Orders of the Day — Manufacturing Industry

– in the House of Commons at 9:45 pm on 17th May 2000.

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Motion made, and Question proposed, That this House do now adjourn.—[Mr. Dowd.]

10 pm

Photo of Laurence Robertson Laurence Robertson Conservative, Tewkesbury

During this Adjournment debate, which I am pleased to have secured, I hope to talk about matters equally as interesting as hamburgers, of which I am a great eater. I thank the Minister for attending, especially as manufacturing industry was discussed at length yesterday. I shall try not to repeat any of those remarks.

I have initiated the debate because I have a manufacturing background, although I have no interest to declare these days. However, I have worked for about 80 different companies as a consultant. Most were manufacturing companies and a lot were in the textile industry. I want to consider the background to manufacturing, discuss the problems that the industry faces and perhaps touch on a couple of local issues that affect my constituency.

Since the industrial revolution, the wealth of this country and individual prosperity have increased greatly because of developments in manufacturing such as automation and mechanisation. It is relatively difficult to improve the productivity of a restaurant or of service industries, but increased wealth can be achieved by improving manufactured goods industries and through the world trade that that facilitates. Service industries are not easily traded internationally, but it is relatively easy to trade manufactured goods, although it is crucial to be efficient in world terms. In other words, better manufacturing performance makes goods relatively cheaper and makes us all better off. That is the battleground and, therefore, that is where we must concentrate.

Manufactured goods also represent about 63 per cent. of our exports, so they are extremely important in terms of national earnings and the relative wealth that is created for the people of this country. However, I am concerned by some manufacturing industry statistics which suggest relative decline. Indeed, some are startling. The manufacturing industries employed 8.3 million people in 1950, and that figure remained relatively stable for about 20 years. Today, they employ only 4 million. To put that into perspective, manufacturing employed about 41 per cent. of the work force in 1950. I do not want to be party political, but the Government have said that 160,000 manufacturing jobs have been lost since the election and the percentage of those working in manufacturing has fallen from 18 to 16 per cent.

There are other problems. Companies find it difficult to recruit school leavers, who find the computer, high-tech and financial services industries far more attractive. Many potential recruits have been lost over the past 20 years or so because at one stage employing young people became expensive. That mistake should not be repeated, and I shall return to that point.

We have to accept that productivity increases and mechanisation have in part caused the decline in the number of people employed in manufacturing industry, and manufacturing's share of gross domestic product represents another depressing statistic. In 1950, manufacturing provided about 37 per cent. of GDP. Today, that figure is 20 per cent. and falling. It would be easy to say that industrial workers have been very greedy. At times, that has been the case, but, using the same dates, in 1950, wages in manufacturing were about 104 per cent. of the average wage—slightly above average. Today, they are about 99 per cent., so it is not true that manufacturing workers have priced themselves out of work.

Some of the decline that I have spoken of is relative. It is due to the growth in service industries. However, the demand for manufactured goods is on the increase. These days, many families do not have just one car. Quite a few have two, or sometimes even more. There are colour televisions not just in one room in a house, but sometimes in two, three or even four. Likewise, computers, mobile phones and pagers—mine is being a nuisance at the moment—are commonplace, so there is a great call for manufactured goods. There is a market for more and more goods. The saturation point with manufactured goods is much higher than that for the service industries.

All that is borne out by the level of imports. Twenty years ago, manufacturing made up about 50 per cent. of all imports. Now, the figure has risen to 67 per cent. At the same time, although there has been greater demand for services domestically, the level of services imported has been static because it is more difficult to import services. Because of that, we are retaining service industry jobs but losing manufacturing industry jobs. However, it is manufacturing that creates the added valued. Manufacturing has not declined because there are no orders, or because no one wants manufactured goods—far from it. It has declined for other reasons.

May I suggest several ways in which the Government might help manufacturing industry? First, it has been right to concentrate on the car and coal mining industries recently, but there are many other industries in the country—perhaps not high profile and perhaps a lot smaller, but they require recognition of what they contribute to GDP and, indeed, to the wealth of the nation. Thousands of jobs in, for example, the textile industry, my old industry, have been lost recently.

Secondly, it is essential that instead of increasing taxes, the present Government—indeed, all Governments—should cut taxes. Taxes stifle enterprise, put up costs and drive jobs abroad. A particular example is petrol in the United Kingdom, which I understand starts off as the cheapest in Europe, but, when tax is added to it, ends up the dearest.

Thirdly, some countries that are far less efficient than us are catching us up because they are less regulated. Again, many regulations that have been introduced by the Government, although well intentioned, will not help. Companies stopped employing and training youngsters, as I have said, because it became too expensive to do so, partly because of the wages councils that existed at that time. I would not want further regulation and burdens to cause industries to employ even fewer youngsters.

Fourthly, it is important that we understand industry. It is extremely difficult to make things. Deadlines are tight and margins are low. The quality of manufactured goods, rightly, must be very high. Fifthly, we should ensure that European competition rules are not being broken by other countries on the continent when we try to comply with them so strictly. Sixthly, we should pursue policies that would enable interest rates to be reduced and, therefore, the pound to fall in value, although it seems that the weakness of the euro as a currency will always be a problem—at least it will be for the foreseeable future.

While I am on Europe, my final suggestion is that the Government should avoid economic and monetary union at all costs. We should be more competitive than Europe and not the same as Europe. If we are just the same as Europe as regards add-on costs for industry, employing people, tax, wages and everything else, why on earth should companies come to the periphery of Europe? They would build factories in the centre of Europe. We must be different from Europe and, indeed, better than Europe.

I want to mention two local issues that are to do with manufacturing industry and of which I have given the Minister notice. A company in my constituency called Ultra Hydraulics has employed 252 people. It is owned by an American company—a joint venture between Commercial Intertech and its partner Parker Hannifin in Ohio. One of the partners has been systematically transferring work from Tewkesbury to Chemnitz in Germany, with the consequent loss of 252 jobs.

The parent company blames sustained losses, the strength of the pound and the prevailing economic conditions in this country, but it also blames the incentives being offered to it by the German Government to relocate there. Will the Minister consider those incentives? Are they legal? I should like an assurance from her that she will look into the matter.

My second point, on a slightly more positive note, concerns the A400M airbus project. I welcome the long-awaited decision to order 25 of those planes, should the project go ahead. British jobs—again, many jobs in my constituency—will depend on it, but they will also depend on fair competition rules. We need to ensure that any help that is afforded to companies in France particularly, but on the continent generally, is also available to companies here. British companies should not be disadvantaged in this respect. In the case of aerospace-type work in particular, the set-up costs are very high. Our Government should give at least as much help to our companies as, say, the French give theirs. The Minister must persuade the Europeans to follow suit and pledge to support the project. Otherwise, the project simply will not go ahead, and, obviously, jobs will be created and safeguarded only if it does go ahead.

I am not asking for intervention or state control in manufacturing industry. The industry made itself great, and Government interference is often the problem rather than the solution; but Governments can create the right conditions, which I am asking this Government to do. I am looking for a recognition of the value of manufacturing to the economy and to our wealth generally. I am looking for an understanding of how hard it is to manufacture goods. So much can go wrong, and, as I have said, the margins are so slim, especially when some workers in the world are earning trifling amounts in wages and yet producing the same goods. I am looking for lower taxation and less burdensome regulation, and I am looking for a determination to make British manufacturing prevail again.

Photo of Patricia Hewitt Patricia Hewitt Minister of State, Department of Trade and Industry 10:12 pm, 17th May 2000

I congratulate the hon. Member for Tewkesbury (Mr. Robertson) on securing a debate on an extremely important issue. It is important not just to his and, indeed, my constituents but to our country.

As the hon. Gentleman readily acknowledged, we had a full debate on manufacturing industry only yesterday. In that debate, he referred to statistics, as did the hon. Member for Tiverton and Honiton (Mrs. Browning). Let me remind the hon. Gentleman that although 160,000 manufacturing jobs have indeed been lost since the election three years ago, that compares with an average loss of 140,000 manufacturing jobs a year under the Conservative Government whom he supported.

Although some manufacturing jobs have indeed been lost over the past three years, for reasons that we well understand, total employment in our country is higher by more than 900,000. Nearly 1 million more people are employed now than have been employed since records began. We have a sound, proud record of rising employment and rapidly falling unemployment.

We may not agree on the statistics, but I can at least agree with the hon. Gentleman about the importance of manufacturing industry. I am increasingly concerned about the tendency of much of the press and some commentators to talk of the new economy and the old economy. That is very misleading. Most of the time, such talk brings with it an implication not only that the new economy is all about dot.coms and the internet and all the very exciting stuff for which I have a certain responsibility as Minister for Small Business and E-Commerce, but that that is all the new economy consists of, and that the old economy—which is always associated with traditional manufacturing sectors—is somehow destined to decline and die. That is, of course, absolute rubbish.

The new technologies—including, but not only, the information and communications technology underlying the internet—are transforming every sector of the economy. They are also transforming every part of the production process and almost all the goods and services that we buy. Therefore, a high-tech, science-based and modern manufacturing sector is just as much a part of the global, 21st century, knowledge-driven economy as the service sector, the dot.com companies and the rest of the so-called new economy.

It is very important that we get that message across to City analysts, to the financial institutions that make investment decisions and to the public. I think that the hon. Gentleman and I might well agree on that point. However, I can assure him that there is no confusion at all within the Government about the importance of manufacturing industry. Moreover, as this is an Adjournment debate, I shall not dwell on the lamentable record of the previous Government, who killed off large parts of United Kingdom manufacturing industry in two disastrous recessions, in the early 1980s and in the early 1990s.

The other thing that is happening under the impact particularly of information and communications technology is that the distinction between the manufacturing and the service sectors is becoming increasingly blurred. It is important that we understand that, too. In a modern luxury car, for example—as the hon. Gentleman said, cars have been somewhat in the news recently—70 per cent. of the value comes from the design, styling and, above all, intelligence—the computing power and the communications power—that are embedded within it. Therefore, it is manufacturing, but it is also services.

Let us consider the example of the internet, e-commerce and dot.com companies that have been so much the fashion recently. As the Minister responsible for e-commerce, I am constantly struck by the sheer volume of manufacturing industry that is required by the internet, the telecommunications and, increasingly, the converging sectors.

Earlier today, I had the pleasure of going to Colt's new internet hosting centre. Colt is not only a rapidly growing British-based telecommunications company, but the first telecommunications company to be licensed after the telecommunications duopoly collapsed some years ago. What I saw there was bank upon bank and row upon row of intensely intelligent, expensive and highly engineered manufactured equipment which are the servers enabling the very secure hosting of websites and other services for Colt's hundreds—and, in future, undoubtedly many more—business clients. That type of facility is developing in many parts of London, which is one of the centres for electronic commerce, particularly in the European Union.

All of that depends on high-tech manufacturing, and ever more of that high-tech manufacturing is being done in the United Kingdom. We are European and world leaders in many parts of the electronics and components industry, which is enormously important to our economic future, to employment and to the standard of living that we can offer our people. Therefore, there is certainly no misunderstanding or mistake on the Government's part about the importance of manufacturing and the need to ensure that the environment is right to get the investment in the high-tech, high-value-added and highly competitive manufacturing base of the future.

The hon. Gentleman and I agree that it is not the proper role of a modern Government to run industry. However, it is the Government's responsibility to create an environment in which modern manufacturing and every other part of the economy can flourish. Our first and most important task as a Government was to create a stable economy—a stable macro-economic environment and an end to the cycle of boom and bust that has bedevilled the British economy not just for the past 20 years, but for the past 30 or 40 years.

The economic cycle has been far more intense in the United Kingdom than in our competitor countries. We have had far higher upswings of unsustainable, inflationary, above-trend growth and far more severe and damaging recessions that plunged home owners into negative equity and businesses into bankruptcy. That was a disaster for manufacturing, for business generally and for long-term investment, because more than any other factor the cycle of boom and bust accounts for the fact that long-term investment in productive capacity in our country has been so much lower than it has been in Germany or the USA, with the result that we face a severe productivity gap. One can argue about the numbers and the different ways of measurement, but one cannot argue about the reality of the productivity gap between us and France, Japan and the USA. That holds us back.

Our first task was to secure economic stability and our first decision was to take the politics out of interest rates by giving the Bank of England independence to set them. As a result, we have not only got inflation down and kept it down, but we have the lowest long-term—and, indeed, short-term—interest rates that we have had for a long time, with no prospect in this or, I think, the next economic cycle of returning to the appalling situation that we had under the previous Government, when interest rates were above 10 per cent. for four years on end, peaking at 15 per cent. I remember only too well the pain and devastation that that caused to home owners and businesses alike.

We are making decisions for the long term and building for long-term economic stability. We are not going to put that long-term stability at risk by trying to provide short-term fixes. As my right hon. Friend the Chancellor said last week, we well understand that the exchange rate between sterling and the euro does not reflect any sensible view of long-term economic fundamentals. We readily acknowledge that that rate creates real difficulties for any company seeking to export into the eurozone. That particularly affects manufacturing.

However, that does not mean that we should seek an artificial devaluation of the currency. It is worth remembering that against the dollar, the pound has been remarkably stable for the past four years. The suggestion that sterling is fundamentally overvalued does not hold water. The problem clearly has much more to do with the weakness of the euro. The hon. Gentleman expressed his view and that of a large part of the Conservative party about the euro, but one reason for our commitment in principle to joining a successful single currency if the economic conditions are met is that it would eliminate the exchange rate instability that has been so damaging and that has created such difficult conditions for manufacturing industry and other exporters.

Photo of Laurence Robertson Laurence Robertson Conservative, Tewkesbury

Does the Minister recognise that the two recessions that she referred to—those in 1988 and 1991—were caused by the Conservative Government trying to skew the economy to keep the pound at artificial levels? The problem is not the fluctuation of the exchange rate, but that sterling is at too high a level. Locking sterling into the single currency would mean that that situation existed for ever, rather than just for a brief time, as was the case under the exchange rate mechanism.

Photo of Patricia Hewitt Patricia Hewitt Minister of State, Department of Trade and Industry

I said that we wanted to join a successful single currency if and when the five economic conditions were met. I have no doubt that the hon. Gentleman will be familiar with the economic conditions that my right hon. Friend the Chancellor has laid down, but I readily remind him that we would have to be satisfied that convergence between our economy and that of the eurozone countries had been achieved on a lasting basis, not on a temporary basis, and that membership of a successful single currency would be good for jobs, business and the City. Clearly, that would not have been the case had we joined last year, or indeed if we were to join this year, and that is why we are not joining.

I stress that we are not about to engineer an artificial devaluation of the currency against the euro. We are not about to try some short-term fix that might or might not produce short-term gain but would undoubtedly put at risk long-term economic stability and would throw away the prize that we have secured of departing from the long-term post-war record of boom and bust that is at the heart of the economic problems from which we have suffered.

The hon. Gentleman referred to the recessions under the Conservative Government, and I am glad that he was willing to acknowledge their mistakes. There is no doubt at all that the policy of the former Chancellor, Nigel Lawson, in trying to pursue an inflation target and an exchange rate target through the shadowing of the deutschmark, was absolutely fatal. Some right hon. and hon. Members—notably those on the Liberal Benches—would have us repeat that mistake and that would not be at all sensible.

The hon. Gentleman referred to two local issues. I was extremely sorry to hear of the loss of 250 jobs that would result from the closure of Ultra Hydraulics. I understand that the hon. Gentleman wrote to my hon. Friend the Minister for Competitiveness in April. When I checked up on that, I found that my hon. Friend and his office have absolutely no record of having received that letter, but of course the hon. Gentleman will now receive a reply. After an initial glance, we do not have enough information about the suggestion that the German Government may be offering state aid in breach of the European state aid rules to try to entice Chemnitz to relocate Ultra Hydraulics to Germany. However, we shall readily explore the matter with the hon. Gentleman and if we can get chapter and verse we shall pursue the issue.

Following the announcement of those redundancies, the Employment Service has granted large-scale redundancy status which means that rapid response funding has been approved so that workers made redundant from Ultra Hydraulics will be given additional fast-track help in job searches and, if it proves necessary, in retraining to secure new employment. I hope that that will be of real assistance to his constituents who are at risk of losing their jobs. Gloucestershire development agency has been in contact with the company to discuss the help that is available locally and through the regional development agency.

Finally, I am pleased that the hon. Gentleman repeated his welcome for the announcement that we made on the award of the A400M airbus project. I know that it is a matter of great concern to him. Indeed, I know that he saw my noble Friend Baroness Symons back in March to discuss the project and was accompanied at that meeting by the managing director of Dowty Propellers and the marketing director of Ultra Electronics—both, I think, companies in his consituncy engaged in the development of that aircraft. Like him, I welcome the announcement by my right hon. Friend the Defence Secretary that the Ministry of Defence will procure missiles—

The motion having been made at Ten o'clock, and the debate having continued for half an hour, MR. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at half-past Ten o'clock.