First Year Allowances: Machinery and Plant

Part of Orders of the Day — Finance (No. 2) Bill – in the House of Commons at 9:45 pm on 12th May 1993.

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Photo of Mike O'Brien Mike O'Brien , North Warwickshire 9:45 pm, 12th May 1993

When I spoke recently with local business men and with Coventry and Warwickshire CBI at its annual meeting with local Members of Parliament, two issues emerged that were central to their decision to invest in manufacturing. The first was the need for better incentives, particularly capital allowances, over the longer term to encourage manufacturing investment. The second was the need to have confidence in the Chancellor's management of the economy so that they could have confidence that the Government knew what they were doing and had some sort of long-term strategy which would allow them to invest in their industry. The Budget and the Bill provide neither of those.

My constituency and my region have been hard hit by the recession. In north Warwickshire, unemployment has risen by 135 per cent. since the Prime Minister took office. Federal Express, Burlingtons and Coventry pit have all closed. Daw Mill pit has sought to make redundant 587 men, half its work force. In the west midlands as a whole, manufacturing industry has been devastated. In the past couple of months 640 jobs were lost at Rolls-Royce in Coventry, 100 jobs at British Rail in Walsall, 75 at Courtaulds in Coventry, 227 at Leyland DAF and 160 at Sandwell Contract Services. The list goes on.

Once, local people in the west midlands were proud to see "Made in the west midlands" on products. Unfortunately, that is now all too rare. Britain's manufacturing heartland now has 42 people chasing every job. Indeed, "Made in Britain" is not only on fewer products these days, but more products are imported into Britain having been made in Hong Kong, the United States, France or Taiwan, than we export with "Made in Britain" on them.

Manufacturing investment fell by 13 per cent. between 1989 and 1991. In 1992 it fell by 2 per cent. and it is expected to grow only marginally this year. The decline in manufacturing industry, resulting from the lack of a clear industrial strategy, is the major cause of our balance of trade problems.

Manufacturing activity is now barely above the levels of 1979, while our performance relative to most of our competitors has seen Britain slipping further behind. Many business men see the Conservative attitude to manufacturing investment as that expressed by a recent Chancellor of the Exchequer, who said: I am at a loss to understand the selective importance attached…to the manufacturing sector."—[Official Report, 9 February 1984; Vol. 53, c. 1009.] The present Chancellor's recent conversion to the need to give some support to manufacturing industry is an example of too little, too late. The damage has been done. Determined action is needed for recovery and the Bill does not provide that action.

Manufacturing is a key sector of the economy, because it is the engine of growth and the purveyor of technical progress. As a nation, two thirds of our earnings from foreign currency come from manufactured goods. With the decline in North sea oil, the manufacturing sector is the essential ingredient for solving the balance of payments problem. Failure to support manufacturing investment in the 1980s has resulted in a trade deficit in the middle of a recession for the first time in post-war history. Import penetration is growing. As recovery comes, imports are likely to increase, making the deficit even worse.

If we are to avoid a balance of payments crisis and a collapse of the pound, we must begin to act. Labour's call to extend capital allowances is an important element in an overall package. It recognises the need to boost manufacturing as recovery takes place. Business men know that the Government's deferred tax increases, planned for next year, will hit demand at the very time that they expected to invest more in order to create recovery. They will be concerned about too great a commitment of their companies' finances and resources at the very time when the recovery, such as it is, may be damaged by the Government's deferred tax increases.

It seems that this is the first recovery in history where action has been taken to damp it down before it has really got started. Business men need greater encouragement over the longer term to invest, both now and over the next few years, to ensure that British manufacturing industry can recover and create the goods to meet any new demand that may be created in Britain, rather than allowing that demand to suck in imports. That is why capital allowances are so important.

Capital allowances, however, must be seen as only part of an overall strategy for manufacturing industry. That strategy must include improving the skills of our current work force and improving the education of our young people, our future work force. We must create a highly educated, highly skilled new work force that is able to adapt to the changing demands of business and the international economy.

One set of figures is interesting in this connection—that 27 per cent. of British workers have technical qualifications, whereas 53 per cent. in Germany, 57 per cent. in the Netherlands and 40 per cent. in France have technical qualifications. If we do not increase our skills, we shall be unable to compete on quality. If we cannot compete on the quality of our products, we shall be forced to drive down wages and overheads so as to be able to compete on price. We do not want to see British salaries and working conditions decline to third-world levels. Until Ministers remove the low-skill shackles from workers, Britain will not have a long-term competitive future.

Other key needs include improved infrastructure, particularly the transport infrastructure. We also need to target high technology and high-growth new businesses, with tax allowances for new investment. We need, too, financial institutions that look to the long term, that invest in the long term and that small business men can rely upon to see them through the troughs of recession. It is the lack of a clear industrial strategy to complement capital allowances that is missing in Government policy.

At the moment, business men cannot see any strategy in place. That brings us back to the central issue that business men in my area have relayed to me—a lack of confidence. Business men need a Government who have direction and leadership. The current Chancellor does not inspire confidence in his judgment. He was the Chancellor who hallucinated about the green shoots that were not there and who promised no devaluation, no leaving the exchange rate mechanism, no VAT rises and no tax rises. How can the country have confidence in the economic judgment of a Chancellor who changes his policies so readily, so quickly and so easily? The Chancellor explained away his U-turns—his S-bends—by saying during the last election campaign that he had no plans to raise taxes: he did not foresee the problems or the length of the recession.

Even if that were entirely true, does not the Chancellor see that that undermines the confidence of business men in his judgment about how the country and the economy should develop? We have a Chancellor whose judgment is unsound and a Prime Minister who took us into the ERM at too high an exchange rate. That suggests that both men at the helm of Britain's economy are quite capable of taking us on to the rocks. Business men know that the judgment of the Chancellor is unsound and that the Budget will do nothing to restore confidence.

Business men know that, if there is any recovery, it will be, in a sense, by accident rather than as a result of the success of Government policy. Britain is now in a more competitive position because of its withdrawal from the ERM, and that withdrawal was a failure of Government policy. Therefore, any possible recovery will be the result not of success of a policy that was pursued over a long period but of the Government's failure to follow their stated policy. In pursuing that policy, which was initiated by the current Prime Minister, more than 10 per cent. of the work force lost their jobs.

Britain needs a long-term policy aimed at full employment, supply side policies directed at skills, infrastructure and investment in plant and machinery. That is needed particularly to boost our manufacturing exports to tackle the balance of payments deficit. Without such policies, the United Kingdom economy cannot increase its productive capacity, competitiveness or growth and unemployed people in my constituency will not find the jobs that they so very much need.