[Christopher Fraser in the Chair] — Manufacturing and Employment

Part of the debate – in Westminster Hall at 10:30 am on 9th June 2009.

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Photo of John Thurso John Thurso Shadow Secretary of State for Business, Innovation and Skills 10:30 am, 9th June 2009

May I say what a pleasure it is to serve under your chairmanship, Mr. Fraser? May I also congratulate Mr. Hoyle on securing this debate and on the excellent way in which he set out the issues, which I will come to in a moment? I also congratulate the hon. Members for Stroud (Mr. Drew) and for Manchester, Central (Tony Lloyd) on their contributions.

I shall pick up on a couple of points made by the hon. Member for Manchester, Central. First, he made a good point about Government procurement, which is important. Of course, the Office of Government Commerce exists precisely to have an overview of procurement within Government. At the moment, the OGC is largely focused on short-term economic gain in the procurement process, but it is wholly right and reasonable that it should also have a duty to consider its impact in the wider British economy and, as far as it is reasonable, to be helpful to our regions in the way in which it goes about its business.

The hon. Gentleman also mentioned further education and, in doing so, put his finger on something important, namely the way in which further education supplies potential skills to industry, particularly SMEs. Coming, as I do, from a background in the hotel and catering industry, one of the biggest difficulties faced by employers over many years has been finding short courses that are relevant for their staff, rather than those designed by the lecturers, with all good intent, that do not deliver the skills that are wanted in the industry. It is important for people to get skills from further education establishments that are fit for purpose in SMEs.

The hon. Member for Chorley underlined the importance of manufacturing. Although I will mention some of the bad things, I want to start by underlining, as he did, its importance to the economy and the success that it has enjoyed. The hon. Gentleman talked about the banks, which I will mention, too, because they are an important part of the mix, and about the success of the aerospace industry. I am sure that one of the firms at the back of his mind is Rolls-Royce. It is fascinating that Rolls-Royce, in my part of the world, is actively looking at marine renewable technology in Pentland firth. We have a real prospect, within a short time, of a number of companies using Rolls-Royce-manufactured kit to produce gigawatts of electricity consistently from a great national resource. We need that kind of technology transfer, and we need more innovation and research and development in that area.

Manufacturing has been in a fairly steady state of decline for a great number of years. I agree with the hon. Gentleman that Governments of both parties have not given it the attention that it deserves. It has dropped from 23.3 per cent. of gross value added within the economy in 1997 to 12.6 per cent. in 2007. This is partly due to the rapid growth of other parts of the economy, particularly the service sector. In real terms, manufacturing over that same decade has grown from £150.2 billion to £157.7 billion. The recession has clearly hit manufacturing output severely: in quarter 1 of 2009, it was down by some 13.1 per cent. over the year. That has obviously had a devastating impact on employment. The trend in jobs in manufacturing has clearly been declining. In 1998, the figure was more than 4 million, but last year it was around 2.6 million, so obviously it has reduced. But that masks part of the good news, which is that industry has been increasing productivity. The productivity of UK industry has been one part of the success story.

Manufacturing industry is having a torrid time at the moment. I want to look briefly at the current causes of that, which are pretty obvious. At the back of it all is the credit crunch, which has caused the recession. On the banks—bank lending and regulation—it is clear that our banking system was insufficiently regulated, particularly with regard to the separation between retail and investment banking. The result of that was a risk in the system that was simply unpriced. The banking crisis has thrown up a deeper-seated problem. With the few friends that I have left in the City, I have to be careful exactly what I say about this, but it seems that we have a structural and cultural problem, which is that the City has been seen as the place to go to make money. The way that the City has operated, with ever more complex financial products chasing each other round and being traded almost for the sake of being traded, means that our financial services industry has been inefficient in its primary task of providing capital for industry.

There is an opportunity in this current crisis to reshape the way in which our financial services industry serves industry generally. Rather than its making complex trades in complex products that turn out to be understood by nobody and of value to very few, we need to get back to the simple task of providing capital for industry to invest for the future. The City needs to go back to being the servant of commerce and stop trying to be the master of speculation. The other effect is that that industry has taken our best brains. Many of our best human resources have gone into financial services, rather than into industry. That culture carries across into the spirit of creating entrepreneurs. Indeed, when I said that I was going into the hotel industry, I saw a brief flash of pained expression in my mother's face because I had not chosen to go to university or take up a profession—although she rapidly reversed her view after I was successful. There is a view in Britain that it is better to go to university or a profession rather than into engineering or manufacturing, or to be an entrepreneur. We really need to tackle that as well.

We need to develop skills, but, as I have said, skills must be appropriate and further and higher education must reflect the needs of industry. We also need management skills. I recently chaired a symposium of the banks in my part of the world to try to connect small companies with their bankers and deal with some of the problems. The interesting thing that the bankers said was, "For goodness' sake, please can we have real-time, proper management information?" The number of SMEs that cannot produce such information is extraordinary.

We need to focus on research and development and investment and we must get across those good ideas that we have produced. We need a method by which we can invest in entrepreneurs. In my part of the world, small bits of money are invested directly in small companies—not granted—by the North Highland Regeneration Fund, which is helping to take small entrepreneurs to the next step. The hon. Member for Manchester, Central put his finger on a point that we need to address.

Looking to the future, I believe that there is a real opportunity. The recession has been devastating, and of that there is no doubt. Unemployment is up, and many companies are barely holding on. I shall not refer to green shoots, but I hope that we are seeing the bottom. Our job must be to create out of that adversity the opportunity to structure the economy for the future.