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Manufacturing Industry

Mr. Speaker : I have selected the amendment in the name of the Prime Minister.

Many right hon. and hon. Members wish to participate. If it had been possible, I would have applied the 10-minute limit on speeches, but unhappily that would have caught the Front-Bench speakers as well, so I have not been able to do so. I hope, however, that Front-Bench Members will bear that limit in mind, and that Back Benchers will limit their speeches to 10 minutes or less.

7.15 pm

Mr. Bryan Gould (Dagenham) : I beg to move,

That this House, alarmed at the huge deficit in trade in manufactures and at continued closures and job losses in industries as varied as textiles, electronics, shipbuilding and aircraft, reaffirms the vital importance of manufacturing to the country's economic future ; and calls on Her Majesty's Government to abandon the policies which have done, and are doing, so much damage to manufacturing output, investment, employment and trade.

The significance of manufacturing industry may be a matter for debate and the future of manufacturing industry may be open to question, but I hope that the facts about manufacturing industry and its present circumstances will not be disputed.

Let us first consider manufacturing output. Most people, I think, would accept that manufacturing industry was thrown over a precipice in the first couple of years of this Tory Government. As a consequence of quite avoidable mistakes in economic policy--which I believe in their more honest moments even Ministers would acknowledge--fully one fifth of British manufacturing industry was simply wiped out. No other industrial country has ever suffered such a sharp fall in output.

Since then, inch by inch, we have clawed our way painfully back up the cliff face over which we were thrown ; and, as we reached the top--the point that we left in 1979--the bands played, the drums were beaten and the flags were waved. It was proclaimed an economic miracle. Throughout the period of the present Government, however, manufacturing output has been no less than 6 per cent. lower than under the previous Labour Government. I think that it must be a record for any 20th-century Government to establish a level of manufacturing output lower than that established by their predecessor.

Mr. Phillip Oppenheim (Amber Valley) rose--

Mr. Gould : I will not give way . I have already accepted from Mr. Speaker an injunction to be brief.

The pity of it is that the mistakes that led to that slump in output are now in danger of being repeated. At 1985 prices, manufacturing investment in 1988--the last full year--was £11.035 billion, still short of the level established in 1979 when the Government began their term of office. That has applied in every one of the 10 years of Tory government, despite-- even in recent times--constant investment intention surveys showing an intention on the part of industry to increase investment. Throughout the period of the Thatcher Government, manufacturing investment has been 16 per cent. lower than it was under the preceding Government.

As for manufacturing employment, I hope that I need hardly remind the House that nearly 2 million jobs have been lost in industry since 1979. Every advanced industrial country has found that manufacturing has shown a

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declining proportion of employment because other sectors--services and so on--have tended to take up the slack. What has not happened in other countries is the huge and quite unnecessary slump that we have suffered, and from which we have still not fully recovered. Perhaps the saddest story resides in the figures that tell us what has happened to our manufactured trade. We all know that this country once prided itself on being the great workshop of the world and the leader of the industrial revolution. For 200 or 300 years, we paid our way and built our living standards on the strength of what we could make and sell from our factories. That remained true until 1979, when the Government took office. In 1979, we enjoyed a surplus of almost £5 billion in today's prices. I hope that I need not remind the House that last year that surplus had not only already turned into a deficit--I believe that it turned into a deficit in 1984 for the first time in our history--but that deficit had grown to the staggering proportions of £14.5 billion. A turnround of £19 billion in our manufactured trade is so immense that it is difficult for the ordinary person to grasp what that represents. Perhaps I can help the House by saying that by my calculation--which would be the general calculation--if we were to set about producing £19 billion of manufactured goods, which we now import, in British factories, we would have to take on no fewer than 1.5 million extra full-time workers. That is the significance of the turnround in our trade in manufactures.

Not surprisingly, although the Government try to obfuscate our true position, our share of world trade in manufactures has also declined. The world trade in manufactures over the period has risen by 48.5 per cent., but our exports of manufactures have risen by only 36.6 per cent. I hope that I do not need to convince Ministers or Conservative Members that the market place is the test, as the Government constantly tell us, of how well our economy is doing. The answer that the market place gives is that Britain is no longer paying its way and that British industry cannot meet the competition.

At first sight, the trade figures may cause some puzzlement. The immensity of the trade deficit took even Ministers by surprise. They were, after all, forecasting only a year ago a deficit of £4 billion for 1988. There is an explanation, although it is not a full rationalisation. Unfortunately, it runs directly contrary to much of the propaganda that Ministers constantly put out. The House and the British public are always told by Ministers in every interview that whatever the pain, whatever the difficulties we have been through and however many problems British industry has faced over the past 10 years, at least British industry is now leaner, fitter and more competitive. Day after day I hear that phrase on the lips of Ministers.

Neither I nor the Labour party bother to keep the statistical series that measure the competitiveness of British industry but the Government and the Department of Trade and Industry do. There are at least five that are often used and two are especially widely used. It is astonishing that on each one of the five indices, British manufacturing industry today is not more but less competitive than it was in 1979, and that is true not only of today, but of every year throughout the period of Tory government. The indices that show the greatest loss of competitiveness are those which are the most widely used. Relative export prices for manufactures show that we are now 15 per cent. less competitive than we were in 1979.

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The International Monetary Fund index of normalised relative unit labour costs shows that we are 24 per cent. less competitive than we were in 1979.

The mystery about why, despite the wonderful success story, we are running such a huge balance of payments deficit that we cannot hold on to our own markets or retain our export markets is now unravelled. The Government's own statistics show that British industry is less competitive than it was when they came to power. I could go on about that subject, in which I take a particular interest, but even those indices understate the loss of competitiveness of an economy whose competitiveness has declined over a period. First, the index on relative export prices for manufactures, for example, measures only what we try to charge and the prices we actually obtain in the market place. It does not tell us about all the products that have become so uncompetitive in price terms that we have simply ceased to make them and offer them in the international market.

Secondly, the labour cost indices measure cost right across the economy. They take no account of the fact that in the really successful exporting economies, such as Japan and Germany, costs in export-oriented industries are razor sharp and the cost structure is more favourable than in the economy as a whole. Any index that measures costs across the economy simply understates the competition we face from the successful exporting nations.

I now offer the Government a little ray of light or a twig to hold on to. They will raise, rightly and understandably, the question of productivity and they will say that, despite this gloomy picture, productivity in manufacturing has risen extremely sharply. I am the first to concede that it is a good story to tell on that, but productivity is not as good as the Government would have us believe and it is not as good as in the much maligned 1960s, when manufacturing productivity was higher than it has been in recent years. One also has to take account of some of the statistical peculiarities of the figures and the fact that today much that used to be counted as manufacturing is now contracted out, including peripheral services such as cleaning and canteen facilities, which were low productivity areas so they do not affect manufacturing productivity figures. I would also point out that if one constantly eliminates one's weaker capacity, without anything else changing, there will be an improvement in productivity--or at least an apparent improvement in productivity--for what remains. It is rather like a cricket captain claiming that because he has shot his tail-end batsman he can congratulate himself on the fact that the batting average has risen, although he is ignoring the fact that the team is scoring fewer runs and has lost the match. That is what our productivity record largely shows.

Mr. Peter Thurnham (Bolton, North-East) : Will the hon. Gentleman give way?

Mr. Gould : No. I would like to, but I am under a time constraint. There is a more important point to explain another paradox. If the productivity figures are to be believed--and I am prepared to give them some credence--it is hard to see why the economy in the other respects I have mentioned has performed so badly. The reason is--and I admit that this is no more than a supposition, but it answers the paradox and is increasingly attracting the attention and support of many expert commentators--

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that in Britain a great deal of investment in manufacturing industry is designed to replace labour, rather than to improve and increase output. That is why in the bits of the economy that remain as a result of some new capital application, but have fewer jobs than previously, productivity has risen, whereas in those bits of the economy where that effort has not been made the capacity has simply disappeared. That means that we have the appearance of high productivity in the bits of the economy that survive, but the economy as a whole is producing less well, its output is sluggish, it is able to compete less effectively and we are having to import so many more manufactured goods.

I ask Conservative Members to agree with me in one respect. Surely there cannot be a single Member who has not had the experience of visiting factories in his or her constituency or further afield and noticing, if he or she has eyes to see, that all the modern machine tools are made abroad. If one asks the factory managers why a particular machine is made in Germany, Italy, Canada or the United States, they say sadly, with a shake of the head, "We would like to buy British, but there simply isn't a British manufacturer who can supply us". That gives some support to my contention that large parts of British industry have simply passed out of existence as a consequence of what has happened to manufacturing industry in recent years.

Productivity may have been a miracle in those parts of industry that have survived, but it has failed to produce a manufacturing economy which does what is essential--to compete, to increase output and to provide good, well -paid jobs for an increasing number of people. We cannot congratulate ourselves on a productivity achievement if the only end result is that we now produce about the same quantity of goods with far fewer people and that we are therefore able to compete much less comprehensively across the board.

As we face not only our present but our future, we are faced with an economy that is ill-equipped, badly trained and under invested. We face our future in that condition with the cushion of North sea oil much less comfortable and reliable than it was--I accept that North sea oil is not yet running out and that it will be with us for some time--with 1992 and the single European market, meaning much more intense competition in what will be our home market, with newly industrialised countries around the Pacific basin and south-east Asia coming on stream. We face our future in all those circumstances and, although the race will go to the technologically proficient, we have not made the effort. We have wasted the oil. We are under-invested and are woefully ill-prepared for that competitive future. As is probably wearyingly familiar by now, we spend less on research and development than the West Germans, the Japanese, the Americans, the Swedes and the French. In terms of civil research and development, we spend less than the Italians. Uniquely, half of what we spend goes on defence. I was at a seminar this morning where I saw a breakdown of the way in which the West Germans spend their much greater total and the way in which we spend ours. The Germans said, apologetically, "Our R and D defence expenditure has been rising recently and we are worried about it. It is now as high as 20 per cent. of our

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total R and D expenditure." However, we spend 50 per cent. of our pitiful R and D expenditure on relatively unproductive defence spending.

The Germans have a much clearer answer-- [Interruption.] I am talking about the spin-off for the rest of industry. The Germans have a much clearer idea of the correct priorities. While they spend on R and D, on industry, in the higher research institutions and the universities and on major issues such as the environment, we make mistakes by concentrating our puny efforts on unproductive defence. We spend less on basic science and pitifully less on training. We do not invest in our manufacturing industry. As I have pointed out, such expenditure has been 16 per cent. lower during the past 10 years than it was even when the Tories came into office. We do not spend on the infrastructure that we shall need if we are to compete

technologically in the coming decade.

The pity of it all is that, having brought us to this position, where the North sea oil bonus has come and has largely gone, having left us with a legacy of ill-preparedness, we are now trying to re-establish the Chancellor's control of an economy of which he has lost control. We are in danger of repeating the same old mistakes which destroyed one fifth of British manufacturing between 1979 and 1981. They are again on the agenda, wreaking their damage, exercising their malign influence and doing damage by way of the closures, job losses and lost output with which we were so bitterly familiar in the early 1980s.

The evidence is there. Surveys by the Confederation of British Industry which for so long were held up as great proclamations of confidence now show a sharp fall in expectations for export orders and a sharp decline in the confidence felt by business men about the future course of the economy. Specialist manufacturing employers' organisations, such as the British Textile Confederation, express again, as they did in the early 1980s, their lively fears about what will happen to their industry as a consequence of the appreciation of the exchange rate against their major competitors.

That is why a programme of closures is already beginning in the constituencies of some of my hon. Friends, and it is not limited just to textiles ; it applies across the board. I fear that unless we can persuade the Government to change their policy and to avoid those mistakes, we will again face a programme of closures and a lengthening total in the number of people unemployed. Indeed the mistakes are already there. High interest rates are a disincentive to investment. The CBI has complained but the Government take no notice because they do not believe that the voice of manufacturing industry really counts or should be heard. As a consequence of the high interest rates, not only is investment damaged, but the exchange rate is held at an uncompetitive level and is crippling competitiveness. Only a few months ago and earlier last year, the Chancellor was telling us--at least by implication--that his preferred rate of exchange against the deutschmark was 3 deutschmarks to the pound. He then said specifically that, in his view, a rate of 3 deutschmarks 10 pfennigs would be unsustainable. However, for many months now, we have had a rate that is above 3 deutschmarks 18 pfennigs. Little wonder then that we are finding it increasingly difficult to meet the competition in Europe. Little wonder that we find it difficult in the wider markets around the world when our exchange rate has appreciated

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against the American dollar by 40 per cent. in the past four years. One cannot put up prices against major international competitors by 40 per cent.--or even by 10 per cent. as in the case of the West Germans--and expect the customer not to notice. Such rises have an immediate, direct and calamitous effect on investment, output, employment and manufacturing industry. Indeed, they show the Government's contempt for manufacturing industry that they believe that they can introduce such policies without causing the sort of damage that is now being so painfully felt across the country. An over-valued exchange rate does many damaging things. It not only destroys our competitiveness ; it does something perverse in respect of the Chancellor's stated objectives. It damages the competiveness of the corporate sector and it stimulates consumption because it means that every pound in the consumer's pocket will buy more imported goods than it should. That is why over- valuation not only stops us exporting, but sucks in the imports that are doing so much damage. [Interruption.] Of course, that does not cause concern to Ministers who can laugh if they wish, but such over-valuation sucks in the imports that put British workers in the dole queue and close British factories.

Does any of it matter? We have already had part of our answer from the guffaws of Ministers who clearly find it difficult to take the subject seriously. Indeed, that has betrayed their attitude to this matter throughout the 10 years of their period of office. They have treated the decline and difficulties of manufacturing industry with cavalier insouciance. They have simply maintained that it does not matter. When I taxed the Chancellor of the Exchequer some months ago about the turnround in our trade in manufactures, he remarked from a sedentary position that it was "neither here nor there." Let him try telling that to business men who are trying to keep their enterprises afloat. Let him try telling it to workers whose jobs are now threatened or being lost as a consequence of those foolish policies--

Mr. Frank Haynes (Ashfield) : What about small businesses?

Mr. Gould : My hon. Friend mentions small businesses, which in particular are suffering. The regions, which are so dependent on manufacturing, are where the burden will be felt most keenly. That is where the branch-plant economy that the Tories have allowed to develop during their period of office will come home with a vengeance because those branch plants will be closed first when the bite is felt. That is the problem with the Chancellor's current policies.-- [Interruption.] Yes, of course manufacturing matters to us because we can no longer rely on North sea oil to keep us afloat. Our wealth creation for the future depends on the strength of our manufacturing industry and it depends on that manufacturing industry being in the right condition, in the right areas, with the right equipment and the right skills. To use another of the Chancellor's notorious phrases, we cannot afford a "low-tech economy". If we are to compete, we must compete with new skills and with new technology. We must be clear that the new technology has a role to play, not just in new industries, but in old industries, too. It is in textiles, shipbuilding and car manufacture that the new technology has its most direct and important application. That new technology must be

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applied and we must invest in it. That is the important element of our future and of our capacity to earn our living in the future decade.

We were told that we need not rely on the old pejoratively described sunset industries, because it would be the sunrise industries that would take us forward. I wish that that were true. I wish that we could say that other industries may have suffered some difficulties, but, at least, the electronics and information communication industries have done well. However, again the facts are against such an argument. I believe that any attempt to scrutinise the trade figures would demonstrate clearly how fatuous has been the Government's claim. Last year our trade deficit in electronics was £3.9 billion. It has risen by 40 per cent. over the past four years. So much for preparing us for that technological future and so much for an economic miracle. We know the immense importance of manufacturing to wealth creation and to our national prosperity. It will need a Labour Government to put that right.

7.30 pm

The Chancellor of the Duchy of Lancaster and Minister of Trade and Industry (Mr. Anthony Newton) : I beg to move, to leave out from "House" to the end of the Question and to add instead thereof : "welcomes the renewed strength of manufacturing industry, reflected in major increases in productivity, record levels of output, increased exports, greatly improved profitability and a sustained high level of investment ; and notes that the flow of inward investment testifies to the substantial improvement which the policies of Her Majesty's Government have brought about in the climate for doing business in the United Kingdom.".

I suppose that I should not have been surprised--though I must confess that I was--that the Opposition should choose to debate a proposition so totally divorced from reality as one entitled the "Decline of Manufacturing Industry". So it was with some corresponding interest that I waited to see how the hon. Member for Dagenham (Mr. Gould) proposed to delineate this so- called decline. It was clear, despite his contorted efforts, that it could not conceivably be by reference to production. Output in the manufacturing industries has risen in every single year since 1980, and in the past two years alone by more than 12 per cent. It is not only higher than in 1979, when the Government first took office ; it is higher than in 1974, when the preceding Labour Government took office. That is, of course, another way of saying that, whereas that Labour Government departed unlamented with manufacturing output lower than when it arrived, under this Government it has reached a record level. I am certainly not surprised that we have heard little about that.

Equally clearly--and the hon. Member for Dagenham fairly acknowledged this- -that alleged decline could not be by reference to productivity. Productivity in manufacturing industry has so far improved in this decade by no less than 50 per cent. and, by comparison with our major competitors, that represents a quite astonishing improvement in our relative performance.

Mr. Gould : Where do we rank?

Mr. Newton : The hon. Gentleman asked me where we rank and I shall tell him.

In the 1960s our productivity growth was lower than any other of the seven major industrial countries, and only about two thirds of their average. In the 1970s, it was again lower than in any of them, and less than half of their

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average. So far in the 1980s--and my figures are for 1980-88--it has been far and away the highest of those self-same seven : substantially higher than in France and Japan and more than twice as much as in Germany.

Nor could the hon. Member for Dagenham justify his talk of decline by reference to the profitability in manufacturing industry. I do not think that he even sought to do so, because, of course, the profitability in manufacturing industry is at its highest level for 20 years. That in turn is reflected in the powerful revival in manufacturing investment, which has grown by not far short of half since 1983, by more than 9 per cent. last year alone, and is expected to show a further healthy increase in the present year. Moreover, that revival in manufacturing investment is an important contributor to one of the most important and significant changes for the better which has taken place in the British economy in recent years. That is the shift from a pattern in which we persistently tended year in year out to increase consumption faster than investment to one in which, over the past seven years, total investment--I want to make it clear that I am talking about total investment and not just in manufacturing--has grown at more than twice the rate at which consumption has grown, and more rapidly than in any other country in the European Community. In other words, after decades in which we persistently tended to let our consumption run ahead of our willingness to put money into developing industry in the future, that picture has changed and the growth in investment in manufacturing industry is a part of that change in the picture.

One thing that I did expect in this debate--I have not been disappointed-- was that the hon. Member for Dagenham would make the most that he could of the fact that investment is still fractionally lower than in 1979. I will make two points about that. First, I think that events will take even that fig-leaf of argument away from the hon. Gentleman before too much more time has passed. Secondly, I hope that he will direct his attention not only to the total, but to the pattern within the total.

The pattern of the late 1970s in particular was one in which we put great quantities of investment into industries which manifestly were among those that the hon. Member for Dagenham described--it is not a phrase that I would have chosen--as sunset industries, usually in the form of massive taxpayer-financed subsidies of one kind or another and which in consequence made it difficult for the industries that were manifestly the growth industries of the future to find the resources that they needed to invest.

What is of more practical importance than just looking at the quantity of investment is the quality of manufacturing investment and the efficiency with which it is used. Undoubtedly, in that area there has been a large improvement. A good deal of industrial capacity was scrapped at the beginning of the decade. Much of it was technically and economically obsolete and, frankly, had been for some time. Most manufacturing investment since then has been for replacement purposes, but the standard of the new capacity for such things as operating costs, quality standards, its impact on the environment and energy use is far higher than that of the old equipment. That improvement in the quality of investment has made

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a major contribution to the improved productivity to which I have referred and to the greater competitiveness of British manufacturers.

The hon. Member for Dagenham made some play of competitiveness figures. I have in front of me those figures that the IMF produces, which are based on relative unit labour costs. I am not sure whether those were the ones to which the hon. Gentleman referred. Certainly, on the figures that I have, there was little change on that single statistical measure between 1979 and 1988. There are some fluctuations in between. However, the point that the hon. Gentleman misses, and, indeed, all his colleagues persistently miss, is that competitiveness in the real world is not something that can be measured in such statistics. It is a matter of people's confidence in whether British goods will be delivered, because of the bad industrial relations record during the late 1970s. It has to do with quality and reliability and all the things that have manifestly improved in British manufacturing industry in the past few years. Improvements in working practices, in maintenance standards and in the timely availability of material components cannot be so readily measured, but I have no doubt--nor do I believe does any serious observer of the scene--that improvements in those factors over the past decade have greatly increased both effective manufacturing capacity and British competitiveness on the world markets. So we come then to the line of argument on which the hon. Member for Dagenham sought to build so much, which is the deficit on the balance of payments current account, and within it the deficit on manufactures.

Whatever else may be said about those figures, I do not believe that any serious analysis of them--alongside the figures that I have already given-- could sustain the case that they show a decline of manufacturing industry in this country. If they could be shown to result from a failure of exports, perhaps that could be so, but they cannot. On the contrary, exports of manufactures have been rising strongly--by nearly 18 per cent. in value in the past three years and by over 5 per cent. last year alone. If the figures could be shown to be associated with a fall in our share of world trade in manufactures, perhaps that could be said. But that cannot be shown either. On the contrary, the signs are that that decline has been halted or even reversed.

Mr. Thurnham : Will my right hon. Friend give way?

Mr. Newton : If my hon. Friend will forgive me, in the light of what Mr. Speaker said at the beginning of the debate, it is right that I should press on.

The most important single factor in the deficit, far from being the weakness or decline of our manufacturing, arises from the growing output and the increasing investment to which I referred earlier. Some three quarters of it is the corresponding rise in imports of raw materials, of components and semi-manufactures and of capital equipment. In other words, it is associated with the recovery of our industries and the strengthening of their capacity to expand production and exports still further in the future.

Inevitably, it takes time for that to feed back on the other side of the account, but I see no reason to doubt that it will. Indeed, there are already some signs of that. If we take the first three months of this year against the last three months of 1988, the volume of manufactured exports rose faster than that of imports, and that is against the

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background of official and independent forecasts which suggest a greater improvement in the volume of manufactured exports in 1989 than in 1988, alongside a much smaller increase in the volume of manufactured imports than we experienced last year.

The other point on which the hon. Gentleman based a good part of his argument was the numbers employed in manufacturing industry. It is indisputable that there has been a substantial decline since 1979, but that is in part the consequence of tackling the overmanning and the under- productivity which nobody could seriously question the existence of up to that time. That improvement in productivity and removal of overmanning was essential if our industry was to restore its competitive position.

No less important, as the hon. Gentleman fairly acknowledged, is the fact that it is a feature of virtually all modern industrial economies that the balance of employment shifts away from the production of goods towards the supply of services. I think that the hon. Gentleman referred to an expectation that it should be possible to employ more people in manufacturing, but he put no particular period on that. However, I know of no major industrial country which has not seen employment in manufacturing decline as a proportion of total employment since the early 1970s. Since 1979, to take the period that is at issue in the debate, in most such countries the absolute number employed in manufacturing has fallen, as it has here.

Those facts are also reflected in the fact that in virtually all advanced industrial countries the percentage of GDP accounted for by manufacturing has fallen and that of services has risen. We are no exception to that, nor should we seek to be. The figure fell from just over 25 per cent. in 1979 to just under 22 per cent. in 1986, the most recent year for which comparative figures are available. The comparable figures in the United States were a fall from 23 per cent. to just under 20 per cent. and in Italy from just over 30 per cent. to just over 23 per cent. Only Japan is an exception to that general trend.

The hon. Gentleman referred to the Government being in some sense contemptuous of the CBI, or the CBI making remarks completely different from the picture that I have sought to set before the House this evening. As it happens, I was on the same platform as the Director General of the CBI in Sheffield barely two weeks ago and I have with me the text of the speech that he delivered on that occasion. He said :

"The last five years have seen a major turnaround in the UK manufacturing sector, and this has of course spun off into demand for services and jobs. Output, export volumes, productivity and business investment--in skill- training, plant and equipment and innovation--are all at record levels. So are profits, which makes investment possible and worthwhile."

That is what the CBI was saying a fortnight ago. Mr. Banham went on to make the point that we export some 20 per cent. more per person than Japan. Opposition Members may like to reflect upon that. Let me make one other point which will lead me to the conclusion of my speech in a moment or two. The most conspicuous omission from the hon. Gentleman's speech was any reference to inward investment. Whatever his view of manufacturing and the strength of the British economy may be, some of the best companies in the world are voting with their feet by coming to do business in Britain. In one week alone we heard recently of major cases of inward investment totalling well over £1 billion in various parts of

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the country. It is not just the Japanese who are coming, even though they have tended to make the biggest headlines. A third of all American investment in the Community comes to the United Kingdom. Over the past year investment from other European countries, particularly Germany, has also been particularly strong. I wonder how many German firms would have invested in Britain 10 years ago. I want to make it clear tonight, as I have on other occasions, that we welcome that inward investment and will continue to do so, both for the balance of payments boost that it brings to the United Kingdom and for the added competitive spur that it provides to industry already here. Wherever such firms locate in the Community, and many of them will come anyway, the impact of the extra competition will be felt in Britain. But when they locate in Britain as so many of them are now doing, we have not only the jobs and the economic activity but the stimulus of new manufacturing methods, quality standards and management techniques in our economy. We shall continue to try to attract as much of that mobile investment as we can.

Those firms are at times almost queueing up to come here as a direct result of the Government's policies which have given priority to curbing inflation, to restraining the weight of public expenditure and public borrowing, which have reduced the rates of taxation on companies and individuals, improved industrial relations and made Britain a country in which people, whether British or from abroad, want to invest and are investing.

The Opposition's motion invites us to abandon those policies in favour, as is increasingly clear, of returning to precisely the policies which made their time in office a period of overmanning and inefficiency, of misdirected investment, of roaring inflation and dismal industrial relations, when the only reason for business men from overseas to come here was not to take part in our economy but to try to learn how not to run an economy. Neither the House nor the country will want to go back down that path.

7.58 pm

Mr. Stanley Orme (Salford, East) : Listening to the Minister, I do not recognise the area that I represent in Greater Manchester which has lost tens of thousands of jobs in manufacturing. My city of Salford, which had a large engineering base, has virtually no engineering industry left. Just across the canal, Trafford Park has become a storehouse. Before the war it was a rival to the Ruhr as a major world industrial centre. That is the difference that the Minister fails to recognise.

I declare an interest in the debate as a Member sponsored by the Amalgamated Engineering Union. That union has 750,000 members in manufacturing industry and 2 million workers in the engineering industry, and it wants a share in Britain's prosperity and in manufacturing industry.

We cannot just dismiss the disappearance of 2 million jobs and say that the same thing is happening in Japan or West Germany. The same thing is not happening in those countries. I accept that there has been a reduction and an inevitable change in some of the older industries because of the decline in those industries. The Government have made the notion of small is beautiful one of the key factors in their approach, but it should be remembered--

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Mr. Thurnham rose--

Mr. Orme : I shall not give way to the hon. Gentleman.

It should be made known that 60 per cent. of Britain's gross national product is contributed by 150 of the large firms. Nobody denies that small firms are important, and we welcome them into our areas and constituencies. However, they do not replace the tens of thousands of jobs that have been removed from the basic industries. The Minister said that Britain is booming, and investment and output are up. He made great play of productivity. Assuming that what he said was correct, the important factor is that we are starting from a much smaller base. The problem facing Britain is that its manufacturing base has shrunk. In terms of productivity we are, perhaps, equal to the Germans, Americans and even the Japanese, but our base is small. Therefore, we are faced with the problem of importing many goods. With that small base we cannot produce the products that our economy wishes to consume and, therefore, we have to import them.

The Minister made great play of inward investment. We must be careful when we consider that investment. At the moment, as everyone acknowledges, the balance of trade deficit is horrendous. The manufacturing industry is at the centre of that trade deficit. Last year, the deficit on manufactured goods was £14.4 billion compared with a £2.7 billion surplus in 1979. Imports jumped 127 per cent. between 1979 and 1988, and by 13 per cent. last year. During that period, exports increased by only 2 per cent.

Despite what the Minister says, part of the problem is the underinvestment in the manufacturing industry which is still below the 1979 levels and now forms only 2.7 per cent. of GDP, compared with 3.6 per cent. in 1979. That compares badly with our main competitors in Germany, Japan and the United States.

The opportunity to use oil revenues for such investment has been lost and, instead, they were used, as we know, to fund the increasing unemployment that was created by this Government. That is one of the crimes that the Government have committed. They have left us with a weak economy. The rundown in manufacturing industry is visible for all to see. We were a great manufacturing centre in which the industrial revolution started. However, the rundown that has taken place within that manufacturing centre is now evident for all to see. The new industries that have been introduced have not proved sufficient to prevent that rundown.

The motor car industry is one of the prime causes of our inflated imports. It is worth noting that the cost of our imports of road vehicles in 1987 was greater than the cost of our total imports of food and live animals. The Minister did not refer to that comparison. Japanese firms such as Nissan and Toyota have moved into Britain. Why are they doing so? They want to move inside the ring fence of the Europe of 1992. On the surface-- [Interruption.] If hon. Members will allow me, I shall continue. On the surface, that looks a welcome development because it creates manufacturing jobs, which we all want. However, we should insist that those firms do not become screwdriver firms, mere assembly plants. The engines should be made in the United Kingdom. There should be a foundry content, and, above all, research and development should not rest solely in Japan. If we allow that to happen, we shall be at the mercy of foreign and inward investment.

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Car imports form a major part of our trade deficit. In 1982, there was a deficit in the car industry of £1 billion, which rose to £6.1 billion in 1988. That forms a substantial part--about 40 per cent.--of our overall deficit.

The Engineering Employers Federation has estimated that mechanical engineering, which is one of the United Kingdom's consistent exporters, will move into deficit in 1989. That is another tragedy. One effect of Britain becoming an assembly plant is that we shall lose a skill which is so essential for modern industrial development. We are losing ground in new technology and computers.

As somebody who served an apprenticeship in industry and who is a skilled engineer, I think that it is an absolute tragedy that we have thrown away existing skill. Who closed the skillcentres and cut back training boards? If ever there was a short-sighted policy, it was that. At the moment, in the south-east, where there is a demand for labour, there is also a shortage of skilled workers. If we are to get the economy moving again and get people back to work, where are the skilled workers to come from? Training to obtain skills and apprenticeships are essential. While there may be high flyers in the City, in an area in which we need to expand in order to live, we are cutting our own throats, and the Government should take note of that.

People who work in the manufacturing industry are often seen as the poor relations in our society. That is not true in West Germany, the United States or Japan. In those countries, people who work in the manufacturing industry, both factory workers and management, are at the top of the tree. Here, they are hidden away and people seem to be ashamed of those who work in industry. That is one of this country's problems. How can that happen in the country in which the industrial revolution began?

The Minister referred to certain industries. I shall quote what Sir John Harvey-Jones, the previous chairman of ICI, said on 16 April : "the huge areas of activities on which our industrial foundation was founded are being destroyed where are the British Engineering firms to rival the Germans or the Japanese, where is our machine tool industry, our car industry, our electrical engineering and our electronic industries?"

The report by the House of Lords Select Committee, on which people such as Lord Weinstock served, asked the same question, and the Minister did not answer it tonight.

Manufacturing industry is a major priority and the Minister should have a policy for it which would include planning, investment, research and development and skills--they should all be brought together. The policy being pursued now of high interest rates and a balance of payments deficit should be recognised as wrong and destructive of our seed corn. The Government have got it wrong, and the only alternative is a Labour Government.

8.10 pm

Mrs. Maureen Hicks (Wolverhampton, North-East) : I welcome a debate on manufacturing, but I must confess to a certain disappointment at the negative response from the Opposition on this important subject. Where have they been all these years? Industrialists who read the Opposition motion tomorrow in Hansard will despair because Labour has learned nothing. They would panic at the thought of a Labour Government continuing blindly to advocate failed policies that so largely contributed to the weakening of British manufacturing industry in the

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1970s. Secondary picketing and the thought of Labour threatening to undo all the good that has been done would distress them immensely. I did not hear a single constructive policy on how to move forward and build for the future from the hon. Member for Dagenham (Mr. Gould). Everything he said was destructive. I suggest that we bring the Opposition back to the real world of the 1980s, in which manufacturing output is at its highest ever and manufacturing productivity has risen by more than 50 per cent. since 1980--faster than any other major industrial nation, including Japan. Those statistics floor the Opposition's motion. If we are the failure that Labour continues to suggest, why are foreign companies flocking to invest here? We are their favourite country in which to invest now, but under the Labour Government we were the laughing stock of Europe. Imagine trying to compete in 1992 under a Labour Government! I do not ask the Opposition to believe me or the industrialists ; I do not even ask them to believe the foreign investors. I ask them to join me on a tour of the west midlands and see for themselves what is commonly described as a manufacturing miracle. More than 20 per cent. of all foreign firms setting up here have chosen the west midlands, compared with only 6 per cent. in 1983. Manufacturing industry in the west midlands has made greater progress in the past 10 years than it did between the end of the second world war and 1979. Unlike Labour Members, I am proud to shout that success from the rooftops to future investors.

Business is booming and there is a renewed faith in the region and its huge investment, new jobs, new factories, full order books, record productivity, record profitability, investment in training and investment in research and development. Acres of derelict land have been turned around under this Government and put to good use. I welcome the Government's support for the heartland of the industrial United Kingdom in the shape of a black country urban development corporation which will produce 1 million sq ft of industrial premises, create 20,000 new jobs and attract £1 billion of new investment. One has only to go around the west midlands to hear the buzz of thriving industry in small and large companies and to feel the excitement. I feel it regularly as I mingle with workers who are now associated with success. It is wonderful to hear from one-time shop stewards--in private--that they are thankful for the trade union reforms that the Government had the guts to instigate.

I speak as a Member representing a black country constituency which, admittedly, was devastated during the recession. Not a week went by in those days without bankruptcies and redundancies and it was hard to imagine how a recovery could ever take place. But families who suffered first hand have had the honesty to recognise that good has come out of bad and that the Government have created the conditions in which industry can flourish. Many of them were longstanding Labour supporters, but they recognise that the country was crying out for strong leadership to deal with the decline of our traditional manufacturing industry and to create an atmosphere in which workers would care about the success of their companies and produce British goods that could compete successfully throughout the world. In the black country, we used not to be able to give land away. Industrial land values in 1988 doubled because of the demand for sites. A few years ago jobs could not be

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found for love or money. Now, with the biggest reduction in unemployment in the west midlands, the vacancies cannot be filled. What is more, firms cannot keep up with the demand for skills to meet the demand for their goods. We continually hear of companies training their workers only to have them poached by other companies down the road. Industry and Government together must continue to tackle that problem and ensure that we provide the skills necessary to fill those vacancies.

Given the reduction in the number of school leavers, we must devote even greater efforts to forging links between schools and industry. I take the point made by the right hon. Member for Salford, East (Mr. Orme) about the anti-industrial culture that has grown up ; we must ensure that industry gets its fair share of the declining market of school leavers.

I am happy to report that in the manufacturing industries we still employ 33.2 per cent. of the working population of the west midlands, which is more than any other region. It will be a great tragedy for our region if excessive wage demands and days lost through industrial action are allowed to hamper our remarkable progress. Against a background of success and falling unemployment it is often too easy to forget the way things used to be. It is worth quoting an industrial analyst of the early 1970s in this connection. He said that 90 per cent. of a manufacturing manager's time here was spent in industrial relations, as opposed to his Japanese counterpart, who used to spend 10 per cent. The Government have redressed the balance, and that can nowhere be seen more clearly than in the major industries in my constituency.

I shall not quote the sort of hollow statistics that we heard from the Opposition tonight : I shall cite living, breathing industry. Goodyear, a flagship industry producing tyres in my constituency, struggled for survival in the 1970s, when the local Labour council did not want industry and was pushing Goodyear out of the region by setting high rates. Then, in the 1970s, Goodyear's labour force was more than half as big again as it is now and its manufacturing costs were well above those of its competitors and sister Goodyear companies. In the 1980s, the company has embarked on a major modernisation, in the form of a multi-million pound investment and rationalisation programme which has led to reduced manufacturing costs and a realistic attitude to success among the work force. I can report in 1989 that that company is now so successful that it has switched from a five to a seven-day a week operation, 24 hours a day, which has resulted in an extra 1,000 jobs, taking the work force to well over 4,000. Similarly, another company, employing 750, Marston Palmer in the aerospace industry, whose markets in the 1960s and early 1970s centred in the United Kingdom, is today a leading company. It is well known and respected both in Europe and the United States for its technical excellence and is well prepared to compete favourably with the opportunities to be provided in 1992. These are just two success stories from hundreds I could quote. They are examples of the manufacturing progress we are now witnessing under this Government, and long may it last. I say to the gloom and doom merchants on the Opposition Benches, "Open your eyes and see the success story once considered impossible." In the words of John Banham, the Director General of the Confederation of British Industry :

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"We have made a quantum leap from our dismal performance in the 1970s."

8.20 pm

Mr. Stan Crowther (Rotherham) : I do not claim to know very much about economics. I used to think I knew a little about it until I learnt from experts such as the Chancellor of the Exchequer and the Chancellor of the Duchy of Lancaster that a record trade deficit, massive unemployment, rising inflation and very high interest rates are actually indicators of a strong economy. I always thought it was the other way around ; now I realise that I got it all wrong. However, no one needs to be an economist in an area like mine to see the appalling social cost of the decline of our manufacturing industries, because the ghastly physical evidence is there for all to see. The hon. Member for Wolverhampton, North-East (Mrs. Hicks) is inviting us to go and see for ourselves. Perhaps she would like to come and see for herself what I am talking about, because between Rotherham and Sheffield there are great areas of dereliction and desolation where once stood wonderful steel-making and engineering plants, which were in the old days the very backbone of the British economy. They have largely gone, and up to now at least they have not been replaced.

Of course, we are still making steel in Rotherham, but nothing like as much as we did. About 3,000 people are still working in the steel industry at a very high rate of productivity, but in steel alone my area has lost 10,000 jobs in the last 10 years, plus many thousands of other jobs in the coal industry and other industries--some manufacturing industries, but all directly related to manufacturing, whether in the manufacturing sector itself or in the energy-creating sector on which manufacturing depends. This collapse of manufacturing has led to a massive loss of jobs in my part of the world. Some new jobs have been created, of course, many of them in a very unsightly, out-of-town retail development in the enterprise zone, where people are employed largely part time on very low wages in monstrous blue boxes pretending to be buildings, and they contribute precious little to the local economy. I am very pleased to say that there are a number of new small businesses in manufacturing and, like my right hon. Friend the Member for Salford, East (Mr. Orme), I strongly support small business. I am very much in favour of helping small companies to get established. However, it would take literally 300 new small firms, each employing 40 to 50 people, to create the jobs we need in the Rotherham area not in five years, not next year, but now ; that is the measure of the problem. Quite clearly, with the best will in the world, these new small firms, which I strongly support, will not be able to solve that.

Everyone knew a long time ago, and we do not need to be told, that the traditional manufacturing industries would not be able to continue employing the number of people they once did. We all knew technology would take care of that because, of course, the whole purpose of technology is to reduce the need for labour. No one disputes that. Even if manufacturing were booming in Britain today, which it certainly is not, we would still be shedding jobs. However, the tragedy is that the benefits of technology and the potential wealth that technology can

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