Economy: Manufacturing

Lord Bhattacharyya Excerpts

Tuesday 30th November 2010 Grand Committee

[Lord Bhattacharyya]

I would like to thank the noble Viscount, Lord Montgomery, for securing this debate. Whenever the economy is in trouble, we turn to manufacturing for the answers. I remember Ministers talking about sunrise industries, the knowledge economy and high value-added manufacturing. Last year the soundbite was “industrial activism” and now the phrase is “the balanced economy”.

I am not sure that any of these phrases has made a blind bit of difference to our economy. It all sounds a little like gobbledegook to our industrial friends. For example, when the car industry was in trouble we had headlines about 3 billion in support. Most of us thought the 3 billion would be in sterling but it ended up being in peanuts. Most manufacturers got very little, but despite this, manufacturing is playing a big part in our economic recovery. Today, the manufacturing share of British GDP is 12 per cent. That is a touch less than France and within striking distance of the Americans. Not bad.

Much of our recent growth is due to exports in goods, which rose by 15 per cent in the last year, predominantly due to the fall in exchange rates. But any long-term success requires innovation, not devaluation. A car company that was in trouble two years ago because of not getting credit, Jaguar Land Rover is now one of the largest exporters in the country with £7 billion exports this year. It regards developing markets as a major growth area. Exports to China are up 70 per cent. How can we help companies like this to succeed? At the moment our share of exports to emerging markets is tiny. We have a 1 per cent share of Chinese imports. Businesses based in China, Brazil and India are developing the highest technology products—from the C919 aeroplane to domestic designed automobiles and the Embraer corporate jets of Brazil. If they do not have the technology they can get it at the click of a button, or they can just buy another company such as the recent purchase of Volvo by Geely.

We often talk in the UK about low-carbon, high value-added exports, but how many politicians know that China is the world's leader in solar cell technology? We have no privilege in the global economy; we have to earn our place. The major opportunity for our exporters is not merely competing with the emerging economy manufacturers but being partners with them in the global economy. I focus on two areas. First, we must encourage inward investment. We should not be concerned about who owns the companies. The latest figures from the ONS show that the British economy still suffers from low rates of capital investment, as it has for the past 50 years.

If small manufacturing enterprises are to be the seedbed of innovation, full exploitation of their ideas requires long-term investment from larger firms and banks. Today, we have too many barriers to inward investment. The corporate tax system is confusing. Measures such as tax credits are hard to access. Regional support is baffling, and immigration rules send the wrong signals to the inward investor.

Next, we need to understand that trade barriers will exist for a long time. For example, China's tariff on imports of upmarket saloon cars is more than 40 per cent. At the higher end, it is 90 per cent. That is an extremely high barrier to get over. Therefore, most companies will end up manufacturing in growing markets just to get a level playing field, and the countries will make sure that there is technology transfer. We must help them to find partners to get access. Today, we are a gateway to Europe—that is where our major exports are—but we need to be a partner to the world.

The Government have announced innovation centres, a regional growth fund and a green bank. I do not want to talk today about how many engineers are produced, the quality of engineers, how much they are paid, or of technicians or of what the Government have to do in this or that area. We must make whatever the Government have announced simple. Most important, we must make those initiatives happen, not just talk about them. We must not have another saga where we tell the world that we are ready to act but very little happens. I wish the Government good luck in that task.