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My Lords, it is 25 years since I had the privilege of becoming President of the Board of Trade and my first question on arrival, not unsurprisingly, was “What is our strategy?”, to which the very surprising reply was, “We’re not allowed to use those words here”. When I had the remarkable opportunity to produce my report No Stone Unturned about wealth creation, it took a week to negotiate an agreement with the Prime Minister and the Chancellor that the words “industrial strategy” should be included in the remit. That was possible only if I was prepared to say that it was with reference to other countries’ industrial strategy.
I say to the Minister how much I appreciate the fact that this debate is taking place and how important it is that there is now a broad agreement, led by the Government and the Prime Minister herself, that we need an industrial strategy. The fact of the matter is that every Government of whom I have had any knowledge over the last 60 years have wrestled with the complexities of what that actually means.
There have been many attempts to try to find a way to balance the conflicting arguments that go around this subject. I came from a small-business background. There were two of us, but I ended up presiding over some of the largest public expenditure programmes in some of the most advanced, sophisticated fields, of space, aerospace, housing and of course urban deprivation. Without any difficulty at all, one realised that the simplistic language of getting off one’s back, sacking a few civil servants and undoing the red tape is a million light years away from the responsibility of presiding over major technologically advanced programmes on which our industrial well-being depends.
The debate today has revealed, and will continue to reveal, the extraordinary complexity and the range of subjects involved. There is a tendency to talk about industrial strategy as though it was about industry—12% of our economy. That is nothing like sufficient as a concept. If you are really going to talk about wealth creation across the economy, you have to talk about the economy, which includes efficiency in the public sector just as prominently as excellence in the service sector.
I will concentrate on just three issues that run through the whole of this debate, starting with competitiveness. Anyone who has served in government knows that in this country the overarching responsibility of the Treasury hangs over all decisions. I have no complaints about that: if one is faced, as the Treasury is, with the voracious appetites of the public sector, it is very important that there is someone there to try to hold a degree of control. This problem is built into our system. In my lifetime, I have seen two PMs try to institutionalise change on a significant scale. The noble Lord, Lord Hollick, referred to both of them. First, Tory Prime Minister Harold Macmillan, created Neddy and, perhaps even more importantly, the Nicys that supported it. Following on from that, a Labour Prime Minister, Harold Wilson, created the Department of Economic Affairs. They recognised, rightly, that in the monopolistic structure of our functional departments, when those departments discuss their industrial strategy in collective fora such as a Cabinet committee, there is a need for a third voice to apprise the committee and the Government of the competitive position of this country on a world scale.
One sees this pre-eminently in the situation of, say, the Secretary of State for Health. It is the most stretching of jobs: every day there is a headline. I will not trespass in any way on the validity of many of the accusations or exaggerations that are made but if you are a politician—as we all are—seeking to do a decent job and to pursue a career, you cannot divorce yourself from the realities of the headlines that besiege you every day. To suggest that that particular person is going to divert away from the urgency of those controversies into wondering about a five-year, 10-year, 20-year industrial strategy is to miss the essence of what human beings are all about.
I believe that each government department has a responsibility to explain what its industrial strategy is—as indeed is recognised, because they all sponsor industries in different ways. The noble Lord, Lord Kakkar, was very eloquent on the subject of the medical opportunities. My noble friend Lord Maude was eloquent on the subject of the nuclear opportunities. The noble Lord, Lord Mandelson, who followed me into the Board of Trade and was a conspicuous holder of that office, was eloquent about the complexity and range of these matters.
If a department sponsors an industry, and the sponsorships are all set out clearly in public, one has to ask oneself how it carries that out. I believe it should have to answer to a collective forum of Ministers as to what it sees its opportunities are in furthering wealth creation, often incidental to the main function that it may have of running a health service or whatever it is responsible for. The problem with this analysis is that there is no capability in government to monitor or question that particular assessment. The monitoring that takes place is by the Treasury, which, quite rightly and properly, is trying to contain public expenditure. There is a need for a competitiveness unit under the control of the Prime Minister and based in the Cabinet Office.
My noble friend, in a very eloquent introduction to today’s debate, explained about Britain’s position in leadership possibilities in one field or another. Let us be frank: we are fighting for our economic survival against ruthless, highly motivated, highly disciplined, highly skilled and competitive nations, and there is no remorse. That will go on. So when we use language about “being ahead”, “winning” and “leadership”, someone needs, if only in private, to tap us on the shoulder and say, “Look, it’s not quite that easy”. The reality is that we are up against extraordinary, clever and energetic communities, using all the resources of modern government to win for them. We need to know what they are doing and how they are doing it. We need to know reality—where we stand in international competitiveness. We need a unit in government drawn not just from Whitehall, although Whitehall must be there, but from academia and the private wealth-creating sector as well, in order to be part of that Cabinet analysis of Britain’s competitive standing and the industrial strategy that should flow as a consequence of that analysis.
That is the first issue that I want to raise. I recognise at once that the Minister can say to me, “Yes, but we’ve covered this in the White Paper”. So they have but, with respect, in a way that dodges the issue. The White Paper says there will be a review body; that is fine, but the body will not be part of the discussion that takes place. So the review will take place after the mistakes have been made, when they have become apparent and it is too late. I urge the Government to recognise the need for a competitiveness analysis at the time of decision-making when people are looking at the industrial strategies of individual departments.
My second point is born of excellence. We are so good. We have proportionately far more than our fair share of the world’s great universities. We have wonderful schools, great teaching facilities and world-class training and skills facilities. The problem is the tail. There are too many people running organisations at the unacceptable bottom level of attainment in skills and schools. I am not making this up; this is merely to quote Ofsted reports, which are chilling. They indicate a degree of complacency across the country about the failure of schools in particular, although I think training colleges are now to be included as well. If this were the private sector, there would be no capability to tolerate 15% to 20% of your branches failing to deliver; that would be an end to your ability to run the company. In endless conversations that I have had up and down the country, the moment that you confront this issue, everyone knows where those schools are—their names are published—but when you ask, “Why do you not do something?”, they say, “Oh, it is the cuts … it is them … it is someone else … it is too difficult”, or whatever.
It is morally and economically unacceptable that we are training a proportion of people who will never produce the skills that we need to fill the gaps that already exist. That is doubly so if we are to obtain the supply of skilled labour that is now part of government policy.
Something needs to be done. This is not a debate about whether we have more or fewer grammars or whether the academies will do this or the other. This is looking at the individual schools that are failing and co-operating at local level—I would say with local enterprise partnerships and the newly elected mayors in the seven conurbations—for local communities to address the issue. It may mean that you will sack some governors. It may mean that you will get rid of some head teachers, but the acceptance of this level of failure in our skills provision is unacceptable in any language to do with world competitiveness.
My third point is the overcentralisation of our Administration. We all know that Governments take decisions in London which, by a variety of means, are spread out across the country. We have a local authority system that, let us be frank, was relevant when the horse and cart was the means of communication. The Redcliffe-Maud report of 1968, looking at this issue economically, stated that we needed about 60 self-contained autonomous authorities. We still have about 350.
I am the first to recognise the political arithmetic which means that we cannot get legislation through to streamline our local government arrangements. To that extent, and against that background, I must praise the Government for having managed to get seven conurbations with directly elected mayors. I say to the noble Baroness, Lady Randerson, that the reason why directly elected mayors are so important is because one person is accountable who is elected by the people and who can use their influence to make decisions on a far wider scale than the present councillor-led arrangements. That is one great thing that has happened: seven conurbations now have directly elected leaders, three led by Labour, four by the Conservatives. To answer the point made by the noble Lord, Lord Mandelson, that, at least, gives some hope that this will not become a party political divide: “What they did is wrong and we have to change it the moment we get in”. It looks as though we may now have found a way to move—rather late from 1968—to something like an objective analysis of where economic power should be shared.
My question for the Government is: if you look at what we have achieved in those seven areas—including Birmingham, Bristol, Liverpool, Manchester and London itself— what about the other conurbations? What is happening in Newcastle, Yorkshire, South Hampshire and the East Midlands—great areas of economic importance? What are the Government going to do to achieve what has been achieved in the seven conurbations in those that currently lag behind? It is politically charged—I am the first to recognise that—but the price that will be paid by those economies where people are not led effectively and do not enjoy sufficient local autonomy is politically unacceptable.
There is a very clear principle here. Central government must have the responsibility of determining what services are provided and the quality with which they are provided. The more they can delegate the execution and administration of those services to the people who live, eat and breathe the community of which they are members, the more effectively they will engender the support, enthusiasm, and involvement in the partnerships that are central to getting the benefits that we want to a wider community.
I ask one final question of the Minister. Everyone knows that this is a long-term problem and that you have to start from where you are and keep at it. But is this White Paper the last one, or could we have one every year, just like every company provides, explaining how it got on? We are beginning on a journey of vast significance. It will be more enthusiastically monitored and pursued if we are told every year how well we did.
I am honoured if somewhat hesitant to follow the noble Lord, Lord Heseltine, and I am pleased to say that I will pick up a few of those themes in my remarks.
I congratulate the Government on bringing forward their industrial strategy. I believe that it has largely struck the right balance in setting a post-Brexit economic direction and in recognising government’s role as a facilitator rather than a director of growth. However, as ever, the challenge will be in its implementation. As the 19th-century head of the Prussian army famously observed:
“No battle plan ever survives first contact with the enemy”.
I want to focus my remarks primarily on the chapter on places, but before doing so I particularly welcome two themes in the document. I have long been an advocate of transport investment facilitating economic development. I am now on the board of HS2 and see the benefit this is already bringing to Birmingham. More broadly, I believe it will create an economic and social spine for mainland Britain. It will improve national productivity by connecting businesses across the country to a wider source of skills, professional services, collaborators, supply chains, and finance and markets.
May I also encourage the Government to progress the long-awaited expansion of Heathrow? I should declare an interest as chair of Heathrow Southern Railway, which is seeking to build a railway line from the south, both aiding connectivity and reducing air pollution. Secondly, as a council member of UCL, I welcome the commitment to continuing investment in research and innovation. The uncertainty caused by our future exit from Europe provides challenges in attracting and retaining the international talent we need to lead this activity, but well-founded and stable investment in research funding can help diminish that risk.
Let me now turn to the chapter on places. The responsible business network, Business in the Community, has recently launched a “pride of place” initiative to bring businesses together with the local community, local government and stakeholders to tackle some of Britain’s forgotten areas. They have asked me to lead a pilot programme in Blackpool. From Blackpool’s perspective, a top-down industrial strategy is all very well but I ask myself: is it really going to make any difference? Without the commitment to “prosperous communities” across the UK in the final chapter on places, I am not sure it would. Even then, it will be a struggle to achieve—indeed a heroic struggle to achieve everywhere in Britain. So let me make a few general points about inclusive growth in left-behind areas, to use government vernacular.
I believe that to be successful the Government must: back local cross-sector leadership in natural socioeconomic geographies; maximise devolved decision-making and provide associated funding; and provide targeted investment, at the same time as confronting and addressing complex factors where Whitehall policy is causing problems locally.
I use Blackpool as an example to expand upon these points. Blackpool is one of the most deprived areas of the country. Among local authorities it has the most children in care and the highest rate of people too sick to work. It has poor-quality housing in its centre and its secondary schools are struggling. On the other hand, its tourism sector is seeing a resurgence, with visitor numbers increasing from 10 million to 17 million over the last decade. It is investing in a new conference centre and hotels and its sixth-form colleges are excellent.
In economically fragile places such as Blackpool, it is essential to take a holistic approach, working with the public, private and voluntary sectors. Social and economic issues go hand in hand and while the Government may focus on certain industrial sectors top down, going with the grain of what works locally is essential. I therefore welcome the aim of encouraging local industrial strategies. However, county council and local authority boundaries rarely reflect economic geographies. In Lancashire, there are in effect three: east Lancashire, the Preston area and the Fylde coast. Having worked in both Blackburn and Blackpool, I know how different they are. One has a large Asian minority, who came to the UK originally to work in textiles, while the other has a predominantly white community with a strong Victorian tourism legacy. Therefore, while I welcome the focus on local enterprise partnerships as a vehicle for local strategies, each natural socioeconomic geography needs its own leadership within this framework, and the Government need to have a way of providing a measure of devolved decision-making and funding to regions which do not fall into convenient boundaries or political structures.
Targeted investment which the Government could usefully make in Blackpool and the Fylde coast includes: in skills, backing an institute of technology and consolidating Civil Service jobs in a mini hub in Blackpool town centre; to support the tourism sector, providing tangible incentives for the private sector to invest in hotels, restaurants and attractions; and in infrastructure, reopening the railway line to the isolated town of Fleetwood and improving Blackpool North station once the welcome electrification of the main line is complete. All these investments put together would not be expensive in national terms and would indeed pay dividends. I welcome the existing investment in the opportunity area and urge the Government to continue to do everything they can to make sure that Blackpool and other opportunity areas have the best possible leaders in their secondary schools.
Conversely, Blackpool’s housing is an example of where amending unhelpful national policy could even save the Government money. Blackpool has at its heart a private sector slum, fuelled by public money. Properties in wards such as Claremont and Revoe are largely privately owned and their occupants are on benefits. From the landlords’ perspective, there is little incentive to keep the quality up but much incentive to house the maximum number of tenants with guaranteed housing benefit. As a result, Blackpool attracts, and landlords advertise for, a disproportionate number of people with complex needs from all round the UK. At the crux of the problem is housing benefit paid according to a Whitehall formula which would not reflect the real market rate for such poor-quality housing.
Although the problem is extreme in Blackpool, it is reflected in other seaside towns. This is a problem which government needs either to help solve or provide the tools for the local council to manage. If it remains unsolved, it is difficult to conceive of a successful and sustainable local industrial strategy. As a recent FT article put it:
“Blackpool is a net importer of ill health”,
But turning to the positives, any industrial strategy for Blackpool would need to include tourism. The tourism sector always seems to be the Cinderella of government business sectors, yet with a burgeoning middle class in India and China it would seem an obvious candidate for exploiting post Brexit. Indeed, Blackpool hosts the world ballroom dancing festival, which attracts large numbers of Chinese, alongside, of course, “Strictly Come Dancing”.
I conclude by saying that Blackpool would be keen to be regarded as a tourism zone in any sector deal, provided of course that this comes with real incentives for private sector investment, as well as being considered for one of the first pilots for a local industrial strategy. Perhaps the Minister would kindly answer two questions in his summing up. First, how are the pilots for local industrial strategies being determined? Secondly, do the Government intend working with partners such as Business in the Community and the Big Lottery Fund, which both have place agendas and could help to bring business and the community to the table?
My Lords, it is a great pleasure to take part in this debate on this very important subject. I thank the Minister for enabling us to take part in it. The Government’s White Paper was an important document, ambitious, strategic and long term. If it is implemented successfully, recognising all the comments that the noble Lord, Lord Hollick, made, it clearly will lead to the long-term creation of jobs, to prosperity and higher wages in the UK economy. Yet to economists of my generation, the term industrial strategy is associated with failure not success—and I shall explain why.
You could say that the first industrial strategy that we had in the post-Second World War UK was the nationalisation of whole swathes of industry by Attlee, which was done so that business could more clearly, as state-owned enterprises, focus on satisfying the consumer. As has already been mentioned by a number of speakers, Harold Macmillan’s Government set up Neddy specifically to bring together business, trade unions and government. Neddy survived until John Major closed it down in 1992. It has been mentioned that Harold Wilson set up the Department of Economic Affairs, with George Brown as Minister, and developed in 1966 a national plan. Something that has not been mentioned is that in Ted Heath’s Government the Industry Act 1972 was passed, enabling the Government to give grants and funding to industries, particularly those in difficulties, and especially shipbuilding. In 1975, Tony Benn argued that there should be a compulsory agreement between the top 100 companies in Britain and the Government but, to avoid that, Harold Wilson deflected things by issuing a White Paper entitled An Approach to Industrial Strategy. So there is a sense of déjà vu.
Frankly, none of those initiatives was a great success. The nationalised industries ultimately had to be privatised because of low productivity and overmanning, and the national plan was soon scrapped, a year after it was published. As to picking winners, we might mention the success of Rolls-Royce—but it is thought of primarily in terms of British Leyland and Upper Clyde Shipbuilders. Therefore, I have to say that when I first heard that the Government were about to announce an industrial strategy, I was sceptical.
I feel that I am open-minded, and the question that I ask is, “Why is it different this time?”. It is different for several reasons. The first is that lessons have been learned from the failures of past initiatives. The Government are not pinning their hopes on state ownership. It is about supporting viable private sector companies. Next, it is not about financial assistance to bail out failing firms; it is about how to support high-growth, innovative firms. It is not about backing state monopolies or cartels, but it is committed to competition being at the heart of the industrial strategy. On page 21 of the White Paper it states:
“We believe in the power of the competitive market—competition, open financial markets, and the profit motive are the foundations of the success of the UK. Indeed the best way to improve productivity is to increase exposure to competition”.
In addition, it is not about backing existing technologies but about supporting the development of new ones at the cutting edge which require basic science and innovation. Finally, it is about supporting companies that are not being hampered by overpowerful trade unions, which so restricted the ability of companies to manage as they wished to manage. These reasons are sufficient to say that lessons have been learned. Although I believe strongly in an enterprise, open, competitive economy, this Government’s approach has nevertheless learned lessons from the past.
Another reason is that the Government have thrown everything at the industrial strategy, as the noble Lord, Lord Hollick, mentioned. Any policy which has any implication for the economy is part of the industrial strategy. That can be seen as a weakness but, on the other hand, it is a strength. The Government are trying to harness resources from all aspects—and it is a vast area—in order to tackle the problem. In that sense, this strategy is not just about support for business. It is not about bringing management and trade unions together. It is about drawing on all the resources of government.
The final reason for feeling that it is different this time has to do with one aspect of the industrial strategy—sector deals. When I first read the paper, this was the part that I was most sceptical about. I have really changed my mind as a result of being, with the noble Lord, Lord Kakkar, and the noble Baroness, Lady Young of Old Scone, a member of the Select Committee on Science and Technology and taking evidence for our review of life sciences in the UK and industrial strategy. What impressed me about the sector deal announced just before Christmas was, first, that private sector firms such as Novo Nordisk, MSD—known as Merck in America—and QIAGEN were making significant commitments to build research facilities in Oxford, London and Manchester, to pioneer medicines, diagnostics and genomics. Secondly, medical charities such as the Wellcome Trust, Cancer Research UK and so on are also making a real commitment. Then there is the Government: we have already heard about the role of the NHS, but there is also basic university science research; the post-Brexit immigration policy commitment which has been made; the infrastructure in clusters; and the Government’s commitment to developing the Oxford-Milton Keynes-Cambridge corridor and, as has already been mentioned, to digital innovation hubs.
There is a story underlying this industrial strategy which marks it out from those of the past. However, there are still questions to be answered. Might the sector deal end up supporting, or even subsidising, weaker firms in that sector? What if shareholders feel that the commitment made to research has not been matched by the financial returns they expected? Will they demand a quid pro quo on what the NHS should be purchasing from them? What about the tariff of prices negotiated for their products which are bought by the NHS? At present, pricing policy is outside the sector deal. Can it remain so? The industrial strategy is clearly a work in progress but, nevertheless, there is everything to play for and it is worth backing.
I will make three final points. First, what came out very clearly when the Select Committee took evidence from business people running pharmaceutical companies and from people involved in research, as well as from Sir John Bell—and at the launch of the life sciences industrial strategy at No. 10 Downing Street—was that senior businessmen from the US and the continent value the fact that we have world-class institutions, such as universities and medical schools, and world-class hospitals where clinical research is done. That is important. The noble Lord, Lord Kakkar, eloquently made that point in his speech.
Secondly, and nearer to home, one of the constant complaints from business is the lack of long-term capital. Here there are two suggestions. The first is from the Treasury committee on patient capital, which looked at the problem. We have pension funds and insurance companies in Britain that have assets of over £3 trillion. They clearly have a long-term investment horizon and, obviously, they have to manage their risk carefully. However, they tend to be quite short term because they have to follow the prudent person principle whereby investment advisers have to approach such matters from the stance of how “a prudent person” would look at them. Interestingly, in two countries, the US and France, they ask themselves, “Could we not continue with a prudent person principle yet allow long-term funds such as pensions and insurance companies to put a slightly greater proportion of their investment into unquoted equities?”. The conclusion of the Treasury’s patient capital review is that that should be examined and the Pensions Regulator should be asked to give advice on it. That is a great idea, and if it could be done, it is the one thing that could transform the supply of capital to innovative companies which want to grow in the UK.
The second suggestion is to do with quantitative easing and the Bank of England’s interest rate policy. I am all in favour of the Bank of England’s managing interest rates to keep inflation down and ensure financial stability. However, quantitative easing has had some quite horrific side effects in terms of the growth of consumer credit, excess credit and inflation, and the misallocation of capital to zombie firms. The OECD did a major study of firms, covering the period 2003 to 2013, that it defined as 10 years of age-plus but with constant problems in meeting interest payments. It concluded that zombie firms are,
“a drag on productivity growth as they congest markets and divert credit, investment and skills from flowing to more productive and successful firms and contribute to slowing down the diffusion of best practices and new technologies across our economies”.
When the Bank of England recently raised interest rates, for the first time in 10 years, it said that in future the rises would be,
“at a gradual pace and to a limited extent”.
I feel that, like the US, we could try to get back to more normal interest rates. That would ease up capital that could go into innovative firms.
The third point concerns the future—this is not something that I will dwell on—and the governance of the industrial strategy. There is a Cabinet committee headed by the Prime Minister and an industrial strategy council with people from the private sector. Beyond that, however, there is a great haziness concerning delivery. As regards the implementation of new policies, during my five and a half years in No. 10 Downing Street I always felt that the design of a new policy was 10% of the problem whereas the implementation—the delivery—was 90%.
In conclusion, this policy is different from what we have seen over the last number of decades. We also live in a different world, with the digital revolution. The industrial strategy is still a work in progress. However, I believe that if it is implemented, as well as striving to lower taxes, it will offer us the best possible way for a successful post-Brexit UK.
My Lords, I agree entirely with the last sentiments of the noble Lord, Lord Griffiths, about implementation. I am sure that the noble Lord, Lord Hennessy, will forgive me if I steal something he has already said in your Lordships’ House. He quite rightly pointed out that this is the ninth industrial strategy in his lifetime. In fact he said it was the eighth, but the noble Lord, Lord Mandelson, phoned him up and said that he had omitted his strategy of 20 years ago. The lesson from all these nine strategies, not all of which have been successful, is that implementation does not just happen. The Government’s Industrial Strategy that we are now considering lays out important implementation mechanisms: continued chairmanship by the PM of the Economy and Industrial Strategy Cabinet Committee and the creation of an independent industrial strategy council. I take seriously some of the reservations about the industrial strategy council that have been made. However, the overwhelming message is that these mechanisms must be designed to persist over many years to ensure that the strategy is delivered not just over an electoral cycle but over a decade and longer.
I am sure that the Minister will assure us that a wide range of other players will also shoulder the burden of implementation. Sector deals gave a key role to business players but are no substitute for sustained government leadership. Can the Minister also assure the House that sector deals will not overly rely on the established technologies of major incumbent firms but will support disruptive innovation which can create the industries of tomorrow?
I did not intend to talk about the work that the Select Committee on Science and Technology is doing on the examination of the Life Sciences Industrial Strategy and sector deal. However, having heard the noble Lord, Lord Griffiths, say that he was reassured by the evidence taken in the Select Committee hearings, I will take a contrary view and say that I am unutterably miserable about it. We are in a position where both nationally and internationally the National Health Service is seen as a huge asset to this country for driving innovation and its uptake and for the concomitant benefit to businesses in a global sense in the life sciences. However, in reality, the evidence given by witness after witness has been totally dispiriting, both from the private company and quoted company point of view, and from the point of view of the NHS itself, about the ability to ensure that the NHS uptakes innovation, implements best practice and reaps the benefits of substantial cost savings that many of these innovations would bring. It is dispiriting, and I hope that the Government can bite the bullet.
I know that I am probably at the radical end of the spectrum on the solutions which seem to me to be sensible but I have led health services for 20 years and been the chief executive of Diabetes UK, a major research-based patient group, and it seems that we have now reached the point when 1,000 flowers blooming is no longer the name of the game but mandation of uptake of best practice, which happens regularly in America through the insurance companies, has to happen.
However, I wanted to talk not about the NHS but about infrastructure. I very much welcome the more strategic approach to housing and transport that the Industrial Strategy White Paper talks about, but the reality on the ground is not hugely encouraging at the moment. Rather than recognising the need for the right housing in the right place, the dash for housing is causing real problems at a local level.
First, on housing quality and the quality of place, we are now building the smallest houses in Europe. I used to dread going to stay with my friends in Holland because they lived in a rather small, boxy house. I used to get severe claustrophobia and had to break out after a very short time. However, the reality is that we are now building houses even smaller than those built by the Dutch. Many housing developments lack amenities such as transport infrastructure and there are insufficient green spaces, with all the benefits for health and the environment that these bring.
I was privileged to sit on the ad hoc Select Committee on National Policy for the Built Environment, and I commend its report to your Lordships—it still stands. We are very much at risk of building the slums of the future if we do not take up the recommendations of that report. Also, insufficient affordable housing in a range of tenures is being built, and that will have an inevitable impact on the supply of workers who are vital to the industrial strategy.
There is not enough long-term planning to ensure that housing is for life and can cope with the stages of family growth through empty-nesting to, ultimately, older age. That is an important point in view of the fact that one of the four great challenges of the industrial strategy is ageing—a challenge which I am sure, as previous speakers have said, is of interest to your Lordships’ House.
Regarding transport infrastructure, which is fundamental to the industrial strategy, the White Paper focuses primarily on major strategic rail and road routes and ignores the smaller feeder systems, which are underinvested and congested but which will nevertheless still have the power to gum up the works in terms of industrial strategy development.
So where does the problem lie? There are a number of issues. One is that the dash for housing and the streamlining of the planning system, which we debated during the passage of successive planning Bills in your Lordships’ House, have had some serious repercussions. Planning authorities are now so driven by housing targets and by a fear of the sanctions that the Government can apply if an agreed local plan that both meets and delivers the housing targets is not in place that they are approving plans which are about not the right houses in the right places but the wrong houses in the wrong places. If local authorities fail to deliver a plan or the subsequent housing, developers can have a free run through to put things wherever they like, and government can take away planning powers and make decisions on behalf of local authorities. Local authorities simply do not wish that to happen.
In addition to local authorities making decisions on the run to avoid those sanctions, they are also very much weakened as planning authorities as a result of financial cuts and they are denuded of specialist staff. That, again, was a finding of the Select Committee on National Policy for the Built Environment. As a result, in working out the plans, they are hugely dependent on the analyses undertaken by the developers. Similarly, developers have the whip hand where viability assessments are used to challenge agreements made with them about their contribution to infrastructure and their commitment to affordable housing. In many cases, it is very much a David and Goliath situation. The chaps with sharp suits and sharp elbows—the planning consultants to major developers—roll in and put forward detailed cases demonstrating that it is simply no longer possible for developers to deliver on the infrastructure contributions and affordable housing numbers that they originally promised, and quite frankly the local authority has no means of seriously challenging that.
To make matters worse, these viability assessments are not in the public domain, being regarded as commercially confidential, so local people and local interest groups are unable to judge the calculations that underlie the decisions to short-change infrastructure contributions and affordable housing numbers. Therefore, I urge the Minister to consider how viability assessments can be routinely published in the future so that local people can judge whether their local authority is being robust in reflecting their interests. If that does not happen, we will have a backlash from many unhappy local communities across the country which see the reality of what is happening in the dash for housing.
The Industrial Strategy White Paper says:
“We want to support greater collaboration between councils, a more strategic approach to planning housing and infrastructure, more innovation and high quality design in new homes”.
I agree entirely with that sentiment but how will government shift the planning system from the sorry position it has been driven to, which certainly is not delivering the Government’s vital aspirations for housing and transport infrastructure at the heart of the industrial strategy
My Lords, a major petrochemical company recently backed away from investing £4 million a year in jobs in Scotland because it was worried that it would not be able to recruit staff with the necessary foreign language skills. And that is just the tip of the iceberg. Research suggests that the UK economy is losing out on well over £50 billion a year in contracts because of a lack of language skills in the workforce. If you cannot read the initial tender documents, you cannot bid for the contract, and they are by no means always written in English. A British Council report published in November said that the top five languages needed by the UK for prosperity and influence post Brexit are Spanish, Mandarin, French, Arabic and German.
It is a regrettable flaw in a strategy which has such exciting and ambitious objectives that no mention is made of language skills as one of the key ingredients for enabling the UK to innovate, trade, prosper and lead in a global economy. Important and vital though English is, it is a mistake to believe that English is enough. The standard excuse for Britain’s neglect of foreign languages is that English is the world’s lingua franca. What this really means is that English is the world’s preferred second language, not its first. In fact, only 6% of the world’s population are native English speakers, and in the 21st century speaking only English is as much of a disadvantage as speaking no English.
It is also a mistake to depend on artificial intelligence for language translation, and it is worrying that the only direct mention of language skills to be found in the White Paper is in the context of AI and technology. Of course AI can be useful here but it is no substitute for the interpersonal skills, sensitive translations and localisation of sales, marketing and communications provided by people, not algorithms.
We have robust evidence to illustrate the importance of languages for business and growth. One study of SME exporters showed that companies that invest in language skills are able to increase the ratio of exports to sales by 37%. By contrast, evidence also shows that UK businesses are largely in an Anglophone bubble, with 83% of SMEs operating only in English, even though half of them say that language skills would help expand business and build export growth. The British Chambers of Commerce says that the biggest language deficits are in the fastest-growing markets and that over three-quarters of the companies it surveyed had missed or lost business because of this.
The White Paper flags up a review of export strategy to report in spring this year. I ask the Minister to ensure that language skills form part of this review and that the Government’s GREAT website will give fuller advice on language skills and export growth. Could the Minister say also whether the network of nine UK trade commissioners to be established will have language skills as part of their remit? Relevant expertise is available, but it needs to be integrated and not just remembered as an afterthought. Under the former UKTI, one-to-one advice on language and cultural issues was provided—in 2015-16 to over 1,000 companies in one region alone. This service has now ceased in favour of regional contracts with the Department for International Trade, and it is not at all clear whether local businesses will still be able to access guidance on overcoming language and cultural barriers to trade.
The White Paper recognises regional disparities in the UK’s skills base. There are stark regional weaknesses in participation and attainment in foreign languages, which correlate with regions of poor productivity and low skill levels. For example, in the north-east in 2016, only 43% of pupils sat a GCSE in a language, compared to 65% in inner London, and this gap has been widening year on year. We also need Her Majesty’s Government to build languages into their plans for technical education. The national retraining scheme for targeting skills shortages is welcome, but can the Minister say whether modern foreign languages will be considered as a skill shortage in the next phase of the scheme? Over 70% of UK employers say that they are not happy with the foreign language skills of our school leavers or graduates, and are forced increasingly to recruit from overseas to meet their needs. Looking ahead to a post-Brexit world in which the UK aspires to be a leader in global free trade, it is rather shameful that only 9% of British 15 year-olds are competent in a first foreign language beyond a very basic level; that compares to 42% of teenagers across 14 other European countries.
The language industry is a sector not mentioned in the strategy, but in my view it would be an ideal candidate for the kind of sector deal envisaged in the Government’s thinking. The language industry encompasses interpreters, translators, teachers, researchers, people who write textbooks, apps, CDs and websites, people who do subtitling and dubbing for films and TV, and all manner of other experts. This sector is estimated to be worth over €20 billion across the EU and has a very high growth rate. As an English-speaking nation, we are surely uniquely well-placed to take strategic advantage of this expected further growth, not only in Europe but worldwide. I am aware of a proposal for a sector deal for the tourism industry, which acknowledges that language skills are vital for increasing the value of inbound tourism and hospitality. Specifically, it says that,
“language skills are an essential business requirement and a significant element of providing good customer service”.
We are not going satisfy the needs of business or consumers if we do not act urgently to reverse the crisis in language education in the UK. Thanks to the EBacc, the number of GCSE entries is now stable, but A-level is in free fall. Since 2000, over 50 universities have scrapped some or all of their modern language degree courses. Uncertainty over the future of the Erasmus programme has seen applications dip even further, and so we are not producing enough languages graduates to meet even the teacher shortage, never mind the needs of the wider economy.
Report after report from significant bodies such as the British Council and the British Academy, as well as the all-party group, has called repeatedly for a cross-government national languages strategy, because this is not a crisis solely for the Department for Education. Will the Minister undertake to initiate discussions across all relevant departments, at ministerial level, to start shaping such a strategy? Without the glue of language skills, the different elements of the industrial strategy will not hang together.
I have been talking mainly about export growth, but prospective inward investors do not want a monolingual environment either. Over one-quarter of senior executives from top European companies rated access to multiple language skills as “absolutely essential” when considering where to locate their business. This has been a significant driver in London’s economic success.
I hope that the information I have provided this evening might trigger some revisions of this industrial strategy. Language skills are a key enabler of success. The language sector itself is an exemplar of innovation and leadership. By integrating these, the vision and objectives of the industrial strategy will be much more achievable.
My Lords, I am probably not the most objective commentator on this White Paper, having spent most of the past year working on it. However, I echo the words of the noble Lord, Lord Mandelson, who said he hoped that Greg Clark was at No. 10 today to be praised, not buried. I certainly hope that Greg Clark, my right honourable friend in the other place, is indeed back in the department.
I am delighted to hear that.
In my view, the White Paper is more of an hors d’oeuvre than a main course: it acknowledges specifically that it is a work in progress and not the final result of our labours. We have not yet won the argument that an industrial strategy should be central to all government policy-making and that, if not addressed, low productivity and low earnings pose existential questions for our way of life.
Other countries have grasped this to a greater extent than we have. Look at China’s One Belt, One Road strategy, Germany’s Industrie 4.0 and Japan’s Society 5.0—they are at the core of those countries’ economic, social and industrial policies. They are central, transformational and driven from the top of government. You can hardly pick up a Japanese newspaper without seeing the Japanese Prime Minister expounding on artificial intelligence, drones or new industrial techniques. Contrary to public belief and much political rhetoric, the US too has a long history of industrial strategy, beginning back in 1945 with the seminal work Science: The Endless Frontier, produced for President Roosevelt by Vannevar Bush. It marked the beginning of a massive investment by the federal Government in research, and saw the creation of DARPA, the NIH and other government research bodies. You need look no further than the Manhattan Project or the Apollo programme, or the more recent orphan drugs programme, to see the power of government in the US.
Yet part of British politics is still fighting the sterile, hopeless, outdated battle between those on the left who believe that public ownership is the answer to all evils and those on the right who deride and caricature all government involvement in industrial strategy as picking winners—by which, of course, they mean picking losers. This White Paper makes it absolutely clear that the Government have a critical role working with the private sector, universities and local government in driving the industrial strategy. This role goes beyond creating the right market or competitive environment, and beyond correcting market failure. It encompasses a much deeper, long-term partnership between government, universities, business and local civic institutions.
The noble Lord, Lord Hennessy, suggested I read for inspiration the Beveridge report, arguably one of the most influential reports written in 20th-century Britain. Beveridge declared war on the five giant evils of want, squalor, ignorance, disease and idleness. He wrote, which I thought was interesting, that:
“A revolutionary moment in the world’s history is a time for revolutions, not for patching”.
We are at a similar time in our country today. There are two giant evils: low productivity and inequality. They not only have a direct impact on the five great evils identified by Beveridge but, if not addressed, pose an existential threat to our liberal democracy. Already their influence can be seen with the rise of extreme politics and simplistic populism in the US and western Europe.
Productivity has slowed and, consequently, earnings have stagnated. Paul Krugman, the Nobel laureate for economics, said that productivity is not everything but in the long run it is almost everything. Globalisation has enriched billions of people in Asia and beyond but it has been partly at the expense of the middle classes in the west, especially in traditional manufacturing areas. Demographic change has exacerbated the problem. In the US, real median earnings have hardly moved since 1990. In the UK, earnings have stagnated since 2007. Paul Johnson, the director of the IFS stated at the end of last year:
“After taking into account inflation, average earnings remain below where they were in 2008. That’s unique in at least 150 years”.
The outlook for the next 10 years is not much better. It is likely for the first time since the Industrial Revolution started at the end of the 18th century that the next generation will be less well off than the preceding one. Millions of people have been left behind. The American dream has for many become a nightmare.
“we may have reached the end point of mankind’s ideological evolution and the universalisation of Western liberal democracy as the final form of human government”.
If liberal democracy cannot deliver improving living standards, one is tempted to ask: what is the point of it or, at the very least, how long can it last?
However, low productivity and stagnant earnings are only half the problem. The other half is rising inequality. Between 1980 and 2016 the richest 1% of the population of the US took as much as the bottom 88% of the increase in real income. In the UK the top 1% took as much as the bottom 51%. Overall, the poorest 50% of the population of western Europe, the US and Canada over this period—some 30 years—took only 9% of the increase in real income. This level of inequality is not justifiable morally, politically or economically. It is not fair. It is simply not sustainable over a long period of time in a democracy.
These are the twin evils—low earnings and growing inequality—that any industrial strategy has to address. This industrial strategy takes a long-term view over more than 10 years. It is cross-party in its approach, building on the works of the noble Lords, Lord Heseltine and Lord Mandelson, Vince Cable, my noble friend Lord Willetts and the noble Lord, Lord Sainsbury. It is about the future not the past; it is about new disruptive technologies not incumbents; it is mission-oriented with the four grand challenges; it is built on the remarkable competitive advantage of our universities and research institutes; it builds in a cross-government delivery and measurement mechanism through the Cabinet committee, chaired by the Prime Minister, and the creation of the industrial strategy council; and it explicitly recognises the crucial partnership between government and the private sector as a driver of strategy—if I can put it this way, more Mariana Mazzucato than Milton Friedman, more UCL than Chicago. Perhaps most important, it recognises that the productivity and inequality evils cannot be addressed solely in London, important though London is. The revival of the northern powerhouse, the Midlands engine and our great industrial cities outside the golden triangle of London, Cambridge and Oxford is fundamental to the success of industrial strategy.
One of the most influential things that happened to me in the past year was going to Pittsburgh. I used to spend a lot of time in Pittsburgh in the 1980s, when it was a declining steel town, the rivers were polluted and crime was high. If you go back to Pittsburgh today you will see that, through the revival of the Carnegie Mellon University, the development of robotics and the cleaning up of the environment, it has completely changed. This is because the revival of strong local civic institutions has driven an extraordinary change in Pittsburgh. You can see this in Chicago, Cleveland and other great old American cities where they have strong elected mayors. I agree 100% with the words of the noble Lord, Lord Heseltine, that we can have a strong industrial strategy only if it devolves more power to accountable local leaders.
We have a saying in Norfolk that fine words butter no parsnips. The White Paper has fine words and we now have to deliver.
My Lords, it is a great pleasure to follow the noble Lord, Lord Prior, particularly as I had set out to be critical of the White Paper. Having listened to him, I realise I must temper some of my criticisms.
Although the policy set out in the White Paper is a step in the right direction, the measures proposed are a pale imitation of the sort of programme of institutional reform that could produce a real industrial renaissance. One of the fundamental problems is the failure to recognise the sheer scale of the economic difficulties facing Britain. The White Paper begins with the statement:
“The UK is a fundamentally strong economy”.
That extraordinary statement confirms a myopia. It refers to an economy in which investment as a proportion of GDP is lower than in both the US and the European Union and is below the average of OECD countries. Corporate investment in fixed assets fell from 11% of GDP in 1997 to just 8% in 2014, which is below the rate of capital depreciation. In other words, the corporate capital stock is being eroded. As has been pointed out by many earlier speakers, research and development spending in the UK as a proportion of GDP is about half the level of that in the US or Germany. Productivity—a concept that has been referred to many times—is lower than in the US and all the major European economies; since the financial crisis a decade ago, productivity has barely grown at all.
Of even greater relevance is the long-run deterioration of the core competitiveness of the UK economy. Our share of world trade has halved in the past 40 years, while Germany’s has been stable. The result has been a continuous deterioration in the balance of payments, now a persistent deficit of 5% of GDP a year. In other words, about one-twentieth of our standard of living—our food, clothing, travel and shelter—is paid for by borrowing from foreigners. At the moment, Britain cannot pay its way and the idea that the country is on the verge of conquering new global markets is an ignorant fantasy. These long-term, baked-in trends have all worsened since the financial crisis and, in particular, since the 2010 imposition of austerity policies by the coalition of Conservatives and Liberal Democrats.
Indeed, a serious lacuna in the White Paper is the lack of a policy on demand to match its supply-side policies. The Government seem to have learned nothing from the enormous damage done to the British economy by austerity. If demand is not growing, it does not matter how big the tax incentives, how creative the government initiatives: no one is going to invest. If there is no demand for your product, why would you? Similarly, it does not matter how cheap money might be: there is no incentive to invest without the prospect of a growing market and a positive return. No wonder that these days, British businesses are accumulating and distributing cash, not spending on investment.
In essence, as the White Paper rightly suggests, there are three main tasks, and any policy proposals need to be judged against the template of how far they promise success in these tasks. First, Britain needs a competitive industrial base; this can be defined precisely as an industrial structure that delivers a positive balance of payments at high levels of income and employment. It is easy to have a positive balance of payments by impoverishing your own society sufficiently, but a positive balance of payments with high levels of income should be our goal. Secondly, it is absolutely right that to achieve this, Britain needs a significant increase in efficient investment in new technologies, capacity and people. Thirdly, Britain needs an economic policy framework that can be sustained over many years to turn around those 40 years of decline. This means that the programme must have strong political roots, involving, as it must, significant and sometimes disruptive change. There must be a broad social consensus behind the need for a programme of national economic renewal.
Instead of relying on the latest fashion in economic theory, we can turn to economic history for some insight into how this is done. In the mid-19th century, Germany, France and the United States faced the overwhelming industrial challenge of a dominant Britain. All three countries recognised explicitly their backwardness, and to compete, all three undertook fundamental institutional reforms focused on exactly the same goals I have referred to for Britain. Similarly, Japan and South Korea faced competitiveness problems after the war; once again, the reaction to backwardness was a major reform of institutions targeted on the three goals.
What are the institutional lessons for Britain? First, we must own up to the fact that the economy as a whole is in seriously poor shape. This recognition is undoubtedly hampered by the important point, emphasised in the White Paper, that Britain does have some world-beating companies, but we do not have enough of them and focusing on these exceptions obscures the underlying problems. Secondly, we must recognise that little or no good will be done by new tax incentives and various investment initiatives if the country’s fundamental institutional structure is not up to the job of overcoming our competitive backwardness.
What institutional reforms would at least start to tackle the job? First, research by the Bank of England has shown that the UK’s capital markets are more short-termist than they used to be and more so than those of other countries. There has been an observable increase in the priority that investors give to short-term returns over long-term returns. The result is that over the past quarter of a century, the proportion of profit that UK companies have been distributing to shareholders, rather than reinvesting in their businesses, has been increasing. The interaction between British finance and British corporate governance is resulting in exactly the wrong sort of incentives.
In many ways, of course, the UK finance sector is a great success story. In terms of its size, exports, employment and profits, it is one of the most successful in the world. However, that international success has been bought at a price. The financial sector injects international instability and risk into the domestic economy, as was so evident in 2008. No wonder there is an emphasis on short-term liquidity, a ubiquitous desire for exit and an unwillingness to commit to the long term when that long term is regularly punctured by financial disorder. There were attempts to address these failings in the ring-fencing provisions of the Financial Services (Banking Reform) Act 2013—a pale imitation of the 1930s Glass-Steagall Act in the US. That was relevant to America, but the reforms in the UK failed to take into account the reality of the British economy. Once the real structure of British finance is taken into account, it becomes clear that the ring-fence is in the wrong place. It should be between domestic finance and international finance. The stability of comprehensive financial services for UK firms should be rigorously enforced, while our booming, if unstable, international financial sector should be encouraged to do what it does best: selling outstanding services to the rest of the world.
Secondly, a stable domestic financial system would provide the motivation for and the possibility of a reform of corporate law, including the regulation of mergers, to incentivise the long-term investment culture that Britain so desperately needs. The current corporate structure, with its emphasis on the primacy of the shareholder—an individual whose commitment to any one company is totally transient—has to go.
Thirdly, we need new ways of tackling the long tails of very poor companies that exist in just about every industrial sector. The White Paper refers to the creation of sector deals, but again these are a rather weak version of what should be done. What is needed is an industrial reorganisation corporation with real powers to tackle the long, unproductive tails of inefficient companies that blight our economy.
Fourthly, in addition to financial reform, corporate law reform and industrial reorganisation, the rescue of the British economy from its uncompetitive quagmire will require an entirely new approach to research and development. As the White Paper acknowledges, in Britain we are fortunate to have some of the finest research universities in the world, but the Government seem intent on ruining the sector with their ideological pursuit of the marketisation of higher education. In both Germany and the United States, publicly funded R&D underpins their superior innovative performance. As my former pupil, Mariana Mazzucato, has pointed out, every significant innovation that went into the iPhone was developed in the public sector. In Germany, where 58% of companies invest in academic research, publicly funded R&D—much of its content stimulated by the private sector—underpins the country’s remarkable competitiveness in manufacturing. Long-term public support is a crucial component of long-term R&D success.
Fifthly, we need a complete rethink of the ridiculous “Britain is up for sale” strategy that the Government falsely identify with being an open economy. How many times in recent years have we seen successful companies, many of them built on the foundations of public investment in education, research and skills, sold off to foreign interests as soon as they reach a decent scale? No other country pursues such a foolish and short-sighted policy—when will it stop? When will we have a policy on mergers and acquisitions based on the national interest?
Sixthly, these changes will not work unless the prospect of stable and growing demand provides a sustained incentive to invest: growing demand at home and growing demand from abroad. At home, government commitments to their own increased infrastructure spending must lead the way. Internationally, the fall in the pound provides an opportunity to recover lost markets, just as long as the competitive boost is not squandered on increased consumption. Monetary policy must ensure that the gains from the low value of sterling are sustained over the medium to long term.
Finally, as argued by the noble Lord, Lord Prior, any campaign of national economic renewal must be a truly national campaign that benefits all the people in all the regions of this country. Again, the White Paper puts a brave face on the issue of regional inequality, but it fails to address adequately the more important issue of personal inequality of income and opportunity. As noted already, successful national renewal, particularly in an era of remarkable technological innovation, will involve disruptive change. People whose lives are disrupted in this way should not be paying the price for the nation’s renewal, and they should not be living on handouts either. As part of the reconstruction programme, there must be a comprehensive and supportive programme of training and retraining for decent, well-paid jobs.
In summary, the state of the UK economy requires that all government policies should be directed towards the long-term recovery of British competitiveness. There should not be a revival of the tired old argument about the role of the market and of the state. Of course the state can be inefficient, but as we in this country know only too well, markets and the private sector can be massively inefficient too. A programme of national renewal is not about creating a socialist utopia or a libertarian capitalist utopia, but reconstructing our market economy to achieve national goals. This White Paper could be a small and significant step in the right direction, but it could also do significant damage if we end up thinking that it represents all that needs to be done.
My Lords, I most strongly agree with those last remarks of the noble Lord, Lord Eatwell, on the need to bring benefits to all, not just to limited sections of society. Indeed, the White Paper contains many excellent proposals and ambitions, particularly the emphasis on research and innovation, design and the life sciences, and many other things.
Nevertheless, I confess that I started out with very limited enthusiasm for this kind of project. This is not just because industrial strategies have great difficulty keeping up with rapidly evolving markets and technologies, let alone political events. Past ones have usually disappointed, as my noble friend Lord Griffiths reminded us, and as the noble Lord, Lord Hennessy, reminded us in an earlier debate and no doubt will repeat in a few moments when he speaks. I know this personally from being a member of Neddy way back, on which I was very enthusiastic indeed. In the end it was all very disappointing; there was something missing. It is not just those sceptical past reasons, but this: for the reasons that the noble Lord, Lord Mandelson, touched on in his very telling and encouraging speech, and those touched on by my noble friend Lord Prior, I wonder whether the priorities set out in the White Paper are entirely the right ones for the revolutionary era we have entered, in which we face conditions completely different from anything that has gone before. History is not much of a guide to where we should turn.
Despite plenty of references in the White Paper to the digital age, artificial intelligence, the cyber revolution and so on, I still feel that in a way—perhaps this is unfair—it was drafted by people with a 20th century mindset. In the 21st century, successful industrial progress is part of a much wider constellation of forces than this document seems to recognise: the drive for change begins more than ever in the home and deep in social structures. The authors of the White Paper should have perhaps paid more attention to things such as my right honourable friend Sir Oliver Letwin’s book Hearts and Minds, in which he emphasised, looking back on what was missing, the need to focus not just on the market economy but on the social market economy. Perhaps they should have looked at that before they drafted. It is the social bit and the more difficult to measure but fundamental bit that seems to have got left out of this kind document, which probably should have come not merely in the document, but first.
For a start, there is a central question of measuring productivity. Everyone is talking about low productivity. We just heard some remarks on it. All the economists seem to be convinced that it is the great issue. Yet everyone also knows that the old measures of productivity are far too narrow and do not tell an adequate productivity story. Nor, for that matter, does the Office for Budget Responsibility’s spuriously scientific forecasts of where the growth of GDP will be in a year or two’s time, when they capture only the market value of goods and services and ignore all other forms of output. I do not think that this will wash any more in modern economic conditions. For example, how do you measure or compare increased productivity—or, for that matter, GDP growth—in the creative arts, media, sport and entertainment, in nail bars or home delivery services, in more comfortable buses and quicker taxi services, faster book printing, aspects of education, health and social care, whether public or private, or infinitely quicker linkages between businesses and individuals? They do not come into any of the official statistics at all. The truth is, it cannot be done. The more we live in an overwhelmingly service economy, as we do, the harder it becomes to measure.
As to the list of priorities and challenges for more industrial success, the “people” section in the document should, of course, come first. By that one means not just people in industry, but everyone who makes daily life and society work. I agree that they are in the strategy document, but they are not at the top of the list where they should be. In an economy that is meant to work for all, the need is not just for priority for schools, well-paid teachers, plentiful technical and vocational courses and colleges, and strong universities, which are there in the strategy document, on which it is rather good. It also means taking account of the real determinants of economic progress that lie at its very foundations—within the home, the household, and in all the human impulses and incentives to share and co-operate, which are very strong in the whole community—and of social relations and attitudes in the surrounding environment and in the routine but essential dealings and requirements of daily and family life, on which everything else depends.
Are these not precisely the core areas that shape the national mood and determine the country’s industrial strength—or weakness—with industrial peace and partnership on the one hand or bad relations, non-co-operation, and inefficient and failed investment on the other? Are they not what decides whether an economy pulls together with a motivated workforce, or slows down to torpor and stagnation levels and falls apart? Yet these are just the considerations and measurements that, I am afraid, almost all economists for the last century, since the days of Marshall and before—with some brave exceptions—have completely ignored. Too many economists have taken a wrong turn and offer a flawed and implausibly narrow base on which to build an industrial strategy, as some of us have been arguing for the past 30 years.
The other priority condition for industrial success, which gets a fleeting mention at the beginning of the strategy but again ought to come near the very top, is the imperative need for a strong sense of fairness in society, and in economic and monetary systems that spread the proceeds of new wealth—not concentrate them—in a redistributive economy, not just one that statistically adds growth via GNP statistics. We need a radical overhaul of the monetary system to bring this about and bring the dignity and security of capital ownership to millions of households. If wages and benefits are just not adequate to provide security and reasonably stress-free living, and instead leave millions of households just not managing, you can say goodbye to industrial dynamism and competitive growth.
Next, I am sorry that the strategy authors still seem unable to resist the old error of picking some winners. Driverless cars may or may not be the next big thing, even though we are told they will not work in cities, in which most people live. In truth, we have no idea at all which ways new technology and innovation will take us, nor which constantly evolving and fluidised needs and wants will emerge. Most predictions on this front will almost certainly be wrong and very expensive. Manufacturing industries are now constantly transforming and are increasingly part of complex producer networks, spanning the globe and blurring sector classifications, as the noble Lord, Lord Mandelson, reminded us. It is simply not given to humans, and certainly not to government officials, to know how these systems and subsystems will work out.
While we need energy to be low carbon as far as possible, we also need it to be cheap, which it is not in this economy—it is some of the most expensive in Europe—and reliable, which it is in danger of not becoming, as well as making warm homes affordable. Without that, industrial growth will be hobbled. The sections in the White Paper on energy and climate seem to have forgotten about that basic requirement.
Perhaps above all we need from the top a narrative and a national purpose to motivate everybody, whether in the home or at work—especially in these confused and very dangerous times. Her Majesty the Queen spoke at Christmas about a vibrant Commonwealth. It may just be that, in a world of networks and algorithms driving everything, the Commonwealth network helps to give us new purpose and direction. Industry and competition will not thrive without a strong sense of where we are heading in the entirely new international conditions, both economic and political, which now prevail.
Finally, while efficient markets are of course important, if the focus on free markets and “growth” leads not just to competition and satisfying the consumer but to immense capital concentrations, massive global monopolies and disequilibrium throughout the planet, as looks suspiciously like happening right now, it is not the right strategy. We need as never before to distinguish between the quantity and the quality of production, growth and productivity. An unhealthy, brittle, unbalanced and divided society will in the end produce none of these.
My Lords, I declare my interest as chairman of WMG at the University of Warwick, as set out in the Register of Lords’ Interests. It is fitting that the first debate of the year is on the industrial strategy; 2018 is, after all, the Government’s Year of Engineering. Being an engineer, I shall concentrate just on the engineering sector of industry.
The industrial strategy is most welcome. I am sure that the challenge fund, increased tax credits and the national retraining scheme will make a real difference in the short term. The five foundations are broadly right; the grand challenges are all important. But however welcome, an industrial strategy needs more than good immediate announcements and exciting challenges.
In our previous debate on the industrial strategy, the noble Lord, Lord Hennessy, pointed out that this is the eighth attempt at an industrial strategy since the war—I think that somebody else said that it was the ninth. The sheer number of strategies shows the disconnect between them and demonstrates the core problem of Britain’s approach to industrial policy. We focus on the short term and not the long view. We do not review success, revise targets or refine our approach. We just rip it up and start again from scratch a few years later.
The consequences can be disastrous. We have had many White Papers on skills—just to give one example—but there has been no consistency in implementation and no stability in institutions. We have gone from levy to grant to levy, from training boards to skills councils and back. These changes have often been confusing and chaotic. It is no surprise then that we have a near-permanent skills crisis. With all the money that has been spent on it during the past 20 years, nothing has happened.
I have one big hope for this strategy: that it lasts longer than the others. A short-term industrial strategy can never succeed. You need time to implement it on the ground, time to bed in institutions and time to build partnerships, but we do not give a strategy much time before we decide that it is time for a change of plan. This is especially true for Ministers. We have already lost the noble Lord, Lord Prior, and I think that we nearly lost our Secretary of State, Greg Clark, between today’s opening and closing speeches. I hope that he is still there.
The turnover of people is matched by changes of policy. For many years, everything was seen as interventionist. Even research and science budgets were reduced—it was not the job of government. I remember that the first thing done by the Blair Government was to put back the science budget because it was in a terrible state. However, the research institutions that worked with industry had closed, so we had to reinvent them. I hope that the next industrial strategy is an update and not a reboot.
Another reason to focus on implementation is to keep our focus on delivery and then fixing where we fall short. For example, we have one of the lowest rates for business R&D, both within firms and in collaborative research. The Government have as a target for total R&D spending 2.4% of GDP in 10 years. It is a good target, and we want to hit it, but in 2004, the target was 2.5% of GDP, also in 10 years. Fourteen years later, total R&D spending as a share of GDP is largely unchanged, and the target is still 10 years away.
Is it a total policy failure? Not at all. Some sectors have made outstanding progress. Automotive businesses in this country disappeared completely. Today, automotive businesses have more than trebled R&D spend in a decade, from £1 billion to £3 billion a year. As a result, exports have doubled in a decade. Ninety per cent of that growth happened before Brexit devalued the pound. Imagine what would have happened if we had stayed in Europe. The challenge is replicating that success. It is the result of years of hard graft. When the great recession hit, the automotive sector struggled to get the help it needed to survive. As I said, “industrial strategy” and “intervention” had been anathema in government, so car makers chose to manufacture one. We started with a sector-wide Automotive Council so that the industry spoke with a single voice. We used this to secure support from government. The greatest success in BEIS today is what is happening with the Automotive Council, with all the industries together working with government. That led to collaborative investment in lightweight materials, low-carbon and connected and autonomous vehicles, all ideas which would completely change transport.
We built collaborative research centres to work on industry priorities, from battery technology and improving welding to data security. Big data analytics are completely changing the way in which cars are designed. Crucially, we persuaded global R&D leaders such as my friend, Ratan Tata, to invest in Britain. That put us in the right position to make a case for further investment, with money from government and industry together. This is where the regional policy comes into being. Our new mayor, Andy Street, and the local authorities—some are Labour, some are Conservative—have come together and we are now in a position to create 30,000 to 40,000 employment opportunities in the Midlands sub-region which had completely disappeared. That was one reason why the £80 million Faraday Institution for battery research was announced by the Secretary of State in October. There is also the business-funded, £150 million National Automotive Innovation Centre at Warwick, which will have a budget of about £1 billion within the next five years. On top of that, because there has been a big skills problem, we decided jointly with the LEP to fund a big apprenticeship centre, which will have 1,000 higher apprentices by the end of this decade.
Unless we have all such bodies joined up and the local authorities and regions working together, nothing will happen. It is the firm foundation that allows us to raise our ambitions. The challenge now is to encourage more business R&D in other sectors and increase our innovation intensity. We can use one successful sector to lead the way for others. In Britain, people used to say, “Oh, well, the automotive industry has disappeared. We should not be a manufacturing nation. We should only be a service sector; we should only be in the financial sector”. Let us now imagine it: the sector that died and lost tens of thousands of people in employment has come back within a matter of eight years. We have the skills in this country; we have the R&D base in this country; we have just to get our act together and it happens.
I shall give another example. The pressure on the automotive sector for lightweight vehicles has led to a challenge for our steel and materials industry. The noble Lord, Lord Prior, knows all about this. We need to reduce vehicle mass by 15% percent; if not, the Chinese will kill us. As a result of low-carbon vehicle targets, the UK steel sector needs net shape facilities. In this sector now, Port Talbot has been rescued without very much money from government, but with government support, including government moral support and, again, making the regions come together, with the Welsh authorities, with a LEP there and various other authorities coming together to save Port Talbot. I am pretty sure that in five years it will be one of the best steel plants in Europe.
We can do this because success breeds success. If we do not do research in that area we will again fall behind the Chinese and the Germans—even the Germans have struggled with the Chinese—and again have a sector where the raw materials will be coming from other countries. This is what this strategy is all about and it leads me to a crucial point. A strategy for the long term does not exist in a vacuum. Our industrial strategy needs to inform the rest of government policy. Our steel industry needs to invest in areas where the car industry has a market for it. All these sectors are not so independent that each can have its own sectoral industrial policy.
I give another example. We need to be very careful when we change behaviour with tax incentives. The Treasury encouraged Britain to buy diesel cars because they have the lowest emissions. Now British cars have the lowest emission tariffs. So what does the Treasury do? It raises duties and overnight the market collapses, because of the perception that it is raising duties because eventually the Government will ban diesel cars. This is another enormous waste, when one part does not know what the other part is doing. I hope that the Government understand that the right hand needs to know what the left hand is doing. It is no use having the integrated strategy that the noble Lord, Lord Heseltine, has mentioned many times if, within the Government, there is no integration. So I welcome this strategy. It is not perfect—nothing is—but it is a very good start and we should give it time in order to make it work.
My Lords, I am very pleased to follow the noble Lord, Lord Bhattacharyya. I very much agree with what he said, and I very much welcome this debate and the publication of the Government’s White Paper. It deserves support right across the spectrum, and that is what I want to talk about. Before I came into this place, I spent quite a lot of years as the chairman of one of our biggest ports and more than 20 years building industrial estates, largely in the north of England. That experience shows—and many other industries demonstrate the same thing—that you need long-term investment, long-term decision-making and certainty. You will not always be able to get all of those things, but the more you can get, the more successful you can be. I hope that this White Paper will bring certainty to people in all the sectors that have been mentioned.
There have been some excellent proposals for strengthening the White Paper during the course of this debate, not least the suggestion of strengthening the languages sector, and others as well. What has bedevilled our industrial strategy and a large section of our economic policy over the past 50 years and more has been the ideological divide that has split the political community and divided the community in the country. I do not share the view of the noble Lord, Lord Heseltine, and one or two others, that that divide has gone away. Indeed, if Greg Clark has been reappointed as Secretary of State I am absolutely delighted because I think he has been a very good Secretary of State. I have to say that he canvassed for me when he was an SDP member and got me returned to Parliament in 1983, so I have a certain prejudice in his favour. This represents what I believe is a consensus view right across the spectrum among most people.
Looking back over the period, the noble Lord, Lord Hennessy, estimated how many industrial strategies there had been. It was one of my predecessors as the Member for Stockton, Harold Macmillan, who first introduced Neddy, the NEDC, and the little Neddies that followed. We have had a succession of industrial strategies and attempts to develop our industry and economy over all those years, and they have been held up, stopped and done damage, in some instances, because there has not been a consensus behind them. I fear that that consensus is still not there. People forget that the Secretary of State’s predecessor, Mr Sajid Javid, took a very different view on these matters from that of Greg Clark. He started rolling back with great verve all that Vince Cable had done in the previous five years. Vince Cable was the longest serving Secretary of State since Peter Thorneycroft in the 1950s, but Sajid Javid wanted to reject any idea of “picking winners”. He was using all the old verbiage of the past that has been referred to by other speakers in the debate, other noble Lords. It just demonstrates that those ideological views that undermine a White Paper such as this are still around.
We are confronted with the possibility of a Labour Party, now led by a Marxist, returning to nationalisation and causing, again, the polarisation that, in my view, caused such damage to our industrial policy in the 1950s, 1960s and 1970s and, indeed, to some crucial industries, such as the steel industry, pitched backwards and forwards between the public sector and the private sector. We must not go back to that again. If we are to get certainty and long-term planning, there needs to be a political consensus. My appeal is that those in this Chamber and elsewhere in politics seek to bring that consensus behind the White Paper so that we can make a success of it. That also applies—this is something I have spent most of my life involved in—to that devolvement to the regions in which the noble Lord, Lord Heseltine, has played an enormous, very positive and successful role.
When I look at what has happened in the northern region during my time, 40 or 50 years ago we had the North of England Development Council, then we went on to the Northern Development Company, then we went on to the regional development agencies and now we have gone on to the LEPs. It has been change, change, change and division, division, division. That has not helped the development of that regional economy. We have a very good position on Teesside now, again helped by the noble Lord, Lord Heseltine, and all the work that the department, helped by him, has done. We now have a combined authority there, a Conservative mayor on Teesside, co-operating closely with Labour local authorities and really making a difference.
However, up the road from there, on Tyneside, we have complete chaos, where the Labour local authorities cannot agree with one another what should happen. North of the river, they are talking about setting up a combined authority, but all the authorities on the south side of the river want nothing to do with it. The port of which I was chairman, on Tyneside, has interests on both sides of the river: an international passenger terminal and a cruise terminal on one side of the river and lots of other facilities and big docks on the other side. One side would be in a combined authority, the other will be in different authorities on the other side of the river. It is going to make it much more difficult for that organisation—a big and important economic unit in the north-east—to function effectively and efficiently.
Yes, we want what the White Paper is saying—to devolve power down—and, yes, it has been successful in many areas, as the noble Lord said, but there is much further to go, and we will go further only if we can bring about that political consensus, at both local and national level, to give us the certainty in the long term that the success of this policy can bring. I hope that everything will be done by Members in this Chamber, the other Chamber and elsewhere in politics to try to unite people around this policy. It has many useful assets. The balance between the public sector and the private sector is laid out extremely well. The noble Lord, Lord Prior, put as powerful a case for an industrial strategy as you could find. There is a tremendous amount of evidence and of well-defined activity in the White Paper, which, if it is carried out, can be of enormous benefit to the country, but we need the support of all parties and all people to make a success of it.
My Lords, why has it proved so tough for successive Governments to shape a successful industrial strategy that inspires, bites and, above all, endures? It is as if the framers of such strategies have been so many sculptors gazing at a rough-hewn piece of marble and discerning in it the outline of a beautifully cut statue, there for the crafting, but the resulting piece of work never quite fulfils the hopes of those who created it.
However, it is a fine and, indeed, noble ambition. As other noble Lords have reminded me, the White Paper before us is the eighth attempt at achieving it since the Second World War. One of the great treats of the debate has been hearing the grandfathers of previous ones explaining what they did, and why and how they did it. I remember as a young journalist on the Times following the political career of the noble Lord, Lord Heseltine, from department to department and noticing that he created an industrial strategy in every department he touched, whether or not it was the policy of the Cabinet to have one in the first place. I watched with great admiration how he did that. The impulse has been within him, I suspect, since school. I would not know; maybe he will tell us.
All the strategies since the war, in their different ways, have involved the best and the brightest in the ministerial suites and policy divisions of Whitehall, as well as those called to the colours from the worlds of industry, commerce, education, science and technology, to help find the multiple and interlocking elements that might lift our economy on to a higher trajectory of performance and growth. Surely, amid the mixture of activities in factory, lab, school and university over the past 71 years since the Attlee Government set up the Central Economic Planning Staff, somehow we could have found the elixir needed to reach, for example, the 4% annual growth rate to which both mainstream political parties pledged themselves—how we would settle for that today—in the early days of NEDO in the early 1960s. We never achieved it, apart from the odd short-lived spurt.
The key ingredients of the problem, which have been well rehearsed by your Lordships today, have been known and analysed, from the Attlee/Morrison/Cripps model of the late 1940s right through to today’s White Paper. They have been poked at and prodded in all the strategies in between as well. What are these deeply ingrained and highly resistant problems that have held back both our society and our economy? There have been three of them and they are interlocked. Several noble Lords have covered the terrain already.
The first is the shortfall in technical skills compared to our needs at home and our competitors abroad. This has been recognised as a UK problem for at least 150 years. The parliamentary commission on endowed schools was hugely impressed by the technical high schools of Prussia. Reporting in 1868, it said that,
“we are bound to add that our evidence appears to show that our industrial classes have not even that basis of sound general education on which alone technical education can rest … and unless we remedy this want, we shall gradually but surely find that our undeniable superiority in wealth and perhaps in energy will not save us from decline”.
What extraordinary prescience.
I cherish the memory of Rab Butler, a great and decent man, but the single greatest missed opportunity was probably the remarkable Education Act 1944, of which I am very fond—it gave me a superb grammar school education—and many others would not be in this Chamber without it. But in it was the provision that, above all, might have avoided the need for this White Paper and this debate. It was for technical education to take off but the technical schools never flourished. They never taught more than 2% of the age group in the post-war years. As for the county colleges, which were going to be set up for FE training—sandwich courses, as we now call them: part-time day release—they were never set up. There within the provisions of the Education Act 1944 was the key remedy on the skills and technical front, but it was not to be.
The second ingrained problem is the difficulty we so often find in industrialising our top-flight science and research. One might call it the “thought in Britain but not made in Britain” syndrome.
The third factor is the low productivity that results from the other two, which leaves us so often trailing in the wake of the world’s leading industrial nations. According to the White Paper, we have but 12 years to break these malign talismans of economic underperformance. As the White Paper says in its concluding section, “Britain and the World”:
“Our aim is that by 2030 we will have transformed productivity and earning power across the UK to become the world’s most innovative economy and the best place to start and grow a business, with upgraded infrastructure and prosperous communities across the country”.
Amen to that shining set of aspirations. I think it is the only one that we can all sign up to, whatever our political or non-political affiliations, our economic philosophy or our leaver or remainer instincts. I was delighted when the noble Lord, Lord Mandelson, indicated that there was, with luck, a consensus waiting across the political Benches on this very question, if on no others.
It is a rarity in our current political landscape to find the possibility of genuine consensus on anything. Our Brexit-infected political ecology has left us, as a very wise friend of mine puts it, as a people seemingly on permanent grudge watch—always looking for things to fall out over rather than to fall in about. This White Paper could be the great shining exception. But signing up to an aspiration is one thing, dancing the multiple steps needed to achieve it quite another. The proposed industrial strategy council, the creation of which I warmly applaud, will need to keep a close watch on all the moving parts of the strategy and the ills it is designed to combat, especially those three horsemen of economic underperformance on which I have concentrated.
I hope that this White Paper might be seen by posterity as one of the master policy documents, such as the Beveridge report on welfare in 1942 or the Robbins report on higher education in 1963, but it has to shine—quickly—as the charter of a great shared national endeavour, because that is what we need it to be, with a dash of real inspiration that reaches into boardroom and production line, trade union and trade association, classroom and lab alike. In so many ways it is a question of spirit, optimism and, above all, tenacity. How we need it to work. The margins within which we are going to operate as a people, a society and an economy are tight and tightening, as the noble Lord, Lord Heseltine, so eloquently warned us earlier. Much, though not all, of the remedy lies in our own hands, in our hearts and our minds, and in our skills and our ingenuity. It is time for all of us to rise to the level of events and finally find that elusive statue lurking in the marble.
My Lords, I very much agreed with what the noble Lords, Lord Griffiths and Lord Bhattacharyya, had to say. I had reservations that yet again we were going to see fine words but whether they would turn out to deliver the goods was another matter, but I am comfortable to support such a national effort, as has just been referred to. It is a much better framework than the previous frameworks. At a tangent, I also point to the productivity leadership group convened by Sir Charlie Mayfield, chairman of John Lewis, to provide help and advice on implementing productivity improvement, particularly in the retail sector, which I will come to. That sort of organisation is healthy and sometimes has the ability to achieve things which Governments cannot achieve.
Of the government activities, I greatly welcome the transformation sector deal for life sciences, with 25 organisations taking over an important part of our economy, as the noble Lord, Lord Kakkar, pointed out. I too make the observation that it was a tragedy that the technical schools envisaged in the Butler Act never really flourished but I would point out their brave, continuing supporter in the form of my noble friend Lord Baker, who has now put in university technical colleges, which in the main are doing extremely well in producing the skills that we need and do not necessarily have.
This debate, to my mind, is essentially about our productivity and I would like to focus on five practical issues which, in aggregate, point us to why our productivity is probably understated in comparison with other economies. The first point is that if you subsidise pay, which is what tax credits do, you are bound to affect productivity. If labour is cheap and subsidised it encourages overemployment and the use of labour, rather than capital investment. That is the very opposite of France, where no firm wants to take on more labour than it can possibly avoid doing because it is so difficult to get rid of it; in the UK, we have had the reverse. Socially, that was a good thing following the financial crisis but we have gone beyond a time when it is positive. I note that the noble Lord, Lord Darling, has effectively made the same comment.
The second point has been touched on by a number of noble Lords today but not, I think, made specifically: one of our real problems has been an inadequate savings rate for 50 years and more. In the Keynesian sense, savings and investment must equal each other and inadequate saving has underpinned inadequate investment, very much in the way that has been referred to.
My third point is about the rather interesting study by Mark Price—now my noble friend Lord Price—on the importance of happiness in work and its effect on productivity and output. His measurements showed that the most satisfactory sectors were those of fast-moving consumer goods, hospitality and entertainment, while the least happy sectors were construction, transport, very much the public sector, engineering and architecture. The happiest people were the group aged 65-plus and the least happy those aged 19 to 24. It was interesting to read that John Lewis was established very much on the basis of that being important to the creation of an efficient business, and on the huge importance of employee ownership. I have always believed in that very much: when I built the Guinness Flight business, it was based on employee ownership.
John Lewis is to be a leader in addressing how to improve productivity in the retail sector—one of the sectors that has made the figures look so disappointing. There are over 3 million people employed in the retail sector. Where we have been in advance of other economies is in moving to online, which now represents over 20% of retail sales. Some extremely useful work has been done here by Gary Channon, the CEO of the fund managers Phoenix Asset Management. What has really been happening is that when we go to shops, if we buy things and take them home, that taking home is not in any way included in GDP figures. However, when you buy online, a whole range of activities—storing, packing up, delivering to the house in question—add considerable costs.
The figures look something like this: there should have been a reduction of towards 1 million people in traditional retailing to match the more than 20% that has gone to online delivery but it has not happened. However, online has created some 300,000 jobs and the combination of the two has, in the short term, hit productivity pretty seriously. That is why it is extremely important that our leading retailer, the John Lewis business, is focusing on this and making its own changes. A McKinsey report suggests that there could be 900,000 fewer jobs in retailing by 2020 and sees 53% of retail sales having scope for automation. John Lewis has also invested £500 million in its Magna Park national distribution centre. It has taken on 500 apprentices this year and looks to take a huge quantity of them by 2020. If you like, it is the lead business in how to improve and sort out the productivity of retailing in the greatly changing climate of having much more online business.
I also point, in parallel, to the financial services sector. I declare my interest in terms of my ongoing involvements in that sector. Since the credit crunch 10 years ago output has been stagnant and as a result the sector, which has been the biggest industry in the country, has fallen from having 9% of GDP to 7%. You would have thought that would result in a significant reduction in the number of people employed in the sector but not at all; rather, if anything, the numbers have increased with the enormous volume of new regulation and compliance that the industry has to face. Quite a lot of this, such as MiFID II, strikes me as contributing little or nothing and as extremely unhelpful to certain sectors, particularly private client fund management. Anyway, the net result of all that has been a big drop in financial services’ profitability.
The practical point I am making is that on a five-year view of these specific little areas, which are capable of being addressed relatively quickly, more recovery in productivity is likely to come from sorting out such areas than the big picture of the Government’s plan. But to go back to the beginning, they have my support. I had concerns initially that the plan reminded me of the Wilson Government’s national plan, but that is unfair for the reasons put forward by a number of excellent speakers today.
This territory needs cross-party national commitment. There is a lot going on in this country which is extremely good news, such as leading in tech sectors and the huge volume of younger people who are entrepreneurial and starting new businesses. But, for the reasons that my noble friend Lord Prior pointed out, it is absolutely essential that we improve our productivity and living standards if we want an open, democratic system to continue.
My Lords, I am very happy to be talking about industrial strategy, which is kind of strange. I am known as Mr Homeless or the Poverty Man—the “Buddy, can you spare me a dime?” sort of chap—so your Lordships would not think I would be interested in industrial strategy. However, I am interested in it because I am interested in productivity and in all the things that make possible a generosity of spirit and give us the opportunity to intervene in the lives of people in need and to help prevent those people who may fall into need from doing that.
I am not in any way looking on this as a slight, but it is interesting that there is nobody from the Church here. There are no right reverend Prelates in today. Is it the Bishops’ day off?
There is nobody from the Church on the speakers list. I make that point because the Church, or religion, is kind of the backbone where generosity comes from. Most of us learn about generosity through school, religion or the message of Christ et cetera. But if there was no industrial strategy, if there were no people going to work and earning money, then we would have no opportunity at all to be generous to each other. We would have absolutely nothing in the kitty.
I want to make a plea for social enterprise, which is not mentioned at all in the industrial strategy. I have to declare an interest in that I started one 26 years ago called the Big Issue, which was all based on the principle of getting people to work and giving them a hand up, not a handout. When I was asked about the nature of the work I was doing, I said it was a business response to a social crisis and was not simply extending another handout. We built the business among the most troubled, harmed and self-harming members of the community. We built a relatively tidy business out of that: we do not make a lot of money, and what comes in goes out, but it is a social business. It has also spread all over the world: you cannot go to many cities in the world that have not taken up the model that the Big Issue created. Wherever there is the problem of people who are hard up, we give them the opportunity of trading and of earning some honest money so that they do not have to do anything dishonest.
Social enterprise is the area that I started in and have worked in over the last 26 years. About 11 years ago we invented something called Big Issue Invest, which is a prevention mechanism that tries to work with people to stop them falling into crime and wrongdoing. We have created a number of social enterprises by investing. For example, when a local hospital in Salford wanted to privatise a sector, and the managers took over the business, we put money in and bought nurseries for them. They made all sorts of clever innovations, such as putting very young people with very old people. The Big Issue Invest has invested in 300 social businesses. I want people to buy into the idea that, even though we are only about 2% of the activity, if the Government were to get behind social enterprises, put an enormous amount of effort in and take us from a niche into the mainstream, that would do all sorts of wonderful things. For instance, we work largely in areas of deprivation and need, and it would help to transform these areas, because it involves the people themselves in their problems. It is not something that simply comes down from the top but something that grows up from the community.
The real problem for me when we talk about industrial strategy is that I am working in the areas where the laws of unintended consequences apply. For instance, the Thatcher Government removed all the subsidies for all of these industries, most of which, with the exception of the car industry and parts of the steel industry, had never made a profit in the 20th century and had been subsidised since the First World War. When that went, those jobs were not replaced with the kind of skilled work that would take a lot of people and move them forward, skilling them up instead of having them rely on social security. Many ended up doing that for generations, with the sluice gates opening for social security so that you could take in 11,000 people in Sunderland’s job exchange on the Monday, when on the previous Friday there had been only about 55.
You get those kind of weird distortions. Social enterprise—the work we do—is about going into those areas and trying to make up for the deficit of thinking, of strategy and of government involvement in them. I know that there have been some really top-notch, Rolls-Royce innovations. We are very good in Britain at producing pilots and wonderful little inventions in particular parts of the country, but we are not very good at making a whole strategy. We have to grow up a bit. Every time we mention industrial strategy, we talk about Germany, which is brilliant, but we have to be truthful and ask what the Germans do, in a big way, that we have never done. The Government lead social and business innovation. All the big companies that made it possible for Germany to run the First World War survived, and carried on even after the Second World War. All the big innovations were made by government under Bismarck at the end of the 19th century and they lived on.
Why do we not accept that government should be one of the most brilliant means of investing in and creating new industries? That is what it does in fact. Go to California, talk to the people in Silicon Valley and ask them where they were 20 or 30 years ago when the innovations that created their businesses were being invented by the military and in our universities with public money. When are we going to start getting real and accept the fact that most of the big changes that have taken place in the world and have created new industries have been led by the use of public money?
My Lords, what a pleasure to follow the noble Lord, Lord Bird, whose own generosity of spirit has borne fruit wonderfully.
I now see that I am not alone in having had a sinking heart when talk of a new industrial strategy first entered the realm of public discussion. “Here we go again”, I thought, “another exercise in picking winners, shielding inefficient business and offering grand promises to those who prosper least in our society”. I was wrong, or at least I am persuaded that my cynicism was misplaced. I heartily congratulate the Government on their industrial strategy White Paper, and I thank with equal enthusiasm my noble friend Lord Henley on his excellent speech that opened this important debate. Under consideration is a hugely ambitious set of proposals. I asked myself if perhaps it was too ambitious and indeed unrealistic in its scope. On reflection, I concluded that past failures by Governments seeking to improve economic performance stemmed in part from too little ambition rather than too much, and from a narrowness of scope that resulted in flawed delivery.
I found the White Paper an exciting read, if not a page turner. It is unusually thoughtful and has an especially winning feature from my point of view: everyone can feel justified in feeling that their particular circumstance is being taken into account. We are invited, in effect, to participate in something intended to improve the lot of each one of us in every part of the UK. Although I always listen to my noble friend Lord Howell with the greatest respect, I take issue with his rather gloomy outlook here. Both the nation’s children and its ageing population are discussed, as are town and country, while the devolved Administrations and large and small businesses all get a hearing. It is pleasing to read in a document about industrial strategy that the environment and the fascinating concept of “natural capital” find a place. It anticipates Britain’s departure from the EU but it is not at the expense of anything else.
The comprehensive nature of this White Paper is really encouraging. I first got wind of the fact that thought and vision had found their way into a government White Paper when I read the debate in another place following the Statement on
As a Conservative, it comes naturally to me to challenge any and all extensions of government interference in such areas of industry. Indeed, the White Paper commendably acknowledges that risks are attached to the Government’s approach. There are risks, and one would need to be a great optimist to expect all these great ideas to materialise as planned. We should take to heart my noble friend Lord Heseltine’s warnings in that respect. Broadly speaking, though, there has been a great deal of consultation leading up to the publication of the White Paper, and the very fact of continuing devolution suggests to me that the Government of the day need in reality to be an active participant in the nation’s economic development. The Government’s dominant role in providing such areas as health, welfare and education lead me to exactly the same conclusion.
If I understand it right, the paper suggests that the delivery of these proposals will rely heavily on partnership. I applaud that aspiration, with the proviso that the partnership has to be genuine and mechanisms will need to be in place—through, I suppose, the independent commission—to ensure that it does not become one-sided. One should never underestimate the capacity of Governments to bully when they feel they hold all the cards. I was especially pleased to read of the Government’s intention to ensure that 60% of contracts for major projects will be awarded to the SME sector. Living as I do alongside very dominant tier 1 companies, I am very familiar with supply-chain promises that fail utterly to materialise in practice. I urge the Government to make a reality of this pledge and take seriously my noble friend Lord Maude’s remarks about supply chains.
I do not think I have ever risen to speak in your Lordships’ House unless I have felt that at least most of what I had to say stemmed from personal experience. When a debate of this nature is listed I try also to consult local friends and acquaintances engaged in entrepreneurial activity. Perhaps I should declare my own interests as listed in the register of Members’ interests. In a word, after 10 years of international trading, my work has been in a highly varied family business based in Cumbria, with some 200 souls on the payroll.
The White Paper leaves me in no doubt that cities and areas of the UK that conform to modern best practice in terms of governance are and will be ahead in the queue to benefit from the proposals that we are discussing. It is not clear to me that the county that the Minister and I have the privilege of living in has quite got up to speed in this regard. I remember a senior civil servant telling me in exasperation, “Your trouble in Cumbria is that you are overgoverned and underled”. Again and again the White Paper lays stress on the importance of local leadership if its proposals are to bear fruit. I hope we in Cumbria will take note of that and will be given time for amendment of life. I wonder whether the Minister has any thoughts not just on our lovely county but on other places that need rather a different approach if the people who live there can expect to benefit from the really exciting prospects that the White Paper lays before us. It is, in essence, the same question that my noble friend Lord Heseltine asked the Minister.
While I understand that the Government wish to demonstrate ownership of this thoughtful White Paper, I confess to being a little surprised by how little the private sector is involved financially. In a recent debate I drew attention to a CapX article by Mr George Trefgarne suggesting that infrastructure projects could be financed privately through the means of what in Victorian times were called project bonds. A faintly related idea subsequently surfaced in the patient capital review, and tucked away in the White Paper is mention of the possibility of pension funds being enabled to enjoy slightly greater investment flexibility. Huge sums of money are stashed away in this country—or so I am told—looking for a home, a point made by my noble friend Lord Griffiths. I am at a loss to understand the apparent reluctance of the Government to encourage private sector participation in infrastructure projects. I wonder again if the Minister might be in a position to comment on that.
I turn to a paragraph in the paper that suggests that UK taxation levels are “competitive”. I am sure that statement, whatever it is meant to mean, is capable of being defended. I merely make the point that even if headline rates appear reasonable, taxation is still very high overall, and damagingly so. There may be good reasons why relatively high levels of taxation exist as part of repairing the country’s finances. However, as I have said before in your Lordships’ House, burdensome regulation, high taxation and an enduring perception that the Government and their agencies are hostile combine to be a serious disincentive to investment, especially regarding the impact on the SME sector. It is because of these disincentives—I say this with great sadness—that my own family business has recently deferred, perhaps indefinitely, what amounts to a very substantial investment for a small company. It is very difficult to measure what I would describe as public sector hostility. I have encountered it with planning authorities, a wide range of regulators, quangos and, on occasion, even the police. In recent months, I may have detected some improvement in public sector culture. Indeed, I am much encouraged by the collaborative tone of the White Paper, which suggests that maybe some lessons have been learned.
A close neighbour of mine in Cumbria has built up a small business in his backyard that manufactures subsea acoustic navigational equipment for military customers and search-and-rescue divers. This splendid pioneering young man acknowledges gratefully the help that he receives, especially R&D incentives and the measures that protect his intellectual property. However, he writes:
“UK manufacturers are bombarded by European compliance legislation that is applied with very little thought to type or quantity produced. Some of this legislation such as CE marking (Conformité Européenne) and WEEE (Waste Electrical and Electronic Equipment) compliance are extremely difficult and onerous to achieve and are very effectively pricing us out of the market. In theory, if we were asked to design and manufacture just one small batch of product it would need to conform to all the same red tape put in place for mass manufacturers”.
My talented friend suffers also from tier 1 neighbours who breed huge salary competition, creating skills vacuums for smaller enterprises. What he has yet to encounter, as I have, is the grotesque practice by some big companies which lobby EU officials to add burdens to compliance and thus disadvantage their agile, small competitors.
These serious imperfections in the current business climate facing SMEs need to be addressed, and I hope that they will be, but that is not to suggest that they diminish in any way the opportunities outlined in the visionary White Paper. My hope is that the strategy will take account of inherited flaws in the present system.
The White Paper touches everybody and seeks to better the lives of all of us. It captures the new mood that free trade is a moral as well as an economic imperative. It equips our country with the means to prosper in a global market, free from resort to protectionism. It speaks of innovation and advanced technology not in terms of profit and balance sheets alone; it speaks with rather unusual warmth and humanity of how we and those who follow us might live happier, more fulfilled and contented lives.
My Lords, the Government’s industrial strategy cannot be adequately appraised in the short time available to an individual speaker. The Green Paper of January 2017 raised the matters of concern. The White Paper of November 2017 sets forth the Government’s intentions.
The White Paper ignores many of the issues raised by the Green Paper. There is, however, a surprising element in it that I can only describe as political cross-dressing. Lip service is now being paid to some of the critiques and proposals that have long been part of the message and agenda of the Labour Party. There is now dawning recognition that many of the central tenets of an enduring Conservative ideology, such as the nostrums of free enterprise and privatisation, have run their course. These are no longer fresh ideas; nowadays, they are associated with some of the worst dysfunctions of our economy.
A brief mention is made in the Green Paper of the failure of the industrial interventions of previous Governments. We may recall that in the 1960s and 1970s, and even thereafter, these interventions were mainly in support of troubled and senescent industries. The industrial policies pursued by our competitors were aimed primarily at supporting growing industries. In consequence of their investment in newer technologies and manufacturing equipment and with the advantage of cheaper labour, these industries were able to outcompete our comparable industries.
A reaction of Margaret Thatcher and of Keith Joseph, who was her Secretary of State for Industry, to the failed industrial policies of the 1960s and 1970s was to declare that lame-duck industries should no longer be supported by government but should be allowed to fail. The Conservative Party developed an aversion to industrial intervention that has endured from that time to the present, as have many of its other attitudes towards industry that arose in that era.
The policy of privatisation and the allied failure to use government procurement to support our native industries are both parts of Thatcher’s enduring legacy. An object lesson has been provided by our electricity supply industry, which passed into private ownership at a time when the French nationalised electricity industry was investing heavily in nuclear power generation. When the electricity industry passed into private ownership, which has become preponderantly foreign ownership, the building of large power stations—whether powered by nuclear or by fossil fuels—ceased, as did the demand for the generating equipment.
Instead, the newly privatised industry resorted to building combined-cycle gas turbine power plants for which the equipment was supplied by foreign companies. The leading British engineering firms that had supplied steam turbines and generators to the erstwhile Central Electricity Generating Board fell into decline. The gas turbines that power the combined-cycle plants are aero-engine derivatives. Thus, it might have been expected that the two branches of the British turbine industry would combine to exploit the opportunities for equipping the new CCGT power stations.
It would have required an initiative from central government to make this happen, but none was forthcoming. The electricity industry is now in want of major investments to meet the demands of decarbonisation and of electrified transport. These investments will not be forthcoming from private industry. However, it seems that the Government persist in thinking that they can and ought to be financed by private capital. Moreover, the Government have failed adequately to support our native nuclear industry, which would be well placed to capture an international market in small modular nuclear reactors for use in generating electricity.
Another free-market principle of the Conservative Party is that Governments should not interfere, via the operations of the central bank, in determining our rate of exchange with foreign currencies. This nostrum arose in consequence of the experience of our brief participation in the European exchange rate mechanism in 1992. The ERM was a prelude to the establishment of the euro currency. Britain joined the ERM with an overvalued currency at a rate that it was unable to sustain, despite the expenditure of a large proportion of its foreign currency reserves. An overvalued currency, which has made exporting our industrial products difficult and unprofitable, has been one of the prime causes of the failure of our industries.
Recently, the principle of non-intervention was restated firmly in this House by the erstwhile Parliamentary Secretary to the Treasury—the noble Lord, Lord Young of Cookham—when the Government were being enjoined to take steps to reduce the value of the pound relative to other currencies. In consequence of their assessment of the prospects of Brexit, foreigners are no longer as keen to purchase the pound, which has recently fallen markedly in value. We now have a currency that is enabling parts of our much-diminished industrial sector to respond to some renewed export opportunities. It is ironic that this devaluation is a consequence of a policy that threatens to inflict major damage on the economy. The Brexit enterprise has served to divert the Government’s attention away from the social and economic problems that are afflicting us so acutely. That is why many critics regard the Government’s industrial strategy as a dead letter, although it has been proclaimed as a necessary adjunct of Brexit.
If we look back in time, we see that an overvalued currency which has inhibited our exports has been an affliction of British industry throughout the period since the Second World War. We emerged from the war with massive overseas debts and a currency that was still a principal medium of international trade and financial transactions. This international status ensured a high demand and high value for the pound, which was locked in place by the Bretton Woods system of international exchange.
Successive Governments felt compelled to maintain sterling’s rate of exchange for fear of what was described as a run on the pound, which was expected to result from any hint of sterling’s impending devaluation. The pound is no longer a major international currency. Nevertheless, the activities of our inflated financial sector have served to maintain its overvaluation. This crippling effect is barely recognised in any of the Government’s documents.
The financial sector has been largely responsible for the so-called inward financial investment of which both the White Paper and the Green Paper boast. This inward investment, which has served to maintain the demand for the pound and heighten its value, would be better described as divestment, since it has entailed the sale of British companies to overseas enterprises and investors.
We have sold our public utilities, including our water and electricity industries, our sea and airports. We have placed the running of our rail network in the hands of foreign operators, which are typically nationalised industries. We are being charged grossly for the use of what ought to be our native facilities. This is bad enough, but the divestment has also made large inroads into our manufacturing industries, including our automotive and aviation industries. Our pharmaceuticals industry has narrowly avoided falling into the hands of overseas predators. We have recently divested ourselves of a key component of our electronics industry, which is the ARM chip manufacturer. I could greatly expand this list.
Not only has the value of the pound been sustained by these sales, but fortunes have been made by the financial institutions that have mediated the sales. This has given an illusion of high productivity within the sector, which has been extolled in the Government’s documents.
British companies that are in foreign ownership are not the most appropriate beneficiaries of a policy aimed at the regeneration of our industrial sector. They are liable to be treated by their foreign owners far less favourably than their home enterprises. These foreign-owned companies are liable to be the buffers that suffer the disinvestments and the redundancies that accompany the downturns of global economic activity. This so-called inward investment is liable to be considerably reduced in future, given that so little of British industry remains to be sold abroad.
I shall conclude this account with another aspersion against the financial sector, which has been recognised in the Green Paper but which has not been mentioned in the White Paper. This is the failure of our commercial banks to serve the needs of small enterprises. The enduring scandal of the treatment by the Royal Bank of Scotland of its business clients is a stark reminder of this failure. The unwillingness of banks to lend to businesses, allied with the limited prospects for growth through the sale of their products abroad, has meant that, for many years, our industries have failed adequately to invest in modern technology and equipment. I cannot see much chance of these prospects improving. Therefore, I fear that nothing will come of the Government’s industrial strategy.
My Lords, notwithstanding the rather gloomy look on things by the noble Viscount, as an international shipping specialist for my entire career, and a former Lord Mayor of London, I see much to applaud in the industrial strategy. The proposals are wide-reaching, ambitious and full of purpose. There is no shortage of proposals, and the five foundations and four grand challenges under which they are grouped reflect the thoughts and concerns of many employers. Indeed these are matters which are of the utmost importance for us all.
That is why the strategy was welcomed in the City by firms that know how crucial automation, the physical and business environments, and infrastructure are to sustainable growth. Building on the point made by the noble Lord, Lord Heseltine, and taking up the point made by the noble Lord, Lord Prior, competitiveness should be central to this strategy, which the noble Lord, Lord Prior, said, is a work in progress.
It is true that the strategy has little to say on two key sectors. If we, as a nation, are to play as important a role in the 21st century as we did in the 20th century, we need also to recognise and maximise our existing competitive advantages, such as the financial and professional services firms that already employ 2.2 million people around the UK—two-thirds of them outside London. This sector is surely a vital ingredient in the future success of the industrial strategy and of the nation as a key facilitator of business.
While I welcomed the Government’s recognition in its industrial strategy Green Paper of the UK’s position as,
“a world leader in financial services”,
I was disappointed to see that the White Paper makes scant mention of the financial and professional services sector. A report commissioned by the City of London Corporation, where my involvement is on the register, and produced by PwC on the total tax contribution of UK financial services showed that financial services alone contributed an estimated £72.1 billion to the Exchequer—the equivalent of 11% of all UK tax receipts in the year to March 2017. Furthermore, financial services provide crucial support to businesses across the UK through access to capital, underpinning the financing of a significant number of British industries. The sector also provides the country’s largest trade surplus—a trade surplus greater than all other net exporting industries combined.
Across the UK, 21 towns and cities beyond London each have more than 10,000 people employed in the industry. Six cities have more than 30,000 people. These centres are aligned to the financial centres of excellence programme, promoted by the Government and launched by the former UKTI in 2015-16 with the support of TheCityUK. It is vital that in order to encourage these centres to grow and fulfil their role in supporting and enabling the UK economy, there is the right support for this vital and facilitating industry.
This is an industry where Britain is number one in the world, but, our world—and, of course, European—leadership in this sector cannot be taken for granted. We face increasing international competition. TheCityUK, in partnership with PwC, has already set out its plans for the industry and a road map to implement them. The report looks at themes such as building regional financial centres and the growth of digitalisation. It estimates that if its vision for a transformed industry were to be realised, the economic benefit to the UK could be as high as £43 billion, with 70% of this growth taking place outside London.
During my time as Lord Mayor of the City of London, I witnessed first hand the efforts made to ensure that the UK remains a key destination for trade in financial services and a centre for innovation in products such as Fintech and green finance. However—here I nod to the ongoing Brexit negotiations—if the Government intend to attract new investment into the sector, as well as to retain and grow existing investment, increase financial services exports and promote job creation, clarity must be provided on three issues: transition, trade and talent. As TheCityUK recommended recently, the single most important thing is collaboration between industry, government and regulators, likely to be overseen by the Treasury, possibly as one of the sector deals floated in the industrial strategy, but definitely arranged to maximise the industry’s contribution to national prosperity.
The second industry which I suggest deserves a place in this strategy is maritime—a subject which your Lordships will be aware has occupied most of my professional life. I was privileged to be asked by the Government in 2015 to chair the Maritime Growth Study, which made a number of recommendations for keeping the UK maritime sector competitive. My involvements in maritime are on the register. This is another area where the UK is a world leader. The growth study highlighted our role as a one-stop maritime shop that exports worldwide and encourages inward investment.
The UK maritime sector is of strategic importance to the UK in two distinct ways. First, in its own right, it is a major economic contributor, with its net benefit to the country close to £40 billion and supporting just under 1 million jobs. Secondly, as an island nation, Britain transports 95% of its exports and imports by sea, making its maritime supply chain critical to its economic and social well-being. For both these reasons our maritime sector—again a key business and trade facilitator—will continue to underpin the future success of the country in a post-Brexit world in which global trading opportunities will never have been more important.
Under Maritime UK, which brings together the principal trade associations and other interests in this wide and diverse sector, the industry has been working closely with government to implement the Maritime Growth Study report and sees the industrial strategy, and an ambitious maritime sector deal, which we are working on, as powerful tools to increase the pace of this work. The aim is to ensure that the UK maritime sector which includes our vital ports, ship-owning, and I am pleased to report that the UK register is growing once more, resurgent shipbuilding, partly reflecting defence work, of course, and vibrant boat building, innovative marine engineering and world-leading professional services, universities and training establishments is best-placed to serve the rest of the economy, and enhance its role as a competitive, innovative and dynamic world-leading sector.
I do not propose to list all the initiatives under way that can, I hope, result in sector status for maritime. Many of the world’s leading maritime industry research and training institutions, manufacturers and service providers are located in the UK. The sector features globally recognised and industry-leading brands that drive forward key developments in equipment, product design and technical innovation. Research and development in the maritime sector is extensive, supported by the world-class capabilities of UK universities and research institutes. The UK’s maritime research landscape is further enriched as a result of the large number of small and medium-sized enterprises at the forefront of R&D innovation.
The UK has the potential to be a leading player in maritime autonomy and therefore the emphasis the Government’s strategy places on robotics and artificial intelligence is most welcome. Indeed, maritime autonomy is an area where we are considering a sector deal bid. Skills implications will be a key part of this discussion, and, on skills, I particularly commend the industry’s request for additional funding for the SMarT Plus officer training scheme.
Industry and academia have developed proposals for the creation of maritime research and innovation UK, to bring together the UK’s excellent academic and research institutions with industry to address the demands for applied R&D. In recognition of the existence of a number of highly valued bodies around the country, the centre should be based on a hub and spoke model, similar to that of the High Value Manufacturing Catapult or the composites catapult in Bristol, fully to utilise the substantial infrastructure which currently exists in the UK, and there will be more.
Our ports remain a global success and a local necessity. It is vital that when looking at the infrastructure investment under the strategy, the connectivity of our ports is improved. Recent research confirmed that coastal towns are among the most deprived, so ports such as Felixstowe, Grimsby, Dover, Glasgow and elsewhere provide employment for local people who often do not have an array of other opportunities. Greater support for the UK’s maritime sector—for example, by developing the skills base—would, therefore, represent an investment in the prosperity of some of its most challenged regions.
In conclusion, while I strongly commend the Government’s efforts to produce a framework for a much-needed modern industrial strategy, I urge the Minister to consider the benefits of widening the scope of this plan. The importance of sectors such as financial and professional services and maritime—both great bastions of British industry—cannot be underestimated if we are serious about,
“building a Britain fit for the future”.
Therefore, I take my hat off to the Government for their work so far, but invite them to extend the breadth and range of the sectors that might be included.
My Lords, I welcome the publication of the White Paper and the Government’s commitment to boosting productivity and earning power across the UK.
As many noble Lords have mentioned, there are a number of positives, such as the strategy’s recognition of the importance of collaboration and partnerships and the Government’s increased commitment to R&D and innovative technologies.
Proposals to upgrade the United Kingdom’s infrastructure are another positive. I noted that my noble friend said in introducing the debate that high-quality infrastructure is vital, referring to digital and physical infrastructure. However, there is an important omission in the White Paper’s references to infrastructure. In drawing attention to this omission, I should declare an interest as chairman of the UK Accreditation Service and president of the Chartered Quality Institute.
One of the essential factors underpinning productivity, earning power, innovation and competitiveness is a framework of quality standards, accreditation, measurement and regulations which ensures that when businesses and consumers buy or receive something they get exactly what they expect. For standards, accreditation, measurement and regulations to be fully effective, they must be designed and implemented rigorously and consistently to give a high level of confidence in the outcome. The importance of achieving this consistent quality and rigour has led to the concept of a national quality infrastructure in the United Kingdom and, indeed, in a number of other leading economies.
A national quality infrastructure has four core components: standardisation, which creates the national and international standards that specify good practice in how products are made or services are provided; conformity assessment, which involves testing and certification to ensure that the quality, performance, reliability or safety of products and services meet the required specifications and standards; accreditation, which ensures that those who carry out conformity assessments such as testing, certification and inspection do so in a way that is competent, consistent and impartial; and finally and importantly, measurement, which ensures accuracy, validity and consistency.
A national quality infrastructure that commands confidence is vital to earning power, productivity, research, development and new technologies. Indeed a national quality infrastructure is vital for any industry and any modern economy. Furthermore, and of especial relevance as we prepare to leave the EU, a recognised national quality infrastructure also supports international trade and is an essential component of any free trade agreement; hence the use of national quality infrastructures to underpin WTO rules on eliminating technical barriers to trade through the acceptance of international standards and the mutual recognition of accredited conformity assessment results and regulatory equivalence.
The UK’s national quality infrastructure is largely delivered by four long-established and internationally respected institutions: the British Standards Institution, or BSI, which is the UK’s national standards body responsible for producing national and international standards; the National Physical Laboratory, or NPL, which is the UK’s national measurement institute; Regulatory Delivery, or RD, which is part of the Department for Business, Energy and Industrial Strategy, that provides the regulatory and market surveillance infrastructure that enables businesses to export goods globally; and the United Kingdom Accreditation Service, which is the UK’s national accreditation body. As the UK’s national quality infrastructure, their combined contribution to productivity, earning power, industry and the economy should not be underestimated.
Independent research on the economic contribution of standards to the UK economy found that around 37% of UK productivity growth and 28% of annual UK GDP growth can be attributed to standards, the latter figure being equivalent to £8.2 billion per annum, and that standards also account for £6.1 billion of additional UK exports per annum. The benefits of accreditation to the UK economy are worth over £600 million in terms of those commercial benefits that can be measured against financial indicators, but this figure is probably closer to £1 billion per annum once unquantified trade and productivity benefits are taken into account.
In short, the wider benefits to the UK of our widely trusted and internationally respected national quality infrastructure include: improved business productivity and performance; increased domestic commercial activity; more innovation and faster commercialisation of innovation, creating new markets at home and abroad for UK businesses; better, safer, more sustainable and more tradeable products; increased competitiveness in international markets; reduced costs of international trade, and increased confidence on the part of non-UK investors in the United Kingdom market.
I therefore believe that the White Paper should have explicitly recognised the role of the United Kingdom’s quality infrastructure, and that my noble friend should have referred to not just a digital and physical infrastructure but to a digital, physical and quality infrastructure. Quality underpins confidence, confidence underpins investment and investment underpins productivity, growth, jobs, new technologies, exports and a lot more besides. A culture, commitment and reputation for quality, manifested through a robust national quality infrastructure, are essential to a successful industrial strategy and a successful economy. With this in mind, I urge the Government to ensure that the new independent industrial strategy council, which I welcome, includes among its membership an understanding of the vital role performed by the United Kingdom’s national quality infrastructure and the valuable contribution it can make in the future.
My Lords, it is a pleasure to take part in this debate. I also welcome the production of the industrial strategy. I am pleased to follow the noble Earl, Lord Lindsay, with his strong emphasis on the need for quality infrastructure—a point to which I shall return in just a moment or two. I shall also draw in from one of the other threads of the debate what my noble friend Lady Randerson said, when she identified the 4 million shortfall in skilled workers that the UK economy faces in the near future. I also pick up what the noble Lord, Lord Maude, said, when he said to remember to talk to the small companies. I shall just weave in that social enterprises will not, I hope, be left out of that consideration as well.
Some of the strands of this debate have looked at whether the strategy is just repackaging or whether it is chasing the moon—but I shall take it at its face value as being a new and very important contribution to setting the UK economy in the right direction. The foundations set out are broad but sensible ideas, with much more to come on research, innovation and people, to develop a world-class skills training to match higher education. That is a very big objective to achieve, as many speakers have pointed out. There is to be an enhanced business environment so that companies can start, grow and prosper, as well as investment in infrastructure, particularly in transport, housing and the digital environment—and, in places, levelling up growth and providing job opportunities in every part of the kingdom. Those are very big and broad objectives.
The report talks of the grand challenges of artificial intelligence and big data, green growth and mobility, and of an ageing society. I suggest to your Lordships that as well as those four big challenges there is one missing challenge necessary to be met before the five foundations can be delivered, the challenge of a shrinking labour force and a reducing capacity to deliver in the one industry that is central to the delivery of all of that—the construction industry. That is not just a nice-to-have industry, but a vital one. If you want the ideas foundation, you will need laboratories and workshops, and they will need to be built. If you want world-class skills training to match higher education you will need buildings to conduct it in, and you will need laboratories, workshops and, possibly, a revamping of many of our colleges of further education. If you want a business environment where companies can readily start, grow and prosper, you will need the construction industry to deliver.
I could go on—but let us just take housing. If you are going to double housing production, in very broad terms you need to double the construction force building those homes. I am sure that the Minister will talk about modern methods of construction, but not I think a 50% improvement in productivity in the next two years. If you want to level up growth across the country, whether it is with the northern powerhouse or any other of the regional development strategies, that also requires the construction industry. I labour that point because I welcome the planned construction sector deal as far as it goes, but I put to the Minister that it lacks urgency and a means of delivery, and it underestimates the size of the task.
Page 24 of the strategy states:
“There will, inevitably, be uncertainty while we determine the precise nature of our future trading arrangement with the EU. To minimise this, we are seeking to agree an implementation period, of around two years, to allow business time to adapt to the new arrangements”.
The bit of that that I take issue with is the suggestion that there is any uncertainty. Actually, there is a considerable degree of certainty about what will happen in relation to the construction industry. We know, for instance, that 8% of its workforce is currently from the EU 27 and, in London, 50% of the workforce in construction is from the EU 27. The ICE, supported by KPMG, produced a report submitted to the Exiting the European Union Committee in the Commons, which showed that, if the kind of infrastructure investment which I have just outlined and which is outlined in the Government’s strategy is going to be delivered, the construction industry needs an increase in capacity of 35%, whereas, if Brexit goes ahead and the Government are successful in reducing inward migration, as they clearly intend they should be, the capacity of the industry may shrink by 8% and by much more in London.
It is instructive to read the Government’s own impact assessment, so-called. Obviously, I cannot reveal in this place what I read when I went there; I am sure that the Minister will have read it and will be familiar with it. It is a very good primer on what the construction industry does, how it is organised and how the legislative framework runs round it. That is section 1—section 2 outlines the sector’s fears over what will happen with Brexit, and what will happen with labour. Then section 3, where the analysis, proposals and alternatives come, is absolutely and completely blank. I apologise for revealing that to the House when I swore that I would not do so. But I make it clear that the Government’s own assessment of the industry makes it clear that these are real problems. In case that is not sufficient, there is the construction industry’s own Brexit manifestos and the Construction Industry Training Board White Paper—and, of course, just before Christmas, the Home Builders Federation produced a report along the same lines.
I think that the Minister will say, “Yes, we’ve listened to all that, and we’re working with the Construction Leadership Council to make construction one of the first sector deals of this industrial strategy”. That is okay, as far as it goes, but the industry is now, this year—or last year, anyway—losing 70,000 people from its labour force by retirements, and is recruiting from UK residents fewer than 40,000 people per year. It is topping that up by inward migration, predominantly, at 90%, from the EU 27. People might think, as a caricature, that it is bricklayers and plumbers—but the RIBA says that 25% of the registered architects practising in London are from the EU 27 countries. So this is a problem that will affect the construction industry and the Government’s capacity to deliver their whole industrial strategy from top to bottom.
The Government have a problem, because they want to do two things. They want to stop inward migration. Perhaps the Minister does not want to—and there may be some caveats about that—but it is a fundamental driver to reduce inward migration. At the same time, the strategy will increase the need for the construction industry to deliver by 35%. Slowing down the flow in and expanding the delivery, all in time for the next general election, sounds like a pretty tall order to me. The measures here, and the construction deal in its embryonic form, are no match for the task of supporting an expanded and strengthened construction industry that could deliver on the industrial strategy’s five foundations or meet the four grand challenges.
What is needed first is world-class skills training. Let us suppose that this can be begun in September this year. It surely cannot start earlier than the new autumn term. That means that the first apprentice from this will be available on site and in the design offices in June 2022. The first engineers and architects will be available in June 2023 and 2024. Assuming that everything goes to plan and people can be recruited, people with the high level of skills needed will not be available until 2022, 2023 and 2024. This means that the absolute priority for the construction industry has got to be retaining the existing EU 27 workers who are currently in the workforce and making sure that there is a long-term, simple and cheap transition period for the industry to fill the gap in the meantime. The possibilities of expanding the workforce both by volume and by period of time are vital issues to be addressed.
Having, I hope, convinced the Minister of the need for that long transition deal and easy access to EU 27 labour, the second need is for a strong and stable pipeline of public investment. Picking up on what the noble Lord, Lord Maude, said, 90,000 small companies are delivering almost half the output of the construction industry. Some 86% of those are very small companies with fewer than two employees. They have low incentives to engage in training. They have an unworkable apprenticeship levy to handle. If you are a bigger company, there is no incentive to spend on research, innovation or modern methods of construction or to build productivity unless there is a long-term commitment of public investment in the construction industry.
Thirdly, we clearly have to double skills training. That means retaining trainees in the existing training programmes. Eight out of 10 building trade apprenticeships which start do not result in people going into the construction industry; only two out of 10 of them do. This is, of course, because other offers come along and the construction industry is not seen as very high status. We have to appeal to the whole workforce, only 9% of whom are women. As my noble friend Lord Addington very ably demonstrated, a significant slice of people are excluded from ready entry to such apprenticeships because they do not have the statements to which he referred or the capacity to participate in the standard tests which apply at the moment. Interestingly, one of the largest building contractors that I have been speaking to said that his recruits last year were gamers. They are now looking for people who understand three dimensions and artificial environments when they are designing.
Finally, it is good that the Government have got an industrial strategy and that construction features in it. However, the Minister needs to recognise that construction cannot deliver what the strategy sets out without a huge step change. It cannot deliver 1 million homes and the infrastructure for that export-led boom will remain unbuilt unless the Government pick up the challenges to the construction industry which should have been in this report.
My Lords, I give a warm welcome to the Industrial Strategy White Paper. I will focus my remarks on its infrastructure aspects and the construction sector deal. I fully support the concerns expressed by the noble Lord, Lord Stunell, on the shortage of skills in the construction industry and the implications for it of Brexit.
I declare my interests as head of the Centre for Smart Infrastructure and Construction at Cambridge University, president of the Institution of Civil Engineers, and chairman of the Department for Transport’s Science Advisory Council.
The White Paper has much in it to be applauded and many important aspects. It is—like the Green Paper—a much needed document, and gives strong emphasis to collaboration between government, business, science and technology. The test is whether it has the capacity to make a powerful difference. I recently chaired an event at the Institution of Civil Engineers, soon after the White Paper was published, at which three new infrastructure reports were launched. The Treasury’s Infrastructure and Projects Authority and the Department for Transport joined together to launch these reports to form the Government’s future agenda for infrastructure delivery. These were: Transforming Infrastructure Performance; Transport Infrastructure Efficiency Strategy; and an update to the National Infrastructure and Construction Pipeline. Put together with the White Paper, we now have four substantive documents from three government departments. All of these recognise the urgent need to improve the performance of our infrastructure to help boost the productivity of the industry and deliver better outcomes for society.
The White Paper also considers the broader societal outcomes from infrastructure investment, and their influence on decision making. This will go some way to address the more chronic problems of regional imbalances, low wage growth and weakness in skills. The confirmed increase in size of the National Productivity Investment Fund—the NPIF—will help to address these problems, but this must be done in a transparent and considered way to maximise the benefits from the investment. Infrastructure covers eight government departments and 26 Ministers. It is a sector that for every £1 billion spent increases overall economic activity by around £2.8 billion. It is therefore of the upmost importance for the Government to work across all their departments and the industry to ensure that the NPIF is spent on projects that will maximise this return.
I praise the Construction Leadership Council’s efforts to ensure that the construction sector deal was in the first round of such deals to be announced in the White Paper. It has real potential to make a powerful difference not only to the infrastructure sector but to the UK’s economy and productivity. Underpinning the sector deal will be three key strategic themes that will potentially transform the construction industry. The first is digital: delivering better, more certain outcomes using digital technologies, particularly building information modelling. We are in the midst of a digital revolution that must be fully exploited, including artificial intelligence and machine learning.
The second strategic theme is manufacturing: improving productivity, quality and safety by increasing the use of off-site manufacturing. This also has the potential to rebalance jobs more equitably throughout the country, improve value for money from public investment and minimise disruption to local communities during the construction process. An excellent illustration of this is a comparison of two stations being built for Crossrail. At Tottenham Court Road, the platforms were built using conventional in-situ concrete technology—casting concrete on site—whereas at Liverpool Street station the platforms were built using off-site manufacture, the key concrete components being cast in a factory in the Midlands, brought to London and assembled on site. This off-site manufacture resulted in hugely increased productivity. The Government have made off-site manufacture for construction an immediate priority as the delivery mechanism of choice for five government departments. This is to be welcomed.
The third strategic theme of the construction-sector deal is whole-life performance: getting more out of both new and existing infrastructure through the use of smart technologies, especially sensors and data analytics. This “smart infrastructure” will certainly lead to improved and more economic designs. It will also revolutionise asset management: data generated by sensors will enable continuous monitoring of an infrastructure asset throughout its life, providing information for more rational maintenance and repair strategies. We will be able to understand exactly how a building, tunnel, bridge or railway line is performing during construction and throughout its lifetime. This will substantially reduce infrastructure operating costs. Importantly, it will also enable much more rational prioritisation of the nation’s infrastructure requirements.
Close to £500 million will support the construction sector deal. Part of this investment will support the new Centre for Digital Built Britain, based at Cambridge University. This will develop and commercialise the digital technologies behind the smart systems at the heart of tomorrow’s homes, as well as new and innovative construction techniques. This should mean housing, schools and hospitals that are not only quicker and cheaper to build but cost less to run and are more energy efficient.
Finally, it is important that we do not look at the Industrial Strategy White Paper as one stand-alone document from one stand-alone government department. As emphasised by the noble Lords, Lord Mandelson and Lord Heseltine, it should be a working document that does not stand still in time. It should catalyse continuous collaboration between all relevant government departments, industry and trade bodies. This includes working with the National Infrastructure Commission to ensure that its national infrastructure assessment is incorporated in the future development of the White Paper, together with the Institution of Civil Engineers’ National Needs Assessment.
In his introduction to this debate, the Minister rightly emphasised that if we want to be a world-class economy, we need world-class infrastructure. To achieve this we need drive, vision and expertise, as envisaged in the construction sector deal. The timing of an industrial strategy that transforms our infrastructure could not be more appropriate—2018 is the Year of Engineering, as has already been pointed out by my fellow engineer, the noble Lord, Lord Bhattacharyya. It is also the 200th anniversary of the founding of the Institution of Civil Engineers, the oldest professional engineering body in the world. The engineers of the past knew how to build and operate effective infrastructure for society. We must exploit innovative, modern technology and continue this great tradition.
My Lords, my first experience of a debate on industrial strategy was rather dramatic. In the early 1960s, I was a young reporter with the Financial Times, and in that capacity I was sent up to Scarborough for the Labour Party conference. Jim Callaghan was Chancellor of the Exchequer and made his big Chancellor’s speech. Half way through, Hugh Scanlon—a name to conjure with then but perhaps forgotten now; he and Jack Jones were the two great trade union leaders—got up and said, “But Jim, where’s the plan?”. Jim Callaghan looked a bit nonplussed for a second or two, but sitting next to him on the platform was George Brown, Secretary of State for Economic Affairs at the time, with the economic document that his department had produced. Jim grabbed it, held it up to Hugh and said, “Hughie, there’s the plan—that’s what we’ll do”. It was a great rhetorical moment and it brought the house down with cheers. I still do not know whether it was planned between Hugh Scanlon and Jim Callaghan or whether it was indeed an entirely spontaneous reaction to Hugh Scanlon’s impromptu remark, and I will not find out now. None the less, it was an example of that period of economic planning, of which the noble Lord, Lord Hennessy, will be well aware.
We come back to this again and again. As my noble friend Lord Heseltine made the point in his own document Industrial Strategy, this is the 10th time since the war that we have come back to an industrial strategy of some kind. There is a good reason for this. The fact is that government inevitably has a huge effect on industry and the economy generally through procurement, financing research and development, education and training, the defence department, technology and all such things. Therefore it makes total sense, even in a de minimis way, to get it all together in a mature and sensible way and to give it sensible leadership so that it can support the market economy in a sensible, professional and valuable way. That is why we have to do it. In addition, as was pointed out by my noble friends Lord Prior and Lord Heseltine, other countries are doing it ruthlessly—for example, China, which has a huge economy, and a tiny economy such as Singapore, which now has a higher standard of living per head of population than we do, because it has done that in spades. Even Saudi Arabia, for heaven’s sake, is now getting its act together with the rather more forceful leader it now has, and, as my noble friend Lord Prior points out, even the USA also does it—rather less obviously than the other countries, but it does it. The fact is that we need a properly thought-through industrial strategy if we are to survive and prosper in the world. Therefore, it is simply a question of whether we have the right priorities and whether we are going about it in the right way.
Surely a central priority that has come out again and again in this debate is investment in infrastructure, as the noble Lord, Lord Mair, has just pointed out, and in skills—a point made very clearly by the noble Lord, Lord Stunell. On page 172 of the document there is a shocking table showing fixed capital investment as a percentage of GDP. For every year from 2005 to 2017, the UK is consistently at the bottom—not just bottom in one year but in all the years mentioned. Even Italy is ahead of us. Germany is at 20%, we are at 15% to 18%, France is at 23% and so on.
Along with the huge problem of low infrastructure spending, we have problems with the digital economy, as pointed out by the noble Lord, Lord Mair. On page 152 of the document, there is another appalling table showing broadband speeds among the G7. For once, we are not at the bottom, but we are very low down and far from the top. This problem lies with BT. What is BT doing? It is depriving us of the facility to watch Champions League football and the Ashes test matches, although at the moment that is not a bad thing, given our performance. None the less, it is depriving us of the chance to watch these things for free, while it is not doing its job of getting speedy broadband distributed to rural areas throughout the country. Indeed, some urban areas do not have satisfactory broadband.
I am pleased that the Government will shortly put into law the right of every consumer to have high-speed broadband by 2020. They were right to face down the industry, which wanted a voluntary arrangement, and to go for a legal requirement by that year, but to liven up BT in this area they need to back that up with further recognition that more competition is needed. Plenty of people are willing to provide the competition and there is plenty of investment that recognises that this is a good area into which to put cash.
Another important area is skills. Technical education has been a Cinderella subject throughout my lifetime. The noble Lord, Lord Hennessy, made the point that people were talking about this 150 years ago, but the fact is that we are still failing in this area. In 2016, only 1,800 18 year-old school leavers in the entire country started higher apprenticeships. That is an astonishing and appalling figure. The latest statistics on apprenticeships show a 60% drop in the take-up of apprenticeships. Clearly something is going wrong here. The fact is that the bureaucracy is not delivering on a very aspirational and sensible policy. Therefore, I hope that whoever is the new Secretary of State—I have not heard the news today on whether the Secretary of State is to carry on or whether there will be a new one—
Splendid. I hope the Education Secretary makes technical education a top priority. For far too long we have given priority to academic education; we now need to help the non-academic children in our society.
Finally, as a Cambridge economist, I agree with the point made by the noble Lord, Lord Eatwell, about the trade gap. The fact is that this has been bad, it is bad and it is getting worse. We pay for the trade gap only by borrowing or selling off assets. At the moment, exports account for only 25% of our GDP. In Germany, the figure is 45%. Even France and Italy are ahead of us in exports as a percentage of GDP. Only 10% of all the companies in this country are in the export field. Admittedly, most companies are small and therefore do not export. The figure is higher among medium-sized companies and 40% of large companies export, but the figure is still not that high.
If I may boast for a moment, I started an economic consultancy after leaving Cambridge and shortly after leaving the Financial Times. It is a medium-sized company, with 250 employees, and we export 92% of all our product. I have never seen a trade agreement—I do not know what they are. If you have a good product and a good marketing system, you can export; there is no problem with doing that. Therefore, this is clearly something to which we have to pay attention.
Finally, we should also be careful about selling off too many of our national assets. Alex Brummer’s book, Britain for Sale, points to the dangers of that. Foreign ownership often brings in efficiency and competence, which we need, but all too often national interests are not really followed by the new owners of these organisations. Therefore, I think we need a national interest test as well as the security and consumer tests that we have in relation to foreign takeovers.
I am sure that in these tumultuous and uncertain times we need an industrial strategy. This time, I hope that the one we have started will be sustained.
My Lords, at this late stage in the evening, I will try to speak briefly, with other noble Lords having already made many interesting contributions in response to the “compendium”, as the noble Lord, Lord Maude, has called the White Paper. I start by drawing the attention of the House to my entry in the register of interests.
“Every government has an industrial strategy however it is articulated”,
wrote Anna Valero and Richard Davies of the LSE in a recent paper. On that basis, perhaps even the nine different strategies that my noble friend Lady Young has counted are an underestimate. But the articulation of a strategy is important and, as the noble Lord, Lord Wrigglesworth, said, over the years—from Sajid Javid back to Nicholas Ridley, who in the Thatcher Government saw his role as Secretary of State to abolish the Department of Trade and Industry—there have been periods of industrial policy minimalism. So we should perhaps welcome the recognition by the current Prime Minister of an articulated industrial strategy. However, to adapt Dr Johnson, I feel churlishly that a Conservative industrial strategy is like the dog walking on its hind legs: it is not done well but you are surprised to find it done at all.
As the co-founder 30 years ago this year of the Social Market Foundation, I was heartened by the advocacy of the social market by the noble Lord, Lord Howell. Indeed, the noble Lord, Lord Wrigglesworth, invoked the Social Democratic Party, for which the social market economy was a central policy. It seems that the noble Lord, the Secretary of State, the noble Lord, Lord Horam, and I have all drunk together from that cup. In a social market, the Government’s duty is to intervene when there is market failure—but only then, whether that failure is on the one hand the abuse of oligopolistic power, or on the other hand underinvestment.
On the terms of the White Paper, I would like to talk principally about ideas and the business environment, and in particular the importance of venture capital. Last week, the Secretary of State for Transport talked about his confidence that the UK could be a world leader in autonomous vehicles, based on technological excellence and regulatory liberalism, if not laxness. If Mr Grayling is still Secretary of State, he seems to have been a victim earlier today of some faulty autonomous tweeting. I draw his attention to the advice of the noble Lord, Lord Heseltine, not to confuse healthy ambition with unrealistic assumptions. The network effect is likely to give a huge advantage to companies with scale, such as Waymo and Baidu. I hope and believe that the UK can contribute significantly to autonomous driving and other emerging technologies, but I am not sure it is helpful to couch it in terms of market leadership.
Autonomous driving will rely heavily on artificial intelligence and deep learning, another area of innovation highlighted in the White Paper. It may be worth bearing in mind in this context that 43% of all academic papers ever written on AI have had at least one author who is Chinese. As the noble Lord, Lord Heseltine, said, we face formidable competition. I hope the argument that students should not be included in the main migration figures, which the Prime Minister has so far ignored, even from within her own Cabinet, might yet succeed.
Another way of illustrating the scale of the challenge that the UK faces is to consider the availability of venture capital investment to support early-stage high-technology companies. I think it was Professor Ronald Gilson of Stanford and Columbia Universities who wrote that:
“Venture capital … is widely recognized as a powerful engine that can drive a nation’s innovation, job creation, knowledge economy, and macroeconomic growth”.
In 2015, $36 billion of venture capital funds were raised in the US and $30 billion in China, where the figure is up six times in 10 years. In Europe as a whole, only around $6 billion equivalent was raised. The British Venture Capital Association records only the funds raised by its members, so underestimates to some degree the size of the total UK market. Its figure for 2015 was only $700 million equivalent.
The White Paper and the November Budget drew on the patient capital review, commissioned in 2016. One of the recommendations from the industry panel was for a patient capital investment vehicle capable of co-investing £1 billion per annum in knowledge economy companies. In the event, the Government have announced a £2.5 billion fund over 10 years, to be run by the British Business Bank. That is around one-quarter of the amount recommended and it is to be floated or sold as soon as is possible—and this at a time when UK venture capital funds will be losing, in all likelihood, up to £400 million per annum of investment from the European Investment Fund, the SME arm of the EIB.
Why has the UK, with its powerful position in financial services, been so weak in the development of a venture capital industry in keeping with its academic, technological and entrepreneurial strengths? There is a clue perhaps in an article from Forbes magazine in April 2016. Forbes is not a magazine for bleeding-heart liberals, nor, I suspect, is it even the second-favourite reading of my right honourable friend the shadow Chancellor, but the headline of the article read: “How the UK’s Growth Businesses Became Addicted to Tax Relief”. The article was reporting on research commissioned by Her Majesty’s Treasury from Ipsos MORI that found that 40% of all investment under tax-advantaged EIS and VCT schemes would, in the view of the investors and the investee company, still have happened without any tax relief. Seventy-nine per cent of investors said that the principal reason for investing was to gain the tax relief. In 2012-13, £2 billion of EIS and VCT investments were made, implying the loss or deferral of tax revenues of between £600 million and £1 billion. The Government have in the November budget proposed some tightening of the rules for EIS and VCT eligibility to prevent, they hope, low-risk investments benefiting from tax relief as they have done in recent years.
However, this is a never-ending treadmill, remembering similar initiatives as far back as the 1980s and 1990s. Up-front tax breaks will invariably attract risk-averse investors and ingenious intermediaries. Even for risk investments there may be little or no additionality yet, at the same time as tightening the eligibility, the Government propose a doubling of annual limits for both investors and companies.
There are two adverse consequences of this: one is the loss of tax revenue and the other, arguably even more important, is the distortion of the market. Thirty years of tax-advantaged investing in unlisted shares—unique in major economies—has contributed significantly to the stunting of a professional institutional venture capital industry on the scale necessary to support our knowledge economy and comparable with those in our principal competing centres.
Breaking an addiction can involve cold turkey, not an appetising prospect for any of us—particularly at this time of year—so I accept that, even if this argument is regarded as valid, any further changes may have to be phased in. However, the Government have a long way to go before there is an effective venture capital industry to support the knowledge economy.
My Lords, I declare the interests that appear in my entry in the register of this House. I refer particularly to my role on the board of UKRI, which allocates research and innovation funding.
It has been an excellent debate on industrial strategy, opened effectively by the Minister. One reason it has been such a good debate is that the White Paper we are debating is a substantial and comprehensive document which has had, broadly, a welcome from all sides of the House. Some omissions have been identified. The noble Baroness, Lady Coussins, made a good point about foreign languages and, more widely, education, a key British export service industry of the 21st century, is underplayed in the White Paper. Of course there are challenges to come, most notably delivering on the great ambitions in the White Paper. As we heard in several powerful interventions, that must involve genuinely cross-government working; it cannot simply be the responsibility of one department.
Perhaps I may briefly challenge some of the assumptions behind one of the most widely repeated assertions during this debate, coming from that fountainhead of constitutional knowledge, the noble Lord, Lord Hennessy, which is that we have had eight, nine or 10 industrial strategies. Behind that is a set of assumptions: we cannot do it in Britain, we are always chopping and changing, and nothing lasts. If we are to make the case for an industrial strategy, the assumption that since the war Britain has been incapable of pursuing an industrial strategy is really rather an important challenge. If eight or nine White Papers have come and gone without making any difference whatever, one is entitled to ask why it should be different this time. My view, however, is that the reference to eight, nine or 10 White Papers is not accurate. I do not know how many White Papers there have been on pensions policy or transport. Especially from the 1980s onwards, it seems pretty clear that in key industrial sectors Britain has had sustained industrial strategies that have delivered conspicuous results. I should like to give three or four examples.
The first example is that of the automotive industry. We saw the virtual collapse of the British automotive industry and, after years of trying to protect it, the disappearance of our indigenous, domestically owned automotive industry. In the early 1980s we embarked on a strategy to recreate an automotive industry in the UK. It involved a deliberate attempt to attract overseas investment, beginning with Japan and shifting to the US and then India. It involved exploiting the advantages provided by that great Thatcherite project, the single market, to promote manufacturing in the UK as part of Europe-wide supply chains. It involved the systematic use of financial incentives to attract overseas manufacturing facilities here. It also involved integrated skills training. All those assertions that we have no vocational or technical skills rest on another misunderstanding. We have a large amount of technical and vocational training, and a lot of it happens in universities. The Universities of Sunderland and Teesside are dedicated to training automotive engineers to work in the local Japanese car plants, just as not only Warwick University but also the Universities of Coventry and Hertfordshire are training automotive engineers to work in the Midlands engineering industry. As a result of that policy, sustained by successive Governments of different political persuasions, we have seen in 20 to 30 years Britain develop a very successful and large-scale automotive industry. This was the result of a sustained industrial strategy.
My second example is that of the life sciences. The UK has great strengths in the life sciences, although of course there are challenges. We have seen a combination of sustained funding from the Medical Research Council allied with enlightened policies from the leading medical charities. We have had smart policies specifically targeting investment in medical technologies where our American competitors are at a disadvantage. Because of the power of the evangelical Christian movement in the US, there are considerable constraints on public funding for research in cell therapies. Therefore we have put money particularly into cell therapies, where we have a comparative advantage as the result of a crass US regime. We were the leaders in discovering genetic sequencing technologies and we successfully ensured that the sequencing of the human genome became public property and is not something that can be commercialised exclusively by US entities. As a result we have two very large pharmaceutical companies and a dynamic life sciences sector. There certainly are problems in getting the NHS to adopt innovation and purchase from our innovative companies, but I would nevertheless regard UK medical research and life sciences as the second example of a successful industrial strategy.
My third example is mobile phones. The rise of Vodafone as Europe’s leading mobile phone operator would not have been possible without a smart, carefully considered industrial strategy, notably through the EU writing regulations for mobile phone telephony that favoured the UK company Vodafone, which was not obvious in the early 1980s. It required sustained engagement in international standard-setting bodies, and then using European standards to access a global market, combined with a very enlightened regime from Ofcom. When we look at what gives us a comparative advantage in our industrial strategy today, a trusted, effective and nimble regulator is one of the best advantages we have. Moreover, the UK is fortunate in having several such regulators, which is why the ambitions in the White Paper for the UK to play a leading role in 5G and the internet of things are not absurd if Ofcom is as skilled in writing the regulations for those technologies as it was in writing the regulations for mobile phones.
Finally, the most conspicuous example, though we may all now be ambivalent about it, is the sustained support for the financial services industry—a deliberate decision that this was an area where we had a comparative advantage that we would invest in, where the regulations would favour it and the standard setting in Europe would be influenced heavily by us so as to favour it. Even the physical infrastructure—the extension of the Jubilee line to Canary Wharf—was done to favour this key sector.
So we should not go around saying that Britain cannot do industrial strategy, that we have never done industrial strategy and that it is always chopping and changing. Those are four examples of sustained, successful industrial strategy. We can do it. We have done it partly because the strategies were sustained across Governments of different persuasions. We have had powerful interventions in this House from a Labour former Secretary of State and from a Conservative former Secretary of State—two people who undoubtedly drove industrial strategy. It was a privilege for me to work alongside a Liberal Democrat Secretary of State. These policies have been sustained and delivered. We should not beat up on the British political system as being incapable of doing this. It is perfectly capable of doing it, but you have to look behind the flow of White Papers to observe sustained, coherent understanding of what you need to promote a technology or a sector.
There are challenges for the future. Although we have this extraordinary achievement of raising the growth rate of a mature industrial economy between about 1980 and the financial crash—a 25 to 30-year project in which all three political parties played a role—we now have challenges at both the top and the bottom ends. At the top end we need to do more to extract value from our high-quality research base. Again, we have had several references to the quality of this research and the golden triangle of Oxford, Cambridge and London. The golden triangle is not some happy accident or some bit of historical chance we happen to have. We have a golden triangle that is rivalled only by the US west and east coasts because of sustained public policy: the way research assessment exercises have been conducted to drive improvements in research performance, the way our research councils allocate funding, and the planning regime. This is not an accident; this is partly the consequence of sustained policies on a cross-party basis.
However, we need to do more and better. We have too many small companies emerging from universities too soon, often either vulnerable and insufficiently funded to survive or sold far too early to the US. That is certainly a British problem. Some of it is to do with our public funding having tended to be for upstream research and there not having been sufficient funding for the application of this research in big general-purpose technologies. That is an area where the industrial strategy White Paper signals that there will be significantly more effort, but we have Innovate UK, previously the TSB—an entity created by the previous Labour Government—which has now functioned for more than a decade and is plugging that gap very successfully. Of course, in the White Paper, although I do not believe it has been much referred to, there is this extraordinary commitment to move to 2.4% of GDP going into R&D and, beyond that, 3%, which would be transformational. Very large amounts and very large increases in public funding are already being delivered.
That is the challenge of the top end. The challenge at the bottom end is the underperforming tail that several noble Lords have referred to. Too many of our businesses underperform. Again, there is increasing evidence of what the problem is: managers who are insufficiently trained and educated to run a business successfully; hereditary companies, where owner-managers from a second or third generation tend to be associated with very low levels of productivity; and a set of rules on infrastructure investment that rewards places that already have economic activity and do enormous damage to places that do not. So there is a model of cost-benefit analysis that says that if you already have it there will be high returns for more infrastructure investment. That is at last being changed with amendments to the Treasury rules, so that we can take a strategic view of places that need infrastructure investment, even if they currently have low levels of economic activity.
Of course there are challenges, which the White Paper tries to address, but it would be a mistake for us to think that these are challenges that will defeat us because they have defeated British Governments in the past. We should take rather more pride in our historic achievements over the past 30 years than has been in evidence so far in the debate.
My Lords, it is a great pleasure to follow on from the noble Lord, Lord Willetts, and I shall pick up one or two of the points that he made. I shall talk mainly about biomedical and life sciences. I shall also try to be brief, partly because I am batting at No. 30 but partly because I am aware that my noble friend Lord Kakkar has already covered a great deal of this territory and I will try not to repeat what he said.
I had better declare an interest, as I am involved in various ways in the life sciences. Perhaps I should also mention that my son has recently benefited from changes, having become an innovation fellow of UK Research and Innovation at the Laboratory of Molecular Biology in Cambridge. The LMB is an extraordinary symbol of the strength of the UK’s biomedical and life sciences. It is said that it has a Nobel Prize winner on every floor and it has more than one floor—I think that it has had 19 to date.
I welcome this strategy and approach. There have been some significant changes in this area already, but I want to refer to three concerns. My noble friend Lord Kakkar and I are part of the All-Party Parliamentary Group on Global Health. The APPG mapped out the UK’s contribution to global health in four areas: in academia, commerce, government and the NGO sector. It demonstrated what we knew: that the UK was a global leader in these areas and that in academia, on some measures it beat the US as well as everybody else. There are some 4,800 biomedical companies, with a turnover of £55 billion. In Cambridge alone, there are 431 biomedical companies, already employing around 13,000 people. However, as we wrote the report, we came across the problem which the noble Lord, Lord Heseltine, referred to in that we began to worry that we were simply mapping out the high points, the point at which historians might say that the UK was at its best in biomedical and life sciences, so we urged urgent action.
There has been some. Developments since then include Sir John Bell’s excellent report on a life sciences strategy. I know that my noble friend Lord Kakkar talked about that, so I will not. It and we argued for synergy across these sectors—between academia, commerce, government and NGOs—and asked how we could maximise that synergy.
The particular area that I will talk about, and my first concern, is the NHS. The NHS appears at the moment to be in decline, and it must be seen as part of the solution and not as a problem. There are three aspects here. First, the NHS should be a test bed for developments within the life sciences. It could accelerate adoption and be used in ways about which the noble Lord, Lord Mandelson, spoke early on in this debate. There is a second role that the NHS plays in life sciences and biomedical research, which is about training and developing the talent. The clinical researchers who go on to work elsewhere have trained in the NHS. It provides massive strength as a foundation to this whole sector. The third aspect is that a healthy population is a boost to productivity. So the NHS is vital to the sector, yet it appears to be in decline. It is going the wrong way. There is a danger that the NHS will be blamed for not innovating when it is in this situation.
I was struck by what the noble Lord, Lord Heseltine, said about it not being surprising that Secretaries of State did not concentrate on industrial strategy because they were concerned with the issues of the day. That is even more the case, I suspect, for chief executives, chairmen and leading clinicians: their first problem is dealing with survival, particularly at the moment. My first concern is therefore whether the NHS is being supported enough to be able to support this industrial strategy.
My second concern links to that and to a wider point, which is the alignment of the strategy generally with the domestic policy agenda, which the British Chambers of Commerce has talked about that. That does not just mean alignment with education but includes some of the points that noble Lord, Lord Howell of Guildford, made about morale, what society is like, who benefits, wider cultural issues and social enterprise. We have to go further, I suspect, in all those areas. We cannot concentrate on industrial strategy to the exclusion of others. I was struck by the way that the noble Lord, Lord Prior, pointed out that they should be same thing and there should be real alignment between these various areas of strategy. We see successful countries doing that. I was struck on a recent visit to Singapore by how it was focusing very much on the whole range of policy as it develops its strategy for the future.
On my third concern, staffing and migration policy, I shall simply quote from Sir John Bell’s report, which says that we should:
“Establish a migration system that allows us to recruit the best international talent”,
“allows recruitment and retention of highly skilled workers from the EU and beyond, and does not impede intra-company transfers”,
when people are already in this country.
I am very positive about this strategy, and in many ways I see it as being very energising. Knowing people in the world of biomedicine and life sciences, I can see people being energised by recent developments, but I think there are three possible seeds of failures in what I have described here: in an NHS apparently in decline, in the non-alignment with all of our domestic policy and in immigration policy. I would be interested to hear the Minister address these three points.
My Lords, this has been without doubt an important and fascinating debate, demonstrated not least by so many distinguished, knowledgeable speakers. I read with great care the challenging response published last November by my noble friend Lord Heseltine. It had serious ideas, as did his speech, of course. It was inspirational and prompted me to put my name down to speak today. I welcome the White Paper, which concentrated on five foundations and grand challenges. They were covered eloquently by noble Lords, so I will not go into details.
However, there is one challenge that has troubled me for some time. It concerns artificial intelligence and the data revolution, and how vitally these two relate to our freedom and security. The Minister mentioned the importance of the safe and ethical use of data. I have just one question for my noble friend regarding data and national security.
Many people probably had difficulty understanding the complexities of the industrial revolution in the early 19th century, but today’s data revolution, progressing at lighting speed, is even harder for many to understand. For example, the noble Lord, Lord Kakkar, described clearly how vital data is today in the National Health Service and why it has to be secure. I am sure that many noble Lords know that one of the largest industries in the United States, and growing fast, is data centre storage. In 1998 our data centre storage in warehouses was British-owned and controlled. Worryingly, it seems that it is now in foreign hands. The noble Lord, Lord Mountevans, questioned wide foreign ownership in many industries, but is data storage not a risk too far?
Some people think that all data is held in the sky, in the cloud. This is not the case. These data centre warehouses are on land and store all our data, confidential or not. It is a colossal business and as such should surely be included in our industrial strategy. Nigel Evans has raised concerns on this in the other place, as did Dan Jarvis, who sits on the Joint Committee on the National Security Strategy. He said:
“We would never countenance replacing the Royal Marine Fleet Protection Group that guards our nuclear weapons with a foreign-owned security company”.
However, the Government, when questioned recently on data centre storage security, answered that this was a commercial matter. Bearing in mind all the positive points made so eloquently by my noble friend Lord Willetts, can the Minister reassure your Lordships that the foreign ownership of data centre storage will not have a detrimental effect on our industrial strategy? I would be more than happy with a written answer in due course.
This debate is not only about the future prosperity of our country; our future also depends on our freedom and security. As Karl Popper said in 1945, and it is as important today as it was then:
“We must plan for freedom, and not only for security, if for no other reason than that only freedom can make security secure”.
That is the climate for our industrial strategy to succeed and flourish.
My Lords, I, too, welcome this debate and the White Paper. I refer Members to my declared interests. The debate has been far-ranging, with much wisdom and experience. Your Lordships will be relieved to hear that I will not try to distil the whole debate in my speech. But I note, as others have, the commonality and the coming together of the language that noble Lords have used in describing an industrial strategy. As many have noted, from the noble Lord, Lord Heseltine, to the noble Lord, Lord Mandelson, to the coalition, through to today’s White Paper, the curriculum has begun to come together.
However, before we become too self-congratulatory about that, the White Paper is designed to, and does, paint big pictures—pictures that many noble Lords can pick up and take something from. As the noble Lord, Lord Prior, pointed out, the harder part is the next step—the implementation. That is where the nitty-gritty—the friction—will come. We heard some preludes to that from the noble Lords, Lord Heseltine, Lord Wrigglesworth and Lord Stunell, who started to set out some of those challenges. For this reason, I will unapologetically focus in on some of the nitty-gritty in that implementation. I trust that if the Minister is unable to answer today, he will provide a written answer. Looking at the paper in front of him, I suspect that he has rather a lot of questions to answer already.
During the launch of the White Paper, very little was said about how the strategy would be driven, measured and assessed. As other noble Lords have pointed out, it was announced that the Cabinet committee chaired by the PM would be at the apex of the strategy. Can the Minister tell us when, if and how often this committee will meet, and who else will be involved?
Moving on, we talked about the industrial strategy council. The noble Lord, Lord Hollick, brought that into focus, saying that it has to be focused on outcomes. How will it be funded? What metrics and benchmarks will it hold the strategy to? How will it hold the Government to account? Will it be at Cabinet level or Select Committee level? Who will be on it and how will members be selected? In other words, how will it maintain an independent view? Actually, will it be able to maintain an independent view as an OBR-type organisation? Perhaps the desire of the noble Lord, Lord Heseltine, to have an organisation that can look ahead as well as back may be possible within that, but a lot depends on the questions I have just asked.
As to delivery at local level, a lot has been said by many people. The challenge of place is important, not least around the equality issue that a number of noble Lords on both sides of the House made very strong points about. The challenge of overlapping responsibility, as illustrated by the noble Lord, Lord Heseltine, is huge. For example, in terms of training and small business development, there are 133 organisations doing small business development in Cheshire alone. This level of duplication and lack of focus really will get in the way of a meaningful delivery of local industrial strategies, so how are the Government going to develop that necessary focus?
We also talked about civic leadership. Beyond the seven mayoral areas, my noble friend Lady Randerson pointed out that we need to find ways of developing that civic leadership in areas where there is no mayoral leadership.
Local enterprise partnerships have been mentioned. The paradox here is that they are generally weakest in the places where we most need what they might do. How are the Government going to address that issue if we do not have a single, unitary focus? LEPs are going to be an important part of it so where do they feature in the Government’s thinking and what are they going to do to make them work where we need them most? The noble Baroness, Lady Valentine, raised a relevant query about how local industrial strategies will be trialled and where. Again, we need more details around how that will come.
Regarding funding, on the positive side, to date the Treasury has signalled support for the research and innovation elements of the strategy. That has been extremely positive and I agree with the noble Lord, Lord Willetts, that we should all be behind that process. The industrial strategy challenge fund has been a focus, and the noble Lord, Lord Kakkar, and others have made it clear that we have to ensure that basic research also gets the necessary funds and that it is not all going through a challenge route, because that basic competence is the magnet that draws so much to the United Kingdom. Going back to the challenge fund, I think that wave 2 funding has been decided. Can the Minister explain how that decision process will be in train for further and future waves? Perhaps he can also help us with some maths and tell us, after the money which has so far been announced by the Government, how much money is now left for future challenges.
More widely, some examples within the White Paper which highlight and demonstrate the Government’s commitment are actually partially, or largely, funded by the European Regional Development Fund. We have not seen guarantees of where and how all that ERDF funding is going to be replaced. We would like some indication about that because there is a danger of it leaving some very important projects in limbo. That would hardly signal the long-term approach that the White Paper promised. Perhaps the Minister will be able to address that issue.
As many noble Lords noted, including the Minister himself, a meaningful industrial strategy has to encompass and embrace industry 4.0—the automation, digital and robot revolution. I was surprised and perhaps a bit disappointed that neither the Minister nor anyone else mentioned the Made Smarter Review, which the Government commissioned and contains some very strong and specific recommendations. The last time that the Minister and I engaged on this subject was the day after he took over. I hope he has now had a chance to study the report and can let us know where he feels some of those important recommendations should come. Now is not the time and place to go through them all but one was about a national adoption mechanism, which starts to address the long-tail issue mentioned by a number of noble Lords. There is a very long tail of small and medium-sized businesses for which embracing industry 4.0 or the digital age is going to be difficult. Frankly, they are not going to be much driven by it. The Made Smarter Review put together a strategy on how the Government can start to lead that process, bringing that long tail up to speed. So far the Government have passed on opportunities to fund it, the most recent Budget being the most recent opportunity. Perhaps the Minister will say where that lies in the firmament of opportunities to invest in items.
Many words have been spoken today about training and skills. The noble Lord, Lord Bhattacharyya, highlighted what I think he called the skills mess. However the Government, and certainly the Minister, presented a very rose-tinted view of where we are on training and skills in the White Paper. If there is any part of the White Paper that I would urge the Government to go back into, it is that one. There are huge challenges, some of which have been outlined by noble Lords. I will pick up on a couple.
One is the terrible outflow already of EU 27 talent. We are seeing it from academia and from industry, and the Government need to find a way of staunching that now, as well as embracing some of the issues that the noble Lord, Lord Maude, brought up around free movement and ways of making sure we can remain the magnet for talent that we have become within the European Union. We have to find a way of doing that.
The second point, highlighted by the noble Lord, Lord Horam, is the apprentice system and, frankly, the disarray that we currently find it in. All of us hope that this disarray is temporary and is about the apprentice levy being worked through, but there is a suspicion that there have been quite a lot of dropped balls when it comes to the implementation of this. It has also impacted other areas, particularly vocational training and other colleges where accreditation has been interfered with by the system. I would ask the Government to redouble their efforts to clear up the mess that appears to have been created around the apprentice levy.
We have not talked a lot about teachers, but the STEM teachers of the future come from the student body we have. That is a lot of pressure on teaching. Teacher recruitment has constantly missed targets, which have generally, a bit like in the construction industry, been filled by recruits from other EU countries. Clearly, the possibility of Brexit is already creating uncertainty for those potential recruits. At the same time, the number of domestic recruits has plummeted. The Minister has some big challenges here around skills. There is a real danger that this industrial strategy could be dead in the water from the outset due to the absence of the people to actually deliver it. The Minister needs to acknowledge that and perhaps tell us how the White Paper, and certainly its implementation, can address that challenge.
We clearly have a long way to travel: as the noble Lord, Lord Prior, said, this is the hors d’oeuvre, and we have a great deal of hard work to get to the nuts and port. However, the fact that the Government and all those in opposition are debating this on the same terms should be taken as a positive. We are using the same language, which has a big benefit. Wise Peers have noted that we need to develop, engender and move forward that consensus in order to smooth this delivery process. I agree with that. We face an uncertain future and, as the Minister said, we are at a critical point.
My Lords, we have had a quite outstanding debate, with a very encouraging level of consensus. We have heard some very forthright comments, a litany of lessons learned, and some very thoughtful challenges and criticisms. Indeed, nowhere is the chequered history of how the industrial strategies have been described better known and understood than in this place. We have had the pleasure of hearing from some of the people who have been the architects of industrial policies and of great things in our country how they did it. It has been an extraordinary debate and one I felt hugely privileged to be part of. I am also extremely pleased I am not the Minister who has to respond to it.
One thing that I felt during the course of the debate was best expressed by that character Yogi Berra—the US baseball star who played for the New York Yankees from the 1940s to the 1960s and was well-known not just for his great play but for his impromptu pithy comments, malapropisms and seemingly unintentional witticisms—when he said, “It’s déjà vu all over again”. Here we have another debate about the industrial strategy, but the times are very different and there is a very important context in which we are doing this. It is understood, here and in other parts of the world, as a reaction to the issues that have arisen as a result of the financial crisis and the problems of growth and the squeeze in wages felt across many parts of the world.
There have been many evolving views, crystallised in the lessons of past failures of the time. I recall that the noble Lord, Lord Turner, said in 2013, based on his understanding of the financial services collapse and what it meant, that there was no clear evidence that the growth in the scale and complexity of the financial system in the developed world over the previous 20 to 30 years had driven increased growth or stability. So we have come to believe that there is no surprise that a wider acceptance of the role that the state can play in stimulating private companies to create innovations can be actively and purposefully used. We have also decided to believe in some quarters that the role that the state can play in creating demand can be a good thing. There is also a role for the state in rebalancing the economy, not just in strengthening locally based manufacturing but in preparing industries for the future. This is an important context, and the challenge is still greater with the likely economic tribulations and opportunities of Brexit.
The context of the UK’s general economic position has not been particularly benign. We have had problems of imbalances, regional problems, problems of infrastructure investment and other issues that have been pointed out by many during this debate. However, we have also had failures—for example, failures to maximise our advantages when we have had great successes but have been unable to commercialise some of our great research facilities, and failures to address matters where there has been success but we have created long tails of problems, including corporate governance.
So here we are, looking at a White Paper and wondering, “Do we have the right policy approach? Can an industrial strategy be something to everyone, a framework by which everyone can get what they want put into something?”. This White Paper certainly has its merits, and it has made a successful change from Green Paper to White Paper. At its very core, the industrial strategy should always be seen as a framework rather than a collection of specific industrial policies. I agree with the noble Lord, Lord Maude, that it is a compendium. Its evolution from 10 pillars to five foundations and four grand challenges has probably combined focus with ensuring that long-term issues can be addressed at the same time. The importance of goals or objectives—or, as they are more popularly described, “missions”—is a central shift to ensure that we have a focus in the industrial strategy. Dealing with productivity has been the greatest advance in the process from the Green Paper to the White Paper, finally focusing on a meaningful challenge. That is to be warmly welcomed. In a previous debate, the noble Lord, Lord Prior, made a point, as he did today, about the importance of productivity and the challenge that it provides over the next decade. It is utterly proper that the industrial strategy now mainly focuses on addressing that and embraces all the other opportunities that we have.
The problem is not just with inequality; it is also about the crisis of confidence that the economy will work for everyone, whether the next generation will look forward to greater prosperity, the challenge for people in gaining the employment conditions they need, and the problems of insecurity caused by some aspects of the flexible labour market at the moment. These are the types of problems regarding confidence in markets and the market system that will cause us great long-term problems if we do not address them now. They will certainly seriously undermine the values underpinning our society.
I was prepared to accept a very poor industrial strategy because I thought it more important than anything else that we had an industrial strategy at all. However, this is not a poor industrial strategy but a welcome, important and useful foundation, and the White Paper is to be congratulated on that. As I say, this paper is a significant improvement on the Green Paper. However, the White Paper is unlikely in and of itself to move the dial significantly, although it will undoubtedly do good things. There is strong agreement that this is a crucial start but what will be essential is what happens next in its delivery and development. Here there are a great series of challenges that we have to be alive to.
It is important also to agree that, as my noble friend Lord Mandelson said early in the debate, this is more than just having to tweak the policy dial. The noble Lord, Lord Griffiths, made an important point when he said that the design of this is usually 10% in government and 90% in implementation. To meet the test of not just doing business and industrial policy better but making a more profound impact to achieve meaningful growth outcomes and improve productivity, we must ensure that we have the foundations to get it absolutely right.
We must have targets. I strongly believe that you cannot manage what you cannot measure, and if you cannot measure, you cannot improve. The introduction of productivity as a main focus is important, but we need to ensure that the targets are stretching, or at least allow us to achieve our goals. The Government have made an important contribution in saying that we wish to grow research as a proportion of GDP to 2.4% by 2027, but that is still only the average today. High-performing countries are already at between 3% and 4%, but the top of our ambition is 3%.
Targets are significant. As the noble Lord, Lord Horam, said, when we established broadband targets it was important that we had a minimum statutory requirement, but when we started by requiring 10 megabytes, everyone lowered their ambitions in their business models. If we had said 30 megabytes, business models would have been different. Setting targets is extremely important, but we have to set the right targets. They should stretch, they should be aspirational, but they should be deliverable. That is crucial.
We need some sense of what it will mean when we talk about becoming the world’s most innovative economy by 2030: what definitions we are using to determine whether we have achieved good jobs and greater earning power for all, and how we will finally be able to establish through the industrial policy whether the UK has become the best place to start and grow a business. We also have a great challenge to ensure that we put in the right level of resource—the funds that we commit. It is certainly to be applauded that the national productivity and investment fund has been increased, but it is still 2.9% of GDP, whereas the OECD average is 3.5%. As a businessman, if you are to invest in something, you put a dollop of money in: you put big money behind a commitment. That tells people what you are doing; it shows that you believe it will have a significant benefit. The level of resource we are putting in is a challenge the Government need to address at some stage. I am not expecting the Minister to reply to all these points; these are long-term industrial strategy challenges, not short-term considerations.
My noble friend Lord Eatwell made the point extremely well that we need to be frank and honest about our ills, because if we are not, we be unable to solve them. We should also be clear that the challenges we will face will not be easy. How we trade with the rest of the world will not be straightforward. We will not discover something that no one else has. As the noble Lord, Lord Prior, said, most other countries are still either in the midst of significant industrial strategy policies—they have institutions or long-term policies—or are adopting them. The same is true of trade. Everyone is in the same competitive position.
There are challenges across government. We have the Cabinet committee. We have a key role for other departments that are sponsors of industry. They must be able to take on those roles properly. There is the question of how the role and function of the Treasury is balanced with that of other departments. Those are important challenges that will require evolution. We have an important challenge inside BEIS itself in the organisation and leadership office. I was concerned. I saw the job advert for head of industrial strategy and delivery—the person responsible for delivery; for implementing the White Paper commitments; for ensuring delivery and making a difference; for setting up and delivering the governance structures of the external review body; for cross-government and cross-departmental engagement; and for strategy and policy development. This is someone deep within the business and science group of the department who is meant to be managing possibly five to 10 people. If that is the person ultimately responsible, do they have the weight and heft? How does that work in the context of the department? If this person is a senior civil servant on pay band 1, there is an imbalance. If they come from the private sector, they start on £65,000. If they are an official, they can move up to £117,000. What is the people strategy to make sure we have the right team working on this? It is a crucial challenge.
I also think we have a huge challenge with the industrial strategy board, which will require further thinking from the Government on whether the advisory council will be sufficiently independent and will have the sort of function required to make sure the industrial strategy is properly assessed. The Government might wish to reconsider: if they create a body rather more on the model of the OBR, they might have a more successful opportunity to embed the industrial strategy into the routine agendas of future Governments.
The most crucial part of this is that it is not resolved on place—on the role of regions, the role of local authorities and the role of mayors. The points made during the debate are crucial, and we can see how things have developed in local areas—the success of local government and the difference that local government can make to this. It is important to have continuity of policy, building the right plans across different political parties and adjusting policies to make sure that we have things and institutions that can endure—ones that can go beyond the occasional moments, such as those with which the noble Lord, Lord Willetts, so graphically punctuated his contribution. We also need to make sure that we build on this cross-party, political and economic consensus—indeed on things such as the productivity leadership board, mentioned by the noble Lord, Lord Flight, so that in the sectors themselves there is the creation of a national consensus and national bodies where that will work.
We also need to accept that change is not a failure but a likely outcome of getting better. As the noble Lord, Lord Prior, said, this is an hors d’oeuvre and the main course is still to come. If the Government were to set out a list of the next things to do, they would do well to read the speech of the noble Lord, Lord Eatwell, which contained a large measure of them. But now is not necessarily the time for that. The Government have to accept that getting it wrong will not make them weaker and will not make the case for an industrial strategy weaker; it will provide the platform to make it better.
As Yogi Berra also said, you can observe a lot by watching. Those noble Lords who have debated in this House today, who believe that we can do something together and more meaningfully for this country, will be watching this process very carefully. They will reflect the desire to do more together if the Government are more open about the opportunities ahead.
My Lords, it seems a long time since 3 pm, but I am pleased to say that my right honourable friend the Secretary of State for Business, Energy and Industrial Strategy is still in place, and was able to come here and be greeted by the noble Lord, Lord Bhattacharyya, some hours ago.
In saying that, I pay tribute to my right honourable friend. It was a little over a year ago that he launched his Green Paper on industrial strategy. He then listened to some 2,000 responses to it, including from my noble friend Lord Heseltine, whose response came some time in November, just after I joined the department. I make the point that it was my right honourable friend, plus my noble friend Lord Prior and others, who worked together in the department with officials and other colleagues across government in distilling that Green Paper and its responses into the White Paper that has been broadly welcomed by many on all sides of the House.
Given the coverage of this debate, it will be impossible for me to try to distil its essence, as the noble Lord, Lord Fox, put it, or even to respond to a mere tithe of the points made. However, I hope to write to all noble Lords in due course. I cannot respond to all the points made due to the sheer range of the debate and the fact that it extended way beyond the remit of the Department for Business, Energy and Industrial Strategy. I make no complaint about that as it is quite right that it should have done so. As my right honourable friend made clear in his original Statement, this is a matter for not just BEIS but the whole of government. As noble Lords will be well aware, that is why we have had to respond to issues around migration policy and regional and local government.
Regional and local government was mentioned by my noble friend Lord Cavendish, when he talked about Cumbria, and by the noble Lord, Lord Wrigglesworth, who he talked about the rather more successful position in Teesside compared with the less successful transfluvial problems—if that is the right word—in Tyneside. These are matters that I think most of us would hope that some of the local authorities, particularly in Cumbria, would deal with. However, the noble Lord was right to talk about the situation in Tyneside. If the local authorities could get their act together—to use that expression—those matters might be addressed. However, I also note what my noble friend Lord Heseltine said about regional matters and the need to move on from the seven directly elected mayors and possibly see further reforms. However, as I said, it has to be for some of the local authorities to come together, think about how they could improve things and, possibly in some cases, as a result, reduce the number of councils that my noble friend talked about.
As I said, we have covered a very wide range of subjects. I think there has been broad agreement about the direction of the industrial strategy but, as I said, we moved on to talk about education and place. The noble Baroness, Lady Valentine, talked about Blackpool. I think that most of us on both sides of this House have been to Blackpool many times. We have not been for some years but perhaps the time to do so will come again. Again, it would for Blackpool to sort these things out. There might come a time when we will go back to Blackpool again in the future.
The noble Baroness, Lady Coussins, talked about language skills, some possible omissions in the White Paper and whether more needs to be done in that area. We heard about social enterprise from the noble Lord, Lord Bird. My noble friend Lord Flight mentioned possible miscalculations in how we estimate our levels of productivity. We heard the natural optimists speaking. I refer to noble friend Lord Willetts and the noble Lord, Lord Bhattacharyya, who talked about what has happened in the automotive industry. I am very grateful that there have been optimists in this debate. Dare I say that in the noble Lord, Lord Eatwell, and possibly the noble Viscount, Lord Chandos, we had some more “Eeyoreish” representations? The noble Lord, Lord Eatwell, does not like that word, but I do not think that he was quite so optimistic in his evaluation of the White Paper as some other speakers.
I would like to go back to two of the earlier speakers. It is rather a terrifying position to be in, to follow both the grandfather of industrial strategies, if I can refer to my noble friend Lord Heseltine in that way, and the godfather of industrial strategies, as he was referred to, in the noble Lord, Lord Mandelson—he now gives a rather godfatherly little smile; I do not know what it means. I was very grateful to both of them for their broad welcome. I want to pick up some of the points, and particularly what the noble Lord, Lord Mandelson, said, which was echoed by others—I am thinking particularly of my noble friend Lord Griffiths—on delivery and what happens next. I could easily repeat what I said in my opening remarks, but that was broadly about what has happened and the launch of the White Paper.
The noble Lord, Lord Mandelson, made it clear—I think that I have got him right—that he wants three things. He wants all Ministers—the whole of the Government—to take ownership of the industrial strategy. I give him an assurance that that will happen and that all Ministers have been involved in it. That is why the debate itself has gone so wide. He also made it clear that he felt that publishing it is not the job done, and that we need follow-up and continuity, a point echoed by the noble Lord, Lord Mair. Again, I give him the assurance that that will happen and that, with the creation of the industrial strategy council and with the Cabinet committee chaired by my right honourable friend the Prime Minister already in place, we hope to see the continuity and drive to continue with the White Paper. I cannot give detail about the remit of the industrial strategy council as the noble Lord, Lord Fox, would like, but in due course that will come, and I may be able to help him in writing. I hope that there will be further announcements as we move on into the spring, and so on.
My noble friend Lord Heseltine also made those three points about how we should move on. He felt that it was very important that there was a competitive unit in the Cabinet Office. However, I felt that he was rather dismissive—I hope that I have got him wrong—about what the industrial strategy council might be able to offer to that. He felt that it was merely going to react to events rather than being there to inform as well as to evaluate our industrial strategy. I hope that my noble friend will observe what happens in future and that it will bring him some satisfaction.
Again, my noble friend—and this was echoed by so many others in the course of the debate—spoke about the need for education and training, and about the long tail that exists in our schools and in all other teaching institutions, which is not very adequate. There have been considerable improvements over the last few years, particularly in certain areas. For example, if he looked at education in London, he would find that there have been very major increases—and again this is not merely a matter of this Government or of the coalition Government; it has been happening gradually throughout all Governments. As my right honourable friend said when he originally launched the White Paper, the important thing is to remember the regional imbalances that exist in this area. Certainly, we want to look at the tail as it exists not in London but in other parts of the country. Those of us from the north-east—I am myself from the north-west—know just where those areas are, but we are talking about not only the north but other parts of the country. We want to see those changes in education there that we have seen in London. The same is true for training and in all other respects.
His third point was about overcentralisation. He praised the seven directly elected mayors and wanted to see more. I could not agree more. What I said about local government reform and what local government itself can do applies in that area. I hope that both my noble friend and the noble Lord, Lord Mandelson, will accept that we are absolutely committed to making sure that we can see progress with the White Paper, that all Ministers will play their part in driving it forward, and that, with the creation of the industrial strategy council, we will see progress in this area.
I want to cover one or two other points in the short time available, in particular some of the matters dealt with by the noble Baronesses, Lady Young and Lady Randerson, relating to inequalities in regional infrastructure and transport. We have already announced quite a lot of investment in transport. The noble Lord, Lord Fox, asked me to do some sums and say how much was left. I am afraid I cannot do that and am not sure if such a sum is available. However, there have been announcements of further funds of £840 million going to the mayoral combined authorities for transport infrastructure through the Transforming Cities Fund. We are also rebalancing the toolkit that will provide a framework for support with high-value transport investments in the less productive parts of the country.
Moving on from inequalities and the problems we have in regional infrastructure, the noble Lord, Lord Hollick, quite rightly made a point, which I fully accept, about not investing enough in digital infrastructure to meet the challenge. We are seeking action to improve connectivity, and this is very important for all businesses and consumers in the United Kingdom. We are working, as far as we can, with industry and Ofcom to ensure that connectivity is there where people live and work and—just as importantly—when they travel. We have announced additional funds for digital infrastructure and hope to make progress in that area.
That brings me on to the sector deals, which I will say a little about. They were first raised by the noble Lord, Lord Kakkar, who talked about the life sciences industry and its sector deal. He made a reference—though it was possibly the noble Lord, Lord Crisp—to the excellent report by Sir John Bell in this area, which I commend. It was almost the first thing I read when I arrived in the department, with the exception of the Made Smarter report referred to by the noble Lord, Lord Fox, which I have read most of, although I have to admit I have not got up to the 256th page. We very much welcome Sir John Bell’s report and accept that, through the life sciences sector deal, we are boosting the pretty good position of our world-leading research base and making use of the NHS’s status as the biggest single player in the healthcare system. We will also be able to make use of all that NHS data—another advantage that this country has—while making it important to respect patients’ privacy.
Moving on to the construction industry sector deal, I was grateful for what the noble Lord, Lord Mair, said. Again, he took a positive approach, as he did in the example he gave us—which, again, I remember was given to me very early when I arrived in the department—of the difference between the construction of the Tottenham Court Road and Liverpool Street Crossrail stations. One was built on-site and the other off-site, and enormous productivity gains were made as a result of building the Liverpool Street station, in effect, somewhere up in Derby and then shipping it down. We also had praise for the sector deals from my noble friend Lord Griffiths. There is a good story to tell there, which marks this strategy out from previous industrial strategies.
I do not know whether at this stage I should go on much further in trying to answer questions or whether I should stick to that offer of a promise to write to all noble Lords. However, if I go back to the noble Lord, Lord Mandelson, who used the expression—if I remember it correctly—“A good White Paper; now what?”. It is a significant milestone but it is not, as I said, the end point. It sets out what I hope will be a clear ambition and a clear framework with a series of policies that support it. It is up to us in government, and in politics more generally, to work with businesses, academia and civic society to do what we can to boost productivity and earning power and to reduce those inequalities that we talk about and which we refer to in our White Paper, and to ensure that we can rapidly respond to the changes in the economy. The White Paper sets out the framework for that delivery. We are now aiming to implement the policies set out, including those four grand challenges I mentioned earlier and the local industrial strategies and sector deals. There are a whole host of ways to be involved, but the Government’s programme is ambitious. It is a modern industrial strategy, however many industrial strategies we have had in the past—I leave it to the noble Lord, Lord Hennessy, to count up and decide whether he thinks there are eight, nine or even 10, or whether he accepts the more optimistic view of my noble friend Lord Willetts, who talked about some of the more effective industrial strategies, such as that in the automotive industry, and the others there have been over the last 30 years.
We have a long-term plan, which is to boost productivity and the earning power of people throughout the United Kingdom. We also have significant economic strengths on which we can build—again, despite what the noble Lord, Lord Eatwell, had to say—but we also need to do more. We will boost productivity and our earning power across the country by focusing on those five foundations of productivity: ideas, people, infrastructure, business environment and places.
House adjourned at 9.53 pm.