Industrial Policy and Manufacturing

Paul Farrelly Excerpts

Thursday 22nd November 2012 Commons Chamber

[Kelvin Hopkins (Luton North) (Lab)]

May I first congratulate my new hon. Friend the Member for Corby (Andrew Sawford) on his absolutely splendid maiden speech? I have some connection with him in a sense, because I come from the east midlands, my grandfather worked in the boot and shoe industry, and at this moment I am wearing a pair of English leather shoes that were probably made in his constituency—and splendid shoes they are, too. It really was an excellent speech, and I am pleased that my hon. Friend’s father is here to hear it, because he was a very good personal friend and comrade in this place. I am delighted that my hon. Friend is following in his father’s footsteps and I welcome him to the House of Commons.

I want to mention Bedford trucks as well, because the hon. Member for Lancaster and Fleetwood (Eric Ollerenshaw) mentioned them. They were made just outside my constituency in Dunstable and are all over Pakistan—thousands of them can be seen there today. Many people think it was a great mistake to stop manufacturing the basic truck, which is so rugged and can work in any conditions—and no doubt is infinitely superior to the Chinese competition.

I want to talk about Britain’s experience of manufacturing. Britain has suffered from savage deindustrialisation, brought about by utterly misguided economic policies enacted over a long period. We have had many figures quoted to us today. We have only to look at, say, the comparable 2006 figures for Germany and Britain, to see that manufacturing comprised 12.4% of our economy in Britain and 23.2% of Germany’s economy—almost twice as much. Germany is indeed the economic powerhouse of Europe, and one can see why. During the period 2000 to 2010, the UK share of world trade fell by 28%, whereas Germany’s fell by a mere 3%. Why are our countries so different? Governments in Britain have made persistent attempts to sustain an overvalued exchange rate. This goes right back even to the 1931 crisis, which sadly destroyed the Labour Government, because they did not realise that they could come off the gold standard and devalue, which is what they should have done and what happened immediately after they lost office.

Then we had the 1949 devaluation—very sensible—and in 1967, again after resisting devaluation for a long time, we eventually devalued, following which the economy of course bounced a bit. But then in 1979 we had the Thatcher Government, who immediately introduced policies that saw a massive appreciation of the pound. In two years we saw a fifth of manufacturing industry disappear and unemployment rise to 3 million, simply because of the massive appreciation of the pound and the collapse in demand for manufacturing. Between ’82 and ’88, in the Nigel Lawson period, we saw a pretty savage depreciation of the pound—by some 35% from peak to trough—and a great recovery because of that depreciation.

[Paul Farrelly (Newcastle-under-Lyme) (Lab)]

One of the industries hardest hit has been ceramics. One of the things that we have wanted for years in the ceramics industry is accurate country-of-origin marking and an end to bogus back-stamping. If something says “Made in England”, it should be made in England. Other countries in Europe want that in the ceramics industry, but the UK has always stood in the way. Does my hon. Friend agree that it is time we had a more open mind to such measures to ensure accurate consumer information, to counter counterfeiting and to give our industries a fighting chance?

[Kelvin Hopkins]

I absolutely agree with my hon. Friend. Indeed, I have a wonderful set of Wedgwood china, which we use on special occasions, that no doubt comes from his constituency.

Then we had the 1990 to 1992 exchange rate mechanism disaster—again, an attempt to pinion our currency, in essence against the Deutschmark. We recovered from that after we devalued substantially—golden Wednesday—and the economy started to strengthen again. Indeed, if that economic strengthening had continued for three or four years longer, Labour might not have won the 1997 election, because we won on the basis of the terrible mistake made by the Conservative Government by going into the ERM. Those are key factors—the key factor, I think—in our economic weakness. But Germany kept its Deutschmark at a low parity for a prolonged period, and was allowed to do so because West Germany had to be, inevitably, the showcase for western capitalism against the east, and everything was done to ensure that Germany succeeded. It was permitted; it was allowed by the rest of the western world to keep its currency low as a necessary condition for economic success. Other factors, of course, were used to ensure that the Germans were successful, including a very strong interventionist industrial policy, which we forgot and left behind when we abandoned, for example, the National Economic Development Council, abolished by the Tory Government.

--- Later in debate ---

[Jeremy Lefroy (Stafford) (Con)]

I refer Members to my entry in the Register of Members’ Financial Interests. I congratulate the hon. Member for Corby (Andrew Sawford) on his excellent maiden speech. I also congratulate the hon. Member for Stalybridge and Hyde (Jonathan Reynolds) and my hon. Friend the Member for Warwick and Leamington (Chris White) on securing this important debate.

I firmly believe that the United Kingdom needs a long-term industrial policy, but it must be rooted in growth. There is no point in focusing on economic sectors that will not create jobs and wealth for the UK in the future. We have fought shy of introducing an industrial policy in the UK for many years, because we believe that Governments should not be in the business of picking winners. It is true that a Government should not select one company over another, but we will be failing our country and future generations if we do not look ahead to see which economic sectors are likely to prosper and which are likely to fade away.

Suspicious as we have been about industrial policies, we have nevertheless had them over the years. In the midlands, in and around my constituency, I can see the positive results of at least three of them. Rolls-Royce aero-engine manufacturing was saved—perhaps fortuitously, and not as a result of a deliberate policy—by a Conservative Government intervention in 1971 after the company overreached itself with the development of the RB211 engine. Rolls-Royce employs tens of thousands of highly-skilled staff, contributes greatly to UK manufacturing exports—I entirely agree with the hon. Member for Luton North (Kelvin Hopkins) on the need for rebalancing—and is one of the best-known British products on earth.

Alstom, the largest private sector employer in my constituency, was assisted by a French Government intervention in 2003. Since then, it has consolidated its world-leading role in developing high-voltage direct current transmission as well as being the only remaining manufacturer of large transformers in the UK. It, too, makes a significant contribution to the UK balance of payments.

Jaguar Land Rover is investing heavily in south Staffordshire, as the hon. Member for West Bromwich West (Mr Bailey) said earlier. My hon. Friend the Member for South Staffordshire (Gavin Williamson) and other neighbouring MPs have worked hard to secure that investment, alongside the strong support of both Staffordshire county council and Wolverhampton city council. In recent years, the UK Government have made a determined effort to attract automotive investment, and this is one of the many fruits of their and the local councils’ efforts.

So industrial policy can work, but only that last one could be said to be the result of a determined effort by the UK to establish a proper policy that is consistent, long term and based on a competitive advantage. That is happening in the automotive industry. Another industry that needs a long-term policy is energy, in regard not only to the consumers of energy but to the manufacturers of the equipment used in the industry. Such manufacturers in my own constituency and many others across the country are world leaders.

What are the building blocks of a successful industrial policy that will stand our country in good stead for the 21st century? I shall make a few suggestions. First, we need a clear understanding of what we will concentrate on. The Netherlands, as so often, provides a good example, as has been set out in Lord Heseltine’s excellent report. The report sets out the nine top sectors in which it believes the Netherlands has a competitive advantage and on which it wishes to concentrate. They include agro-food, horticulture and water—all of which the Netherlands has a lot of—as well as manufacturing and service industries such as chemicals and logistics. The report identifies a “golden triangle” involving links between businesses, research institutions such as universities, and the Government.

Secondly, we need to ensure that we not only make the end products but control as much of the supply chain as possible. That is particularly the case in the aerospace and automotive industries, which are making efforts in that regard. The supply chain has been relatively hollow in those industries until recently. It has become clear that the UK’s manufacturing base has become increasingly reliant on imported components.

Thirdly, we have to ensure that our education and training system is more closely integrated with the needs of the sectors on which we are concentrating. It has been said in this Chamber more times than I can remember that we face a critical shortage of engineers. That is why, this week in Stafford, we are looking into forming a local engineering partnership between universities, colleges, schools and industry. Science and research are an easy target for cuts in both public and private sector budgets because the results are further down the road, whereas the benefits of the cost reduction are felt straight away. But that investment must be maintained. I welcome the Government’s action in protecting the science budget in cash terms in the last spending review, and I urge them to do the same and more in the next one.

[Paul Farrelly]

The hon. Gentleman is also a great friend of the ceramics industry in north Staffordshire. Does he agree that a laissez-faire approach often translates in government to a “faire rien” approach—doing nothing. I mentioned country-of-origin marking a few moments ago. A measure such as that, we agreed, is not protectionist, but it would afford some support to our industry and is much needed.

[Jeremy Lefroy]

I totally agree. I have supported country-of-origin marking for many years to ensure that people know that they are getting the best of British and not some foreign substitute or import. It is vital to maintain the quality of our products around the world.

An industrial policy must set out quite clearly how much we as a nation value research and back up warm words with action. Here, I mention research and development capital allowances. Capital allowances are vital for encouraging companies to invest the cash they have on their balance sheets—some £70 billion at the last count—into productive plant, equipment and other capital investments.

Finally, I turn to finance. It is naive to think that all good projects will attract commercial finance in the UK. If that were the case, we would be the home of many more of the largest companies in the world because the technologies were invented here. The first large computer was built on the work of people such as Alan Turing, and the plasma screen was invented in Malvern by what is now QinetiQ but was then the Royal Signals and Radar Establishment. Then there is the work on the human genome, which my hon. Friend the Member for Mid Norfolk (George Freeman) mentioned. We should have more of these large companies, but we lack them because the finance was not available.

That is why I think the Government’s business bank proposal is a good start, but it needs to be the source of long-term patient capital. Lord Heseltine’s reminder in his report of the work that the Industrial and Commercial Finance Corporation did after the war is welcome, and I urge the Government to consider his suggestion of providing more such long-term capital through the business bank.

In conclusion, an industrial policy is not a panacea, but it is a structure that provides the inventiveness and entrepreneurship of the people of the United Kingdom with the best possible chance to thrive in a competitive world.