My Lords, I should like to say a few words about the reality on the ground of the manufacturing industry. I declare my interest as chairman of Caparo Group, a company engaged in the manufacturing of engineering products.
The problem of sub-prime lending in the United States, compounded by the irresponsible lending by some of the world's biggest banks, has brought the world's financial system to the brink of collapse. In the past few months, this has spread to the wider economy and manufacturing is now facing very tough times. Most astonishing is how quickly things have changed. According to EEF, the manufacturers' organisation, the first half of 2008 was one of the best on record for manufacturing and even the third quarter looked good, if not great. However, recent indicators have demonstrated a rapid fall in confidence. The most recent official statistics report that manufacturing output was 1.9 per cent lower in the three months to September compared with the same period a year ago. Meanwhile, EEF's latest business trends survey shows that manufacturing activity has deteriorated significantly over the past three months and firms are extremely pessimistic about the outlook.
As well as the EEF figures, I have experienced this in Caparo. While I do not operate the business—I am a non-executive chairman—it is managed by my son, Angad, who is chief executive. As a father and founder of the company, I am pained to see the struggle that the Caparo family go through everyday to ensure that the company keeps its head above water and remains robust.
The results to the end of August were strong. They were helped by the relative strength of the euro. Since then, European economies have weakened and almost all customers, whether in the automotive sector or any other sector that Caparo serves, have been hit hard. The situation in the fourth quarter is almost as though all activity has stopped as people try to burn through their inventory in order to conserve cash, also without much success. Of course, there is the added struggle that companies have with the pension costs as a result of the recent fall in stock market values.
There remain some reasons for hope. First, manufacturing has been through massive change and is far more resilient these days. Secondly, the Government have provided strong and determined leadership. There is no doubt in my mind that, after a decade as Chancellor, my right honourable friend the Prime Minister has the experience, ability and passion to lead us through these difficult times. He has already shown his commitment and determination.
Moreover, business welcomes many of the measures announced in the recent Pre-Budget Report and the Queen's Speech. Governments tend to focus on the big companies and sectors, but small and medium-sized enterprises remain the economic lifeblood of this country. SMEs welcome the delay announced in the PBR to the planned rise in the small companies' rate of corporation tax, recent proposals on export credit guarantees and the small business finance scheme. However, all business will be concerned by the proposed increase in national insurance contributions.
I suggest that the help available to SMEs should be made on the basis of a company as an entity. Any company owned by a larger group but operating as a separate entity should be entitled to the same help as an independent SME. Otherwise, we are hastening the demise of those subsidiary companies, as they will not be able to compete and the tendency of any group is to close subsidiaries that cannot remain competitive.
On the Queen's Speech, one of the most pressing issues facing business is getting the banks to start lending again. Many companies have reported the withdrawal of, or changes to, their credit or overdraft facilities at very short notice. However, Caparo's experience with its main banker, Barclays, has been very good. My chief executive tells me that the bank has been helpful and understanding. I hope that no noble Lord is a director of Barclays in case it changes its mind after my speech.
I hope that the Banking Bill will end the uncertainty surrounding lending terms and conditions. However, the problem of how to ensure that we keep finance flowing to business, while allowing banks to assess risk and take commercial decisions, remains. There is no easy answer, but perhaps it is time to set up an industrial development bank with a majority of real manufacturers on its board. There is increasing difficulty in accessing credit insurance. Many companies have recently lost their cover and are ending up with stock that they cannot sell. Business needs good regulations and fewer of them to cap the burdens of red tape. While we must avoid a return to central planning or bail-out of failing industries, the Government have a role to play and it is time for them to play strongly.
To conclude, the UK still has a manufacturing base of which we can be proud. The Government have taken steps to address some of the short-term challenges that we face, but issues still remain. Manufacturing must continue to play a key role in the economic future of the United Kingdom. It is high time that the Government listened more to the people who run manufacturing industry.