UK Manufacturing Sector

Michael Fallon Excerpts

Wednesday 5th June 2013 Westminster Hall

[The Minister of State, Department for Business, Innovation and Skills (Michael Fallon)]

On behalf of us all, I welcome you to the Chair this morning, Mr Robertson, and I congratulate my hon. Friend the Member for Gosport (Caroline Dinenage) on securing this brief debate on an extremely important subject.

It was good to hear my hon. Friend’s support for manufacturing and her recognition that the Government are doing what we can to support it. I know that a number of my colleagues are doing so in their constituencies. She might like to know that QinetiQ is based in my constituency, too, as well as down on the Solent, and I was very privileged to promote the OptaSense technology that she referred to on a recent ministerial visit to Kazakhstan. We are backing that technology and ensuring that our posts overseas are doing what they can to support QinetiQ.

Innovation is a key driver of economic growth. It improves business competitiveness, GDP growth and wider welfare. We are fully committed to improving our innovation performance as an essential component of our growth plan. We encourage research and development in businesses across the country to enable that growth to happen.

At a local level, my hon. Friend’s constituency is home to the Solent local enterprise partnership, which is a dynamic, well-led, business-involved organisation that has already secured three successful regional growth fund bids and is fully involved in the Daedalus enterprise zone and in the round 2 Southampton and Portsmouth city deal. I had the pleasure of talking to Doug Morrison again on my most recent visit to the Solent.

What else are we doing? We are working with manufacturers and their supply chains and taking the steps that we can in government to strengthen and grow modern manufacturing by encouraging innovation, business investment, technology, more commercialisation, skills and exports.

Manufacturing now generates more than half the UK’s export of goods and almost three quarters of our business R and D and thus the innovation that drives growth. It also, of course, benefits other sectors through demand for raw materials, energy and services such as research, design and finance.

We have implemented the 2011 advanced manufacturing growth review and announced further measures to support the sector, including the advanced manufacturing supply chain initiative—two more rounds were announced for this year—the talent retention solution, the See Inside Manufacturing programme, a package of support for energy-intensive industries and a further £2.6 billion of investment in the regional growth fund to spend on projects such as capital investment, R and D or training.

We obviously want to keep as many jobs as we can in the UK and we do that by maintaining the science base, by providing support for technology commercialisation through the Technology Strategy Board—my hon. Friend referred to that—through investment in skills and through action to reform credit markets and to get bank lending moving again, as well as through very specific support through the industrial strategy for some of the sectors that she mentioned, such as the aerospace and automotive sectors, where we can do more to strengthen UK supply chains.

The Technology Strategy Board is the Government’s prime channel for supporting business-led technology innovation. It provides opportunities for innovative businesses through the growing network of Catapult centres. The High Value Manufacturing Catapult opened for business in October 2011. It will receive £155 million for the period up to 2016-17. It supports businesses to bridge the gap between early innovation, where the UK has traditionally been quite strong, and industrial-scale manufacturing to take the projects forward. Building on the capacity of its seven partner centres, that Catapult can cut across sectors, giving its customers access to world-class expertise, equipment and processes invested in and supported by the UK Government. I was also privileged to break ground at the expansion of the National Composites Centre in Bristol recently. My hon. Friend might like to know that since April 2010 the Technology Strategy Board has provided almost £1 billion in support for businesses across the UK, ranging from pre-start-up businesses to large multinationals.

My hon. Friend posed at least three specific questions; there may have been more than three. I hope that if I do not cover them all, she will allow me to write to her with a fuller reply.

[Jim Sheridan]

Will the Minister clarify whether he will indeed refer to the National Audit Office report regarding Bombardier versus Siemens?

[Michael Fallon]

I have not yet seen that report, which I think has only just emerged. What I can do is undertake to look at it immediately this debate concludes, but I cannot refer to it today, for the very basic reason that I have not yet read it. I hope that the hon. Gentleman will forgive me for that.

The first question that my hon. Friend the Member for Gosport asked was about tax credits. Research and development tax credits are providing the single biggest Government financial incentive for business investment in R and D, and take-up has increased steadily during the 12 years of the scheme. In the last financial year for which I have figures—2010-11—tax relief claims of £1.1 billion supported approximately 72% or £10.9 billion of all R and D revenue expenditure by business. Additionally, the patent box allows companies to claim a reduced corporation tax rate of 10% on profits from qualifying patents and certain other innovations.

My hon. Friend’s precise question, as I recall it, was whether we will guarantee to go on doing that. Nothing in this life is certain, but I am determined to go on supporting research and development tax credits. We have made some of the qualifying rules easier. What I think is more important now about R and D, in addition to committing to the funding, is ensuring that those credits work further down the company sizes, so that small businesses realise that they are just as eligible for them as much larger businesses. I do not think that tax reliefs naturally are things that Her Majesty’s Revenue and Customs would market, but certainly we need to spread the word that all kinds of business can qualify for help with research and development.

My hon. Friend’s second question was a really good one: how much are we learning from other countries about translating some of the innovation into commercially applicable projects? We do learn from other countries. For example, the German Fraunhofer centres provided much of the model for the Catapult centres that we have now established. We are not too proud to learn from or to pick up on what is happening in other countries, particularly Germany, which has always had a much higher proportion of its GDP in manufacturing. There are things that we can learn from other countries, and I assure my hon. Friend that we continue to do so. Ministers continue to visit other countries and to pick up on ideas, although of course those other countries have picked up on some of our more imaginative ways of funding as well.

The third question posed by my hon. Friend was on the small business research initiative. I am glad that she asked about that. It provides 100% R and D funding for technology-based companies that develop potential solutions to specific problems faced by the public sector where there is no readily available solution on the market. That is done on a much larger scale in the United States; it is fully supported through federal funds. That is another good example of where we can learn from the success of a scheme in another country and apply the lessons here.

My hon. Friend will recall that in the most recent Budget—Budget 2013—we announced that we will substantially expand the SBRI among key Departments, so that the value of contracts through this route increases from £40 million in 2012-13 to more than £100 million in the current year and more than £200 million by 2014-15. I hope that she will welcome that, but I fully accept that we have more to do to spread knowledge and use of the SBRI right across the Whitehall landscape to ensure that those Departments that have not yet thought of it as a potential route to solving some of the problems that they face do so. A number of Departments are already making good use of the SBRI, but I would like all Departments to consider it automatically as a source of particular strength.

I hope that my hon. Friend will forgive me if I have not answered all the other questions that she posed, but I want to conclude by saying a word or two about what is happening on skills. She suggests that we should learn from other countries. There is no doubt that countries such as Germany have been able to draw on a much wider pool of school leavers, apprentices and college leavers with the engineering, mathematical and technical skills that we still lack in this country.

[Mr McKenzie]

On skills and innovation not only in products but into new markets, Promedics in my constituency has taken the existing skills of sewing machine technicians and moved them into a totally new market, supplying the NHS and others across Europe with surgical supports. It has taken that skill and applied it to a new market. What recognition or support can the Minister give such businesses?

[Michael Fallon]

I am delighted to hear that and would certainly like to hear more details and to see whether there are ways in which Government can recognise that kind of development more officially.

A skilled work force is the key to providing the innovation that business needs. Apprenticeship starts in engineering and manufacturing have increased from 26,000 10 years ago to more than 49,000 last year. There were more than 2,000 apprenticeship starts in the constituency of my hon. Friend the Member for Gosport last year. The number was up by 18% on 2010-11. She will be interested to know that nearly 900 of those apprenticeship starts were in the engineering and manufacturing sector—an increase of 32% on 2010-11, so we are making changes.

The Daedalus enterprise zone members group, which I think my hon. Friend chairs, includes the provision of a new skills training centre that is due to be built on the site from 2013. The first students are due through the doors in September 2015. That is a major achievement in my hon. Friend’s area and shows that the enterprise zone there is open for business.

I thank all hon. Members who have attended the debate and those who have contributed to it through their questions. I thank again my hon. Friend for raising this subject for debate. Let me assure her and you, Mr Robertson, that this Government are fully committed to realising the growth of manufacturing through innovation, which we see as essential to building a better balanced, more resilient economy for the future.