Manufacturing

Lord Evans of Rainow Excerpts

Thursday 24th November 2011 Commons Chamber

[Guy Opperman (Hexham) (Con)]

I beg to move,

That this House has considered the matter of the future of manufacturing.

Manufacturing should be at the heart of any long-term plan for economic growth. It is a sleeping giant that, if revived, would become the backbone of a strong UK economy. It is entirely right that, five days before the autumn statement, we should have the opportunity to debate the subject in broad terms in the House. I thank the Backbench Business Committee and the House of Commons staff for their assistance in bringing this matter before the House and, in particular, I pay tribute to my co-sponsors, the hon. Member for Huddersfield (Mr Sheerman), my hon. Friend the Member for Warwick and Leamington (Chris White) and the hon. Member for Burnley (Gordon Birtwistle), who have adopted an all-party approach to this problem which affects us all.

It is well known that I used to be a jockey and a lawyer, so it is legitimate to ask how on earth I can have any credibility in speaking about manufacturing. All MPs do, because we all have small and medium-sized enterprises that make something in our constituencies. We all have credibility on this issue.

My family came to this country as immigrants. They were engineers, specialising in gears. In May 1924, in the depths of a very bad recession, they set up Opperman Gears in a basement in Albemarle way in Clerkenwell. It had four staff—my great-grandfather and his three sons—who worked in the basement on two lathes, three milling machines and a couple of tools. They had borrowed £110 from a distant relative to set up the business. It grew rapidly and by early 1939 it moved to Newbury, where my family set up a larger firm that was able to produce the parts for the Wellington bomber with its long-term partner, Vickers.

We do not run that company any more, but I should declare that I am a shareholder in the small manufacturing business run by my father and that my family members are involved in a number of different manufacturing businesses up and down the country. I should also make it clear that I resigned my directorship of the family business in 2009 and am not paid by it in any way.

I should also declare that I am a wholehearted supporter of my local manufacturing businesses in the north-east, notably Kilfrost, EGGER, SCA, Agma and others, and their financial support allowed the charitable functions I ran this summer in the constituency. I should declare an indirect link, in that a director of one of those firms made a contribution to my association.

I hope I am doing my bit to try to create jobs. I was the second Member of this House to employ an apprentice and I urge those Members who have not to do so. She is a young lady who works in my office in Hexham and who has been with me now for nearly a year, and is doing extremely well. Members of all parties can take on apprentices—it is allowed under the rules—and I urge them to do it.

The scale of the manufacturing deficit is huge. The nations that expanded post-war specialised in and pushed manufacturing. Those nations—Germany, Japan, Taiwan, Korea and China—knew what they were doing. Today, the services sector alone can prop up Britain no longer, and there is a strong argument for greater industrialisation and changing things. We have seen the demise of manufacturing—it accounted for 20% of gross domestic product in 1997 and now accounts for 11%—and there is a strong argument for specialising not just in high-tech industry but in other industries, which are often derogatively labelled “metal-bashing”. Their products are unassuming, even if they are created by some of the most precise machines on the planet.

My constituency is in Northumberland and my four biggest non-public sector employers are all manufacturers. The north-east might be the birthplace of ships and steel, but we have reinvented ourselves. I was pleased to see SCA recognised in the Government-backed “Made by Britain” awards, which were so ably organised by the hon. Member for Huddersfield. That company employs about 435 local people in Prudhoe, including 60 apprentices. It could not be doing any more to support its local community. It does not make glamorous, eye-catching products—or perhaps some people think it does—but it produces one in every five toilet rolls in this country, as well as vast quantities of paper towels. I am sure we all agree that those are essential products.

[Graham Evans (Weaver Vale) (Con)]

Flushed with success.

[Guy Opperman]

It is, indeed, flushed with success, as my hon. Friend so ably quips from the sidelines—as always, he is on the money. The wood pulp goes in at one end of the factory and paper products come out at the other. The machinery is highly technical; this is modern manufacturing in the modern age.

In this time of austerity, I am extremely proud that the north-east has a positive balance of trade and is the only region consistently to do so. We should trumpet the fact that the North East chamber of commerce is the only regional chamber of commerce in the country. It represents more than 4,000 businesses and covers more than 30% of the region’s work force. If I had to single out one local concern that it has highlighted to me from the multitude of things it would like to be done, it would be to urge the Minister to conduct the review that it is hoped will be undertaken of the planned carbon floor price and other climate change and energy-related matters.

How are we to address the manufacturing deficit? I have three main suggestions. First, we need a Minister for manufacturing. That is not to decry the efforts of the Minister with responsibility for business or the Business Secretary, both of whom are worthy men, or those of any parties in that Department. However, the fact remains that, according to the House of Commons Library, there has not been a Minister for manufacturing since 1945.

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[Graham Evans (Weaver Vale) (Con)]

I congratulate my hon. Friend the Member for Hexham (Guy Opperman) on securing the debate. Apart from a brief spell stacking shelves in my local Co-op in Poynton, I have worked in the manufacturing industry for my entire career. Interestingly, my first manufacturing job as a young man was working for BAE Systems on the mark 3 airborne early warning Nimrods. After a lot of taxpayers’ money, that was rightly cancelled because it was over budget and out of date and did not work.

When Britain was described as the workshop of the world nearly a century and a half ago in 1870, the UK accounted for almost half—46%—of the world’s manufacturing output. Today, that title has been bestowed on China, which produced a fifth of the world’s manufactured trade in 2007. The term seems to have lost some of its meaning over time, as has the notion of Britain as an industrial nation.

Everyone appears to believe that the UK is doing fine when it comes to manufacturing, citing the fact that we are the fifth largest manufacturer in the world in terms of value of output. That attitude has bred complacency and allowed successive Governments to believe that they are doing enough to maintain that position. However, that belies the truth. If we measure manufacturing in terms of per capita value added, we realise that Britain is only around 12th in the international league tables, and suddenly the picture changes dramatically.

It is clear that if we are to rebalance our economy, much more must be done to push us up the rankings. That means providing support for all forms of manufacturing, rather than just the high-tech sectors that seem to be so fashionable at the moment. It has been calculated that those sectors make up only 14% of British manufacturing and it has been argued that the support for manufacturing should be based on value, not the complexity of the product. For example, the UK still produces basic metal turbine blades, but they are cut by some of the most precise machines on the planet. The product is simple but very high value, thanks to the advanced production process.

There is no question but that such a shift must take place. The financial crisis made most people aware that the UK cannot rely on the financial services trade surplus to prop up the industrial trade deficit. However, it is less well known that, according to the Office for National Statistics, even the financial sector’s maximum export volume of £55 billion in 2008 was eclipsed by manufacturing’s £195 billion of exports.

The problem is twofold. First, our manufacturing ability is only rivalled by our insatiable appetite for other people’s goods. That has led to the latest trade in goods deficit of almost £100 billion—a new record. Secondly, Britain has grown complacent. Our manufacturing output has remained constant for the past 13 years under Labour, which is a reduction of £3.5 billion per annum in real terms.

Where did it all go wrong for UK industry? Contrary to popular assumptions, although some deindustrialisation did occur under Margaret Thatcher, the bulk of the factory closures came later. Indeed, when Labour took office in 1997, manufacturing comprised exactly a fifth of the UK economy. By 2007, it had declined to an eighth. In comparison, under the whole of the Thatcher Administration, the decline was 3.3%. The loss of our manufacturing capabilities is a very recent concern, which should fill us with a certain level of optimism.

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

So far, the debate has been conducted on a reasonable cross-party basis. However, given the fact that the hon. Gentleman has made a political assertion, can I point out that in the black country, at least four huge manufacturing employers—Round Oak steelworks, Patent Shaft steelworks, Bean Cars and Cannon—were closed during the Thatcher era? That had a devastating impact on the level of employment in the black country.

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[Graham Evans]

I am grateful for the hon. Gentleman’s intervention. At the beginning of my speech, I made the point that all Governments of all political persuasions have contributed to the overall decline. I take on board the closures in his constituency. All Governments need to learn the lessons of the past, but that does not mean that we should underestimate the problem.

Let us consider energy-intensive manufacturing sectors, which include the chemical, steel, glass and paper production industries among others. The chemical industry is of particular importance in my constituency, where Tata and INEOS Chlor are still major employers in Northwich and Runcorn. According to Waters Wye Consulting, policies such as the EU’s emissions trading scheme and the unilateral carbon price floor mean that the average energy-intensive company’s energy bill will rise from £3 million now to £17 million in 2020—an untenable level for the majority of these firms, which simply cannot afford to continue production in the UK. Proponents of these policies argue that energy-intensive sectors account for only 1% of GDP and so do not matter. If we quantify that figure, it equates to a potential loss to the UK economy of £15 billion and 290,000 jobs. More widely, the Royal Society of Chemistry claims that £220 billion of GDP and 5.1 million jobs are partly reliant on UK chemical research alone. Clearly, the visible threat to UK manufacturing is only the tip of the iceberg, but the problem is that most people do not realise that.

British industrial decline, relatively speaking, is in sharp contrast to the experiences of our neighbours—in particular, Germany. German long-term support for manufacturing means that it now possesses the economic clout to dominate Europe. Given the UK’s and Germany’s widely different starting positions 60 years ago, it is clear that it has done something that we have not, and that something is valuing industry. From post-war restructuring to reunification, Germany has always recognised that manufacturing was the backbone of its economy and therefore never enacted policies that would endanger it. Indeed, political infrastructures were set up to nurture industry, especially mittelstand—or, as we refer to them, small and medium-sized companies or SMEs. Foremost among those tools stands KfW, the state-backed bank that ensures that mittelstand can access funding even when the commercial banks are unwilling to lend. The value of such an institution was seen in the financial crisis. According to its accounts, in 2010 KfW financed a record €28.5 billion for SMEs, amounting to approximately 94% of all its commitments for the year. Without KfW, the potential for many extra jobs and exports would have never been realised for Germany.

It is hard to understand how far the value of German industry goes. Youngsters are encouraged from an early age to appreciate the importance of making things.

[Gavin Williamson (South Staffordshire) (Con)]

Does my hon. Friend agree that one of the key elements of Germany’s success is its investment in research and development? We need to be encouraging that. Jaguar Land Rover is building a new factory in my constituency and investing in R and D, and the Government could go a long way towards helping that by reviewing R and D tax credits, which the Treasury is considering at the moment.

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[Graham Evans]

I agree with my hon. Friend. We have a reputation for very good, world-beating research and development, but it goes beyond that—when we have discovered these things, we still have to ensure that we make them in this country.

The Germans try to ensure that their young people appreciate manufacturing. Eliciting such a response from British children, compared with their counterparts in Germany, is increasingly difficult as they grow up. Initial curiosity about industrial work might be dismissed as selling themselves short by parents and teachers, and by the time the most able leave school, university is the only option, with apprenticeships considered by some to be second rate. The closest many of the next generation get to manufacturing is printing off a computer document. Little wonder that youth unemployment hit 1 million last week; many do not have the skills needed by manufacturers, thus further encouraging those manufacturers to relocate their businesses elsewhere, to the increasing detriment of British growth. As I have repeatedly said in this Chamber, we need to educate our children in a manner that will enable them to become the engineers, scientists and entrepreneurs that this country needs to pay its way in the world.

With the average age of those in industrial employment at 40 and rising—50 in some sectors, such as chemicals—drastic action is required. British manufacturing is at a crossroads. It can grow, bringing jobs to those who need them and contributing to reducing the deficit, or it can decline further, with valuable businesses permanently lost. There is reason to believe that the former positive outcome is more likely if we commit to making it happen. The Government have made a strong start. That this debate is happening is hugely positive and shows that we recognise the seriousness of the problem. The solutions that we need involve major changes both culturally, in widening our appreciation for manufacturing, and practically, in creating a more positive environment for industry. Let us make it in Britain. Let us make Britain great again.

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[Gordon Birtwistle]

I totally agree with my hon. Friend and I will come on to an initiative in my constituency related to that suggestion.

In my constituency we have Burnley college, a joint FE-HE campus working with local firms to train highly skilled youngsters to be ready for the world of work. We are also getting a university technical college that will bring young people into the industrial life. Burnley college has made huge leaps in changing the perception of manufacturing locally among young people, and if the model the college uses were introduced across the UK, it would go a huge way towards really changing the perception of manufacturing at a national level. More schools and colleges need to start joining up with local businesses to provide youngsters with the knowledge and experience that will help them in the world of work. Too many children do not have any experience of working, or of the personal and other skills required. I will continue to encourage the Government to introduce impartial careers advice from the age of 11. Indeed, we should start careers advice long before young people go to secondary school.

[Graham Evans]

Is the hon. Gentleman aware of the Manufacturing Institute’s Make It campaign, which is specifically designed to enable young people in what used to be year 3—now year 9, I think—to experience as they take their options the delights of working in the manufacturing industry?

[Gordon Birtwistle]

Yes, I am aware of that, and it is a great thing. I encourage the Government to encourage such things, and we should also give careers advice to young people at 11.

Manufacturing must cease being perceived as a career avenue for low achievers, and the Government must work harder to ensure that perception and reality are closely matched. The culture in our schools must change, and the Government can help with that. There is so much emphasis on how many children can get to Oxbridge but there is never a fanfare about how many get on to high-skilled training programmes in the manufacturing industry, such as those with Rolls-Royce, BAE Systems or Aircelle in my constituency. Business must recognise that a new role is emerging, and UK manufacturing must ensure that it sells its career and employment possibilities to young people.

Trade finance also plays a huge role in the export cycle, but small and medium-sized enterprises often find raising the finance overly complex because of the myriad requirements on both financial institutions and Government agencies. The manufacturing industry in Burnley would like the Export Credits Guarantee Department to work more with financial institutions on initiatives to support exporters, particularly small businesses, many of which would love to export but find it difficult. For example, What More, an SME in my constituency that makes plastic buckets, washing-up bowls and lunch boxes that are sold widely in Tesco, is taking on the Chinese. The Chinese used to control that market but the company now exports to 38 countries, including China, and would like to export further afield. What More tells me that with an export credit guarantee it could export to another 25 countries. It employs 160 people and has invested £16 million over the past few years.

It is critical that the Government, as a big purchaser of manufactured goods, buy British-made goods. I was extremely disappointed by the decision on the Thameslink contract. I do not know how it happened. I was not a Member of Parliament during the consultation and quotation on the Thameslink trains but I was concerned that the contract was placed with Germany. I do not understand the European rules but I was extremely concerned. Importing trains when we make our own does not stack up. I am pretty sure that the Germans and the French do not import their trains. They seem to find a way around these rules to ensure that the same does not happen there. Furthermore, a £1 billion order for Chinook helicopters was sent direct to Boeing despite there being a helicopter company in this country with a licence to build Chinooks. That would have saved us £500 million on our balance of payments.

I have a couple of suggestions for the Minister. First, we should return the capital allowances scheme to enable companies to invest and get the capital allowances on the new equipment that they buy. There would be a massive investment in new plant and investment if the capital allowances were returned. Secondly, as my right hon. Friend the Member for Haltemprice and Howden (Mr Davis) said, tax rebates on research and development should be increased in line with the rest of the world and with what is needed in this country.