Queen's Speech

Lord Broers Excerpts

Wednesday 2nd June 2010 Lords Chamber

[Lord Broers]

My Lords, I, too, take great pleasure in congratulating the noble Baroness, Lady Wilcox, and the noble Lord, Lord Henley, on their new appointments.

I shall speak to the first priority of the Government as set out in the second paragraph of the gracious Speech: the reduction of the deficit and the restoration of economic growth. As an engineer, I certainly do not have overall solutions to these immense problems, but I feel strongly that there are actions that we must take if there is to be any chance that we are to resolve them, and there are things that we should not do.

I shall start with one of the latter. We must not go on being afraid to face the magnitude of the problem, perhaps on the assumption that we will frighten people or be thought to be talking down the UK economy. The public and our partners and competitors overseas are not innumerate; the numbers are starkly clear for all to see. No matter how one tries to define “structural debt” as opposed to “cyclical debt”—the economists differ on this—our structural debt is several hundred billion pounds higher than would normally be accepted for a healthy economy. Before we can start to reduce the structural debt, the economy will have to recover so that the cyclical debt is contained and annual deficit eliminated. Even if we allow ourselves 10 years to recover, the annual sums of money needed to close the gap far exceed £100 billion, and may approach £200 billion. We have to get on with it—after all, the £6 billion that has caused so much anguish offsets only 14 days of borrowing.

Faced with these apparently insurmountable debts, what do we do? It is unlikely that we can find the sum needed in savings, no matter how savage the spending round, and only a limited amount can be raised by increasing taxes if the nation is not to revolt. We are going to have to get the economy growing again. I agree with the Prime Minister that there is no other course but to place much more emphasis on manufacturing. The question is: how do we do this? We could risk generating runaway inflation and further devalue the pound. After all, in 2008, on the previous Government’s watch, the pound was devalued by a staggering 25 per cent, much to the relief of industry, even if it demonstrated the weakness of our economy compared to others. Further devaluation might increase the competitiveness of industry and improve the balance of trade, but naturally it would make funding our deficit prohibitively expensive. Short of providing an unrealistically weak pound, we will have to find incentives that encourage investment in new ideas, and lower cost and more efficient funding for industry than is being provided by our banks. After all, banks that hugely reward their employees and at the same time aim to make large profits have to make all that money out of someone, and of course it is generally their customers.

To improve our industrial performance we must first develop a rational and competitively priced energy strategy, as mentioned by the noble Lords, Lord Lawson, Lord Oxburgh and Lord Jenkin. We must also make better use of our educational system and our science and engineering research base. Mike Lynch, one of our most successful entrepreneurs, recently said in the Times:

“If you look at the calibre of our students and the competitive advantage they bring, we should have a raft of internationally successful technology companies. Instead, there are only two software companies … in the FTSE 100—Autonomy”,

which is Mike’s company,

“and Sage. Our ambition should be to have … ten. Without technology companies the UK economy will be in massive trouble”.

A proposal that should help create high-technology companies has been made by Dr Hermann Hauser in his recent report to the former Secretary of State at the Department for Business, Innovation and Skills, The Current and Future Role of Technology and Innovation Centres in the UK. Dr Hauser proposes that the UK develops a translational infrastructure similar to that used in other countries that greatly benefits their economies by building bridges between universities and industry. At the moment our expertise in many subjects is scattered across the country in many small centres, few of which, if any, attain international levels of competitiveness in technology transfer. Hauser recommends that we concentrate our expertise in general areas such as stem cells and regenerative medicine, future internet technologies, plastic electronics, software, technologies addressing renewable energy and climate change, satellite communications, fuel cells, advanced manufacturing and composite materials. These should be concentrated into a handful of centres that are internationally competitive and attract the serious involvement of industry.

We have to do all that we can to encourage and support our manufacturing industry. After all, despite neglect, it still adds more than £l50 billion a year to the UK economy, accounts for half of exports and represents 13 per cent of gross domestic product. However, as Dick Olver, chairman of BAE Systems, has pointed out recently in the Financial Times, these statistics mask disturbing trends. Since 1970 the UK has suffered the sharpest decline in manufacturing as a proportion of employment of any advanced industrial economy. Olver goes on to say:

“Without action, that trend is likely to continue and, in a global environment, big companies will have fewer reasons to favour the UK when deciding where to invest”.

Other data produced by the ERA Foundation show that over the past decade our trade balance in finished manufactured goods has declined, at an average rate of 20 per cent a year, from a position of rough balance to a deficit of £55 billion. We need to reverse these trends if we are to recover our economy.