Britain’s Industrial Base

Lord Adonis Excerpts

Tuesday 9th October 2012 Lords Chamber

Tabled By

[Lord Adonis]

To ask Her Majesty’s Government what is their assessment of the strength of Britain’s industrial base.

[Earl Attlee]

My Lords, this is a time-limited debate and the time for all speakers, except for the noble Lord, Lord Adonis, at 10 minutes and my noble friend Lord Marland at 12 minutes, is limited to six minutes. I remind the House that this means that when the clock shows six minutes, it means that the speaker has already reached their permitted time.

[Lord Adonis]

My Lords, I first congratulate the noble Lord, Lord Marland, on his new post. He earned great respect for his work at DECC, and I know he will do the same at BIS.

I do not think that there is much dispute that Britain’s industrial base is too weak and too narrow. If that were not the case, we probably would not be in a double-dip recession and we would certainly not be in a crisis with 2.6 million unemployed, youth unemployment of more than 1 million and national income still significantly lower than before the 2008 crash. It is taking us longer to get out of this recession even than it did to get out of Great Depression of the 1930s.

Without a stronger industrial base, we face a bleak future, and I think we now all understand the need to be bold and explicit about this. Until recently, the words “industrial strategy” were unmentionable in polite society. They were regarded as a hangover—in all senses—from the disastrous 1970s and British Leyland. However, as Vince Cable put it in his Imperial College speech last month:

“We can have an industrial strategy by default or design. Ignoring this reality is not a policy—it is just negligence”.

He continued, and I agree with this too:

“But just as bad would be to approach all our possible interventions in an ad hoc way, subjecting every policy decision to a short term tactical decision. There is not a serious and successful major company in the world that would proceed in such an unplanned way”.

I agree, but that is precisely how we have been proceeding as a country for a generation, and it has to change.

In my experience, telling stories is more powerful than reciting statistics when painting a big picture. So I want to tell four brief stories. Yesterday, I went out on a boat to see the huge new Statoil wind farm off the Norfolk coast at Sheringham Shoal. When I was not being seasick, I was amazed at the size and scale of the turbines: 88 of them, across a huge stretch of sea, each rotor 350 feet in diameter, generating enough electricity for 220,000 homes. Sheringham Shoal is only the beginning: the plan for nearby Dogger Bank, which I previously knew only from weather forecasts, is for 3,000 of these giant turbines, with construction starting in 2015 if the finance can be put together by the development consortium.

This is green energy in action. By luck of geography, we have a greater opportunity to develop it than any European nation besides Germany and Denmark. It is a huge, growing industry in construction, design and maintenance, yet in industrial terms, we are seriously behind the curve. The Statoil project director told me that barely a fifth of the construction and assembly work for Sheringham Shoal was done by companies located in Britain. The turbines are made by Siemens and imported, and the foundations, the offshore cables, and a good deal of the work installing the turbines is done by overseas companies with little or no physical presence in the UK.

I was told by Statoil that infrastructure is another weakness, in particular the absence of superfast broadband on the Norfolk coast and terrible mobile phone reception. As for the huge Dogger Bank investment, uncertainty over long-term policy for renewable energy is a bigger issue. So we are in the midst of a green energy revolution yet new jobs and investment will be delayed and/or go abroad unless we get our act together as a country. This needs to start, crucially, by ensuring that Siemens builds its proposed £210 million turbine factory in Hull, the fate of which is now uncertain because of Government prevarication on wind energy.

Story two. Last week I visited Airbus at Filton near Bristol, part of the pan-European operation which has made Airbus so brilliant a rival to Boeing with its A320s, 330s, the soon to be 350s and the giant 380s. As well as its success in China, Airbus has taken the competition directly to the United States with a new factory in Alabama. The expertise in designing and making aircraft wings at Filton is second to none, just as the engine technology at next door Rolls-Royce is second to none.

Airbus itself is a fruit of industrial policy which dared not speak its name in the 1980s, when state loans made possible the A320, an investment which has been repaid many times over. Similar state industrial policy is now equally imperative in decisions surrounding the proposed BAE/EADS merger to create a military equivalent of Airbus. The Government cannot just leave it to the market. The Government are the market in this case. The critical requirements are that the UK should be an equal partner, not a subordinate one, and that the UK’s position at the heart of any military equipment consortium should be assured.

We discussed all this at Filton. But just as pressing to Airbus were its skills requirements. Last year the company had 1,500 applicants for 86 apprenticeships. Yet despite this number, it could not recruit enough school-leavers with B grades or better in A-level maths and physics required for its higher level apprenticeships. Partly to tackle this it is sponsoring the proposed Bristol University Technical College which will specialise in engineering for 14 to 18 year-olds, but far broader action is required to supply its skill needs.

It was the same story when I visited Jaguar Land Rover’s state-of-the-art facility at Gaydon near Warwick last month. Again, a brilliant success story both in technology and products, including the new Range Rover. JLR benefits from a deep partnership with the University of Warwick, which my noble friend Lord Bhattacharyya has done so much to forge over so many years. But again, real concerns over skill levels, too small a pool of engineering graduates from which to recruit—JLR told me that by its estimates the UK is producing only half the number of graduate engineers that it needs—and too few would-be apprentices with the right skills.

Another key issue for JLR is its supply chain, too little of which is local or even British. Yet British suppliers are finding it hard, if not impossible, to secure the patient finance they need to expand and the new inward investors likewise. The Society of Motor Manufacturers and Traders published a devastating report in June specifying how the growth of supply chain companies in Britain was being constrained by access to capital and lack of sectoral and regional expertise on the part of the banks.

My fourth story is from my experience as Secretary of State for Transport in the previous Government in awarding contracts for new trains. This is a big potential source of jobs and value to UK plc which will get steadily bigger as rail travel grows and HS2 is constructed in the next decade and beyond. The state is the procurer of these trains. To paraphrase Vince Cable, its contract decisions constitute an industrial strategy by default or by design, and if it is not by design then that is pure negligence. The issue is simple: because of past negligence, 21st century Britain—amazingly—no longer has a domestically owned rail manufacturer. There is only one international company, Bombardier, which even makes trains in Britain. So, as Transport Secretary, I decided to have an industrial policy by design in respect of the £4.5 billion contract to supply the successor trains to the Intercity 125s. To cut a long story short, this is what we did: Hitachi, the most experienced high-speed train manufacturer in the world, now into the seventh series of Japanese bullet trains, won the contract and agreed as part of the deal to build a factory in Newton Aycliffe in County Durham, not far from Nissan, another great Japanese inward investor in transport manufacturing. The present Government stuck with the contract, the factory is being built and there will be more than 700 new jobs.

Now I had hoped that this would be the beginning of a coherent industrial strategy to build up domestic rail manufacturing. Alas, the present Government awarded the next rail contract for the new Thameslink trains to Siemens without securing UK manufacturing. This was serious negligence. If Siemens can build a wind turbine factory in Hull, and can even be persuaded by the Russian government to build a train manufacturing plant in the Urals in order to get state contracts, it ought not to have been beyond the wit and ingenuity of Her Majesty’s Government to have secured a factory in return for the £1.4 billion Thameslink order. The failure to do so was a major failure of public policy which must not be repeated with the forthcoming order for Crossrail trains.

So, my Lords, four stories. What are the lessons for industrial strategy? It is that the fundamental planks of a modern industrial strategy are skills, technology, innovation, procurement, infrastructure, finance, and supply chains. We need a strong and dynamic private sector aided by a strong and dynamic state in all seven of these critical areas. The state needs to act strategically, not tactically. It needs to act overtly, not covertly. In short, we must end the negligence of the past and get real about building an industrial base capable of delivering the jobs and companies that Britain needs for the future.