest engine factories in Europe, if not in the world, and is still exporting around the world.

In Staffordshire and Stoke-on-Trent there has been strong Government support for manufacturing business—for instance, through the regional growth fund to Alstom in my constituency, which has become a world leader for research in high-voltage direct current manufacturing. The hon. Member for West Bromwich West (Mr Bailey) earlier mentioned Jaguar Land Rover on the i54 site on the edge of Wolverhampton and South Staffordshire. South Staffordshire council has played a major role in that, and that was a great example of co-operation between government and the private sector.

However, that is all about the largest companies, which have access to the Government. We really want to talk more about smaller projects and companies. We have already heard talk about procurement, and how Government procurement from SMEs has increased substantially under the present Government. There is still a long way to the 25% target, but I welcome that progress.

My hon. Friend the Member for Gosport (Caroline Dinenage) talked about oligopoly in procurement. It is not just in manufacturing companies; among service companies it seems that the Government will procure only from a very small number. For instance, there are the big four consultancy firms. In my constituency, health administration is being carried out by Ernst and Young. I should prefer some specialist medium-sized consultancies to do that work if, unfortunately, it should become necessary for a Government to procure it.

We have heard about training and apprenticeships, and the 21.5% increase in engineering and manufacturing technology apprenticeships starts in the past year. However, there is still reluctance from smaller firms, as they do not necessarily have the facilities or expertise to allow those apprentices to start. I welcome the idea of training networks, which could operate under the employer ownership pilots that BIS has started in the past year. I look forward to more of that, with small businesses taking advantage of the facilities and expertise of larger manufacturing businesses in their area.

We have also heard about the supply chain in the debate. Yes, that is an area where small businesses can do things for each other, but there is an increasing realisation of the benefit of having suppliers on the doorstep. The previous Government supported programmes in relation to the automotive sector supply chain, and the present Government are considering the aerospace sector in that regard. I should like to know from the Minister whether there are plans to consider other sectors—and to bring major sectors’ supply chains back into the UK.

I want to spend a little time discussing exports. There has been an increase in the services offered by UK Export Finance. Indeed, just this week BIS announced a direct lending scheme of £1.5 billion under UKEF, in which foreign buyers can get access to support to buy UK products. It is the first time that that has happened, and I encourage all hon. Members to point it out to exporting companies in their constituencies.

UKEF is still very much focused on large businesses, although I was glad to see from its last report that it was used to enable British companies to export, for example, cheese to Greece, a hospital to Ghana and tractors to Israel. However, those were the exceptions rather than the rule. UKEF tends to be dominated by Airbus, Rolls-Royce and BAE Systems. That is welcome—we need those exports—but in the past year the total was only something like £4.3 billion, compared with €29.1 billion under the Hermes scheme in Germany. Under that scheme, Kenya had €156 million of credit, South Africa had €461 million and India had €1 billion. Those are all developing countries, to which our businesses need to export.

I shall cut my remarks short, because colleagues want to come into the debate, but I reiterate what has been said so many times about the importance of the availability of long-term, patient capital and equity finance. It is ironic that Britain has a major institution that deals with that, which has nearly £3 billion of investments throughout the world, in some of the most difficult situations in developing economies—it is called the Commonwealth Development Corporation—but that we do not have a similar development corporation for some of the more challenged areas in our country.