Westminster Hall Debate on Manufacturing

Speech by Brian Cotter MP delivered to House of Commons on Wed 11th Feb 2004

Brian Cotter (Weston-super-Mare) (LD): First, I congratulate the hon. Member for Crosby (Mrs. Curtis-Thomas) on securing this debate. She clearly has great experience, and one might say that she is something of a fellow in many ways, certainly judging by her experiences with her many fellowships. She made a great double act with the hon. Member for Huddersfield (Mr. Sheerman), who has just left. I am sure that theirs, like many other double acts, will continue, as they related to each other very well and raised some serious issues.

It is important that we again debate manufacturing. The topic is relevant today because, once again, we have disappointing figures from the Office for National Statistics, which show a fall in manufacturing output in December. I shall refer briefly to an issue on which the hon. Member for Uxbridge (Mr. Randall) touched: insurance costs. I hope that the Minister will take account of the great burden that manufacturing has had to bear because of the increased costs of employer's liability. Despite warm words about those costs being brought under control, I know from having spoken to the industry that although the increases are being reduced, many concerns remain, for example, about notice of rates from insurance companies and other issues. I therefore thank the hon. Member for Uxbridge for his contribution.

Despite hopes that the sector is beginning to recover and evidence that manufacturers are confident about boosts to the volume of orders and business activity, recent figures make it clear that the sector is far from being out of the woods. December's output figures should be of great importance to us because of the vital role that manufacturing plays in our economy. Although the contribution of manufacturing to the economy has been diminishing for a long time, it still accounts for around 17 per cent. of gross domestic product.

While house prices boom and consumer spending spirals, manufacturing remains stagnant, and the economy continues to be fundamentally out of balance. December's fall in manufacturing output means that economic recovery could end up being based on consumer borrowing alone. British consumers are expected to have accumulated debts of £1 trillion by this summer, and it is clear that that is unsustainable in the long run. In addition, yesterday's announcement of the record quarterly trade deficit from the Office for National Statistics further undermines the Government's bravado about the strength of the UK economy.

Last night I attended the Engineering Employers Federation—the manufacturers organisation—dinner at which the Chancellor spoke. He did not exactly tell us what was in the Budget, but we heard lots of warm and encouraging words. Let us hope that they are translated into action. The decline in manufacturing is weakening our ability to export, and it is becoming increasingly clear that the services sector will no longer be able to cover the import-export gap.

We have a two-speed economy, with runaway consumer spending and a weak manufacturing sector. The Bank of England alone cannot resolve that. I therefore ask the Minister what action he is taking to rein in irresponsible lending to consumers and to ensure that we do not return to the old days of boom and bust. I imagine that the unkind references to the Tory Government made by the hon. Member for Crosby related to boom and bust. I give the current Government credit for having brought stability to the economy—although, modestly, I point to the fact that they adopted the long-standing Liberal Democrat policy of having an independent central bank. None the less, I congratulate them at least on stability, and generally on jobs, although, unfortunately, we are not keeping up in manufacturing.

The Department of Trade and Industry has given subsidies to various larger manufacturing companies in the form of regional selective assistance, yet many of those larger companies are beginning to outsource their operations abroad. Although we must accept that that is a natural phenomenon under a free trade system, we should not allow such companies to accept huge Government subsidies on the premise that they intend to bolster jobs in the local community when, in reality, they end up moving their operations abroad. Only last month, despite the fact that in 1994 an £86-million public aid package was used to attract Samsung to invest in Teesside, the company announced that it was quitting its Teesside site to take advantage of lower production costs in eastern Europe and China. Samsung received, I think, £10.5 million of that regional selective assistance.

A Financial Times survey conducted last summer also found that half the £750 million in grants offered to regional aid projects over the last decade went to 16 companies that have since closed or fallen well short of job creation targets. Although it is not wrong to try to attract foreign investment, it is imperative that the Government measure properly the way in which taxpayer's money is spent to ensure that it achieves the maximum benefit for local communities and the economy. Increasingly, we need to direct money to our manufacturing businesses. The message must be conveyed that the DTI cannot—must not—go on digging into the taxpayer's pocket to bail out flagging companies such as British Energy. A large amount has gone to that company, and even larger sums may go to it in future, perhaps largely to benefit its shareholders.

I know the Government are thinking of allocating regional selective assistance according to the need to boost productivity, rather than just for jobs. That is a welcome departure, but the way in which public money is distributed to private companies should be scrutinised more closely, perhaps by the National Audit Office.

We need to boost innovation by encouraging more private investment in firms, so that money is available for research and development. The hon. Member for Crosby rightly emphasised the importance of development. Much more must be done to inform manufacturing firms of where they can go to obtain finance. Although the Government have introduced a research and development tax credit, a recent KPMG survey found that only 9 per cent. of firms are taking advantage of it, and many are unaware of its existence or do not know how to claim it. The Government should promote plain speaking not only in regulation, but in explaining to people what is available to them. It is imperative that we help small and medium-sized manufacturers by encouraging private investment, cutting bureaucracy, and encouraging research and development.

More support for training and initiatives are needed. Modern apprenticeships must be flexible, so that apprentices will feel that they will have a good job at the end of them. There has perhaps been too much training and not enough hands-on work. More in-house training is needed, especially in the case of small companies, which cannot easily allow people to leave the workplace.

There is still a skills gap. According to a recent survey by the Forum of Private Business, skills training is the second most important issue for small firms. Skills must be relevant to business, and there should be links not only with universities but with schools. I have encountered great concern about the lack of careers advice to attract people into manufacturing. Lately, I have talked to many people about training, and I have been told that careers advice in schools is often not good enough—indeed, young people are sometimes actively discouraged from going into manufacturing. That must change. We must also get rid of the idea that vocational courses are second best. The days when apprenticeships meant no more than learning to screw things into machines are long gone. Nowadays, people need complex skills to run machinery. It must be made clear to those at school that manufacturing has a great deal to offer them.

I strongly support the concept of the Manufacturing Advisory Service, but I urge the Minister to ensure that it is monitored. It does very well in some areas, but in others it needs to be reassessed. I applaud the Government's regional approach to the service, but I want them to go further. Liberal Democrats believe that the DTI must be slimmed down considerably and that service must be delivered at local level.

We need to raise the profile of manufacturing. Manufacturing is exciting, it is essential to the country's future, and it can provide a great future for our young people.