Economy: Manufacturing

Lord O'Neill of Clackmannan Excerpts

Thursday 3rd July 2014 Lords Chamber

[Lord O'Neill of Clackmannan (Lab)]

My Lords, I welcome the opportunity to debate manufacturing today, and I thank the noble Baroness, Lady Wilcox, for her success in getting this on to the Order Paper.

Manufacturing accounts for just over 10% of output but it would appear to be on the edge of expansion. I know that in some circles there is a sense of euphoria about recent progress, and the improvements are to be welcomed. However, a note of caution has to be struck, because the fragility of the achievement so far has to be protected and nurtured, and I think that there is a feeling along those lines across the Chamber today.

It is also fair to say that part of the improvement is due to the fact that recessions cannot go on for ever—eventually, they end. We could have a debate about whether this recession could have ended more quickly but that is not for today. I simply say that the improvements in manufacturing output are to be welcomed but they have to be put in context. Yesterday’s Financial Times quoted the Bank of England as estimating that output per hour in 2013 was still 16% below the pre-recession trend. Therefore, we have a lot of catching up to do. I say that not to denigrate the achievements but simply to put into context the scale of the task that faces us.

In part, it has to be said that low productivity—my noble friend Lord Monks referred to this in his opening remarks—is attributable to the fact that due to very imaginative deals being struck between manufacturing businesses and the workforce, and particularly the unions, a number of jobs were protected during the recession. It is fair to say that productivity probably collapsed at that time because there were more people than there was work to be done. Equally, in a number of instances, businesses were in effect buying orders by putting in artificially low prices simply to keep the businesses going. Although that was helpful in reducing unemployment and maintaining the skill base, it probably also denied businesses the resource they needed to invest in the kind of productivity-increasing equipment that we all know manufacturing requires on a daily basis.

It is also fair to say that there is still some work to be done on the whole question of bank lending. We have had a double bind in that respect. I have to say that as a supporter of the Labour Government I was always disappointed by the low priority that they placed on manufacturing. Their infatuation with financial services as the panacea for all economic ills was not shared by those of us who, like me, at that time represented constituencies in Scotland and the industrial areas of the United Kingdom. There were difficulties and it was frustrating to see the indifference shown at times towards those difficulties by that Administration.

I also have to say that this Government have gone some way towards helping with finance. Investment tax credit arrangements are being put in place as a consequence of the Budget. However, for tax credits to be effective, you have to make profits in the first place. Therefore, we come back to the fact that if you need investment, you probably have to get it from a bank, or if you are engaged in green activities, you may eventually get the investment from the Green Investment Bank. We are beginning to see an ending of Treasury hostility towards supporting investment. The Treasury view used to be that if you gave money to firms to help them invest, all you were doing was helping the firms that would not have invested in the first place, and the other firms that would invest did not need the money anyway. That rather cynical view is now under scrutiny. I am very happy that an organisation with which I am associated and which is listed in the register of interests, the Manufacturing Technologies Association, is engaged in a serious study of the effectiveness of this Budget proposal. I think that that will be quite interesting. It may well be that ultimately the Treasury has some answering to do if it proves to be the success that many of us would like it to be.

We have heard a lot about the car industry today. When I chaired the Trade and Industry Committee in the Commons at the turn of the century, I remember having a meeting with my colleague, the noble Lord, Lord Bhattacharyya, and the management of Jaguar. They explained that they had a wonderful new car which would be a great success, particularly on the west coast of America, but they did not have the money to match the discounts that their competitors, Mercedes and BMW, were able to offer. Equally, they had a range of cars and platforms for new models in prospect which they felt could beat the pants off the rest of the world. What they lacked was money from a potential investor and it was not until the Tata group came along that they got that degree of support. It says something about UK financial institutions and the priority we place on manufacturing that open goals of this nature were so spectacularly missed by the British financial services system. Our car plants are world class. Nissan’s plant in Washington is the most successful in the Nissan empire. We have the workforce and the innovative capabilities. A number of these places are not just assembly plants: they have design capacity and capability far beyond that.

I have been slightly critical of the previous Government, but credit is due to the noble Lord, Lord Mandelson, and his work in setting up the TSB and the catapults. I will finish on this point. One catapult is a manufacturing base within Scotland. We need to have access to the other centres of advanced engineering which are opening across the United Kingdom. If the vote were to go the wrong way on 18 September, Scotland would be left in the wilderness. If anything demonstrates the interdependence of our country, not only within the United Kingdom but within Europe, this is it. So many inward investors would not have come here had we not been members of the European Union and continued to be members of the European Union. I hope that we will continue to be members of the United Kingdom as well.