My Lords, I thank the noble Lord, Lord Forsyth, for securing this important debate though I do not agree with any of his conclusions.
As we consider the prospects for the future, the Government should be applauded for their swift action to secure the financial sector at a moment of global crisis. The decisions taken then were vital to prevent economic meltdown. Now we must act just as decisively to ensure that industry can drive growth in our economy.
I am an optimist about this country; that is the reason I live here. We live in a great, resilient and innovative nation. Yet far too often we are seized by negativity when we have the chance to grow. We must be confident and Britain will grow and prosper. To seize that opportunity, it is vital to have a Government who understand the needs of industry. For three decades the role of the DTI, and now BERR, shrank as government retreated from industrial policy. The current recession shows the importance of a powerful interface with business at the heart of government. My noble friend Lord Mandelson is right to focus on laying the foundations for future growth. His energy has been greatly appreciated by business. In preparing for recovery, we must not waste the talents of our young people. John Denham's recent announcements on skills, internships and apprenticeships, such as the Graduate Talent Pool, are particularly welcome.
I should declare an interest as director of Warwick Manufacturing Group at Warwick University. There I see talented students looking for the opportunity to pursue a career in industry so that they can be a productive part of our economy, since there are no jobs in the banks to give them bonuses. I hope that the Government will ensure that graduate internships and apprenticeships are a permanent theme in our industrial landscape.
In industry there has been broad support for the concept of new industrial activism and real anticipation of the investment that the Government have announced in Building Britain's Future in areas such as climate change. In the current economic crisis speed is of the essence. Good ideas can take can take some time to reach those on the ground. I hope that my noble friend's department at BERR will be able to deliver its agenda with some freedom.
In the past decade, Britain's economic growth ran at almost 20 per cent of our long-term economic performance. Yet that growth disguised a decline in manufacturing. We relied on consumer spending and expansion of financial services to grow the economy over the past two and a half decades. That was entirely understandable. The virtues of revising the judgment of the market are limited, as many on the Benches opposite have pointed out in past debates. As a result, British industry became a smaller part of our economy, falling from 27 per cent of gross value added in 1990 to 17 per cent in 2007—a sharper fall than in any other OECD economy, bar Luxembourg.
This decline was not the result of unproductive manufacturers facing superior overseas competition, as it was in the 1970s and 1980s. Between 1996 and 2006, manufacturing output per hour worked increased at twice the rate of the whole economy. UK manufacturing is outstanding, but on a narrow front. It is not a matter of quality but a matter of breadth. While productivity has increased, manufacturing employment has declined by a quarter since 1998 and manufacturing investment has fallen even further, declining by a third. As a result, our manufacturing base has continued to decline as a share of exports from 64 per cent to 50 per cent in a decade.
We all lived for a long time on the fresh air of a post-industrial economy. For more than 20 years, economic growth was powered by financial services. All parties chased that mirage. Now it is over. A sharp contraction in the financial services sector, followed by declining house prices, has reduced consumer and business spending sharply. At the same time, the vital action that the Government took to stabilise the economy by rescuing banks, ensuring lending and increasing the money supply and velocity means that future public spending will be far more restrained.
Our trade in goods increased by 3 per cent only in February. The challenge is to use the window of competitive pricing to attract inward investment in our future product base. Britain is an excellent place to do business. We have a good infrastructure, a strong research base and a flexible workforce with good industrial relations. On the topic of Britain being a good place to do business, the idea that the British businessman or businesswoman is so concerned about marginal tax rates that they will not innovate if the top rate of tax is 5 per cent or 10 per cent higher is foolish. For the vast majority, it will not make any difference to their plans.
That is why we have had outstanding levels of foreign investment over the past decade. Those investments will be the key to future growth. We must act to ensure that this continues. Today we see companies that have all the ingredients for success: good products, strong R&D and healthy margins. They only require credit to achieve future growth. These companies need access to credit fast and should not be faced with a bureaucratic nightmare as they try to grow.
Industrial innovation and inward investment must be pursued with the same willingness to do whatever is needed that the Government showed at the height of the banking crisis. We are a very innovative nation. Britain will prosper. To innovate we must increase the proportion of research funding to support economic growth. It is not unreasonable to ask scientists to direct part of the massive funding increases they have received to secure the future economic vitality of the UK.
To attract investment, we need to focus on manufacturing industries that offer major export opportunities in high-value industries. The work of the regional development agencies is vital to achieving this. They should be freed to take decisions and to act quickly to invest in emerging products and processes.
Innovation entails risk. We should distribute that risk to secure outstanding growth from success, not pursue a bureaucratic, risk-averse approach. If we take these steps, the industry, technical excellence and flexibility of Britain's manufacturers and exporters will lead us to growth sooner than many think. If we are bold, Britain will grow.