Industrial Strategy

Viscount Hanworth Excerpts

Monday 8th January 2018 Lords Chamber

[Viscount Hanworth (Lab)]

My Lords, the Government’s industrial strategy cannot be adequately appraised in the short time available to an individual speaker. The Green Paper of January 2017 raised the matters of concern. The White Paper of November 2017 sets forth the Government’s intentions.

The White Paper ignores many of the issues raised by the Green Paper. There is, however, a surprising element in it that I can only describe as political cross-dressing. Lip service is now being paid to some of the critiques and proposals that have long been part of the message and agenda of the Labour Party. There is now dawning recognition that many of the central tenets of an enduring Conservative ideology, such as the nostrums of free enterprise and privatisation, have run their course. These are no longer fresh ideas; nowadays, they are associated with some of the worst dysfunctions of our economy.

A brief mention is made in the Green Paper of the failure of the industrial interventions of previous Governments. We may recall that in the 1960s and 1970s, and even thereafter, these interventions were mainly in support of troubled and senescent industries. The industrial policies pursued by our competitors were aimed primarily at supporting growing industries. In consequence of their investment in newer technologies and manufacturing equipment and with the advantage of cheaper labour, these industries were able to outcompete our comparable industries.

A reaction of Margaret Thatcher and of Keith Joseph, who was her Secretary of State for Industry, to the failed industrial policies of the 1960s and 1970s was to declare that lame-duck industries should no longer be supported by government but should be allowed to fail. The Conservative Party developed an aversion to industrial intervention that has endured from that time to the present, as have many of its other attitudes towards industry that arose in that era.

The policy of privatisation and the allied failure to use government procurement to support our native industries are both parts of Thatcher’s enduring legacy. An object lesson has been provided by our electricity supply industry, which passed into private ownership at a time when the French nationalised electricity industry was investing heavily in nuclear power generation. When the electricity industry passed into private ownership, which has become preponderantly foreign ownership, the building of large power stations—whether powered by nuclear or by fossil fuels—ceased, as did the demand for the generating equipment.

Instead, the newly privatised industry resorted to building combined-cycle gas turbine power plants for which the equipment was supplied by foreign companies. The leading British engineering firms that had supplied steam turbines and generators to the erstwhile Central Electricity Generating Board fell into decline. The gas turbines that power the combined-cycle plants are aero-engine derivatives. Thus, it might have been expected that the two branches of the British turbine industry would combine to exploit the opportunities for equipping the new CCGT power stations.

It would have required an initiative from central government to make this happen, but none was forthcoming. The electricity industry is now in want of major investments to meet the demands of decarbonisation and of electrified transport. These investments will not be forthcoming from private industry. However, it seems that the Government persist in thinking that they can and ought to be financed by private capital. Moreover, the Government have failed adequately to support our native nuclear industry, which would be well placed to capture an international market in small modular nuclear reactors for use in generating electricity.

Another free-market principle of the Conservative Party is that Governments should not interfere, via the operations of the central bank, in determining our rate of exchange with foreign currencies. This nostrum arose in consequence of the experience of our brief participation in the European exchange rate mechanism in 1992. The ERM was a prelude to the establishment of the euro currency. Britain joined the ERM with an overvalued currency at a rate that it was unable to sustain, despite the expenditure of a large proportion of its foreign currency reserves. An overvalued currency, which has made exporting our industrial products difficult and unprofitable, has been one of the prime causes of the failure of our industries.

Recently, the principle of non-intervention was restated firmly in this House by the erstwhile Parliamentary Secretary to the Treasury—the noble Lord, Lord Young of Cookham—when the Government were being enjoined to take steps to reduce the value of the pound relative to other currencies. In consequence of their assessment of the prospects of Brexit, foreigners are no longer as keen to purchase the pound, which has recently fallen markedly in value. We now have a currency that is enabling parts of our much-diminished industrial sector to respond to some renewed export opportunities. It is ironic that this devaluation is a consequence of a policy that threatens to inflict major damage on the economy. The Brexit enterprise has served to divert the Government’s attention away from the social and economic problems that are afflicting us so acutely. That is why many critics regard the Government’s industrial strategy as a dead letter, although it has been proclaimed as a necessary adjunct of Brexit.

If we look back in time, we see that an overvalued currency which has inhibited our exports has been an affliction of British industry throughout the period since the Second World War. We emerged from the war with massive overseas debts and a currency that was still a principal medium of international trade and financial transactions. This international status ensured a high demand and high value for the pound, which was locked in place by the Bretton Woods system of international exchange.

Successive Governments felt compelled to maintain sterling’s rate of exchange for fear of what was described as a run on the pound, which was expected to result from any hint of sterling’s impending devaluation. The pound is no longer a major international currency. Nevertheless, the activities of our inflated financial sector have served to maintain its overvaluation. This crippling effect is barely recognised in any of the Government’s documents.

The financial sector has been largely responsible for the so-called inward financial investment of which both the White Paper and the Green Paper boast. This inward investment, which has served to maintain the demand for the pound and heighten its value, would be better described as divestment, since it has entailed the sale of British companies to overseas enterprises and investors.

We have sold our public utilities, including our water and electricity industries, our sea and air ports. We have placed the running of our rail network in the hands of foreign operators, which are typically nationalised industries. We are being charged grossly for the use of what ought to be our native facilities. This is bad enough, but the divestment has also made large inroads into our manufacturing industries, including our automotive and aviation industries. Our pharmaceuticals industry has narrowly avoided falling into the hands of overseas predators. We have recently divested ourselves of a key component of our electronics industry, which is the ARM chip manufacturer. I could greatly expand this list.

Not only has the value of the pound been sustained by these sales, but fortunes have been made by the financial institutions that have mediated the sales. This has given an illusion of high productivity within the sector, which has been extolled in the Government’s documents.

British companies that are in foreign ownership are not the most appropriate beneficiaries of a policy aimed at the regeneration of our industrial sector. They are liable to be treated by their foreign owners far less favourably than their home enterprises. These foreign-owned companies are liable to be the buffers that suffer the disinvestments and the redundancies that accompany the downturns of global economic activity. This so-called inward investment is liable to be considerably reduced in future, given that so little of British industry remains to be sold abroad.

I shall conclude this account with another aspersion against the financial sector, which has been recognised in the Green Paper but which has not been mentioned in the White Paper. This is the failure of our commercial banks to serve the needs of small enterprises. The enduring scandal of the treatment by the Royal Bank of Scotland of its business clients is a stark reminder of this failure. The unwillingness of banks to lend to businesses, allied with the limited prospects for growth through the sale of their products abroad, has meant that, for many years, our industries have failed adequately to invest in modern technology and equipment. I cannot see much chance of these prospects improving. Therefore, I fear that nothing will come of the Government’s industrial strategy.

Nuclear Research and Technology (Science and Technology Committee Report)

Viscount Hanworth Excerpts

Tuesday 17th October 2017 Lords Chamber

[Viscount Hanworth (Lab)]

My Lords, Britain needs to continue to generate a substantial proportion of its electricity from nuclear power. The supply of electricity will need to increase considerably to accommodate the electrification of transport and the continuing decarbonisation of our energy resources.

The growing volume of wind-generated and solar-generated electricity, which is affected by a wide variability, will need to be underpinned by baseload generation, which has to come from nuclear power. At present, nuclear power provides some 18% of our electricity. At the peak in 1997, 26% of the nation’s electricity was generated from nuclear power. Since then, numerous reactors have closed, including all the original Magnox fleet. The older AGRs, or advanced gas-cooled reactors, built more recently, have been life-extended, and further life extensions across the AGR fleet are likely.

In 2010, when the coalition Government came to power, we seemed set to build a new generation of nuclear power stations. The then Government were prepared to construct up to eight new nuclear power plants and keen to consider the proposals of any willing provider. Those who expressed an interest included the French company, EDF, and the German companies, E.ON and RWE. However, in consequence of the Fukushima disaster of March 2011, the German Government decided to abandon their own nuclear power projects. This led to the withdrawal of the two German contenders, leaving EDF alone to build the power station at Hinkley Point.

In March 2012, E.ON and RWE put their Horizon joint venture up for sale, and it was eventually purchased by Hitachi in November 2012. From 2010 until 2015, the policy of the Government was that the construction of any new nuclear power stations in the UK would be led and financed by the private sector. By 2015, faced with the collapse of the programme to build new nuclear power stations, the Government proposed to provide large subsidies to the Hinkley Point C plant, paying twice the market rate for electricity. It appears nevertheless that the Government still adhere to the belief that the nuclear programme should be largely self-financing. They seem to have lost the will to face up to the realities of what is needed to secure the future of our electrical power industry.

There is a strengthening opinion that we can do without additions to nuclear power beyond the eventual contributions of the Hinkley C power station. This delusion has been encouraged by the growth of renewable power generation and by its declining cost. There is also a belief in some quarters that we can overcome the intermittency of the renewable power resources by relying on an interconnected energy market which will enable us to draw our power from the wider European community. It hardly needs to be said that Brexit threatens that ambition. It also needs to be understood that electrical connections to the continent of Europe cannot be expected to compensate greatly for the variability in our own power supply. The uniformity of the meteorological conditions over a wide European area implies that, at times, there will be a universal dearth of the supply of renewable electricity. At such times, it would be very expensive to acquire our power via a wider European market.

The report of the Science and Technology Select Committee does not hesitate to express dismay at the Government’s delay and indecision in confronting the needs of our future electricity industry and of its nuclear component. There are two immediate priorities. The first of these, which has not commanded much attention in the report, is for the Government to provide sufficient support and encouragement to the Horizon consortium to enable it to proceed with its plans to build new reactors at Wylfa and Oldbury, which were the sites of the last two Magnox reactors to be built. The final investment decision is yet to be made by the consortium, and it will depend on the financial support of other parties, which will join the enterprise only if they can be convinced that favourable terms will be forthcoming from the Government.

The second priority, to which the report pays considerable attention, is the lack of progress in the competition to determine the design for a small modular reactor—SMR—which could be deployed extensively in the UK and which could also be aimed at overseas markets. As we have heard, the Government announced the competition for a small modular reactor in March 2016, and it was expected that phase 1 of the competition would be completed by autumn 2016, with the publication of a road map. We are still waiting for that. Meanwhile, some UK companies have invested heavily in developing their solutions. I am told that, without a clear government road map, those companies will have to decide by the end of year whether to continue to invest in SMRs or to walk away. Should they walk away, Britain will lose much of our nuclear competence—in which case, we would have to rely entirely on foreign suppliers for our nuclear equipment. That would be an extraordinary outcome for the nation that was the first to create a civil nuclear power station.

These are the demands of the immediate future. However, there are demands and opportunities that lie further in the future to which we should also be paying attention. Perhaps the foremost of these requirements is for a means of disposing of our nuclear waste. The indecision of which the report talks has severely afflicted the Nuclear Decommissioning Authority—the NDA—which has responsibility for decommissioning the sites of the original Magnox power stations and for the disposal of their waste.

There have been three options for waste disposal with which the Government have been confronted since they acceded to office in 2010 and on which they have failed to make a decision. The first option, which was rejected in the past by a previous Conservative Government, is to bury the waste in a secure depository. The second option is to partially burn the waste in a version of the Canadian CANDU reactor, which can be described loosely as a slow breeder reactor. This reactor has a far more powerful digestive system than the conventional civil nuclear reactors. The third option, which proposes a more fundamental solution to the problem of waste, is to burn it in a fast reactor, of which the Hitachi PRISM is one of the most capable of being realised within an acceptable timescale. The PRISM reactor would be able to profit from an abundant supply of nuclear fuel—the stock of plutonium residing in the UK. In this way, what has long been regarded as a nuclear hazard would become a major asset.

The problem of radioactive waste is not an inevitable accompaniment of nuclear power generation. It affects the fast reactors to a much lesser extent than the conventional second- and third-generation reactors, which are preponderantly pressurised water reactors which consume only a limited proportion of the available uranium fuel. The predominance of such reactors is because, at its inception, nuclear power was dominated by military rather than civil demands. The pressurized water reactor was required for military marine propulsion. It displaced another early design, which would have been much more appropriate to civil purposes. This alternative design, which had been tried and tested by the 1960s, was a molten salt reactor for which the fuel is an abundant thorium isotope. It has the virtue of passive safety; it would never have been implicated in accidents such as the Three Mile Island or Chernobyl incidents, or the Fukushima meltdown. Its waste products are far less hazardous and long lasting than those of conventional reactors.

I believe that, if the UK were to become involved in the development of a molten salt thorium reactor, its future as a leading nuclear nation would be assured. For that purpose, we would need to regain some of the technological courage that characterised our nuclear industry in the early post-war years. We should also need to depend upon public investment in the project and to seek a partner in the enterprise, which might be another European nation.