House of Commons Hansard Debates for 22 Apr 1993

Mr. Winterton : I had hoped to conclude my remarks before 10 o'clock, but I am delighted to be able to make a few more comments. Surely the people would much prefer to have a Government who stimulated manufacturing industry, to create jobs and the profit--some of which will be taken by the Exchequer to be used for all the purposes for which the Government need resources--rather than a Government who, in the recent Budget, sought to take away from people huge additional sums in taxation. I believe that I am not far wrong in saying that the additional taxation that the Government will take from the people and from companies as a result of the Budget amounts to about £6 billion.

My right hon. Friend can help the people and his Government if his Department tackles the important issue of import substitution and seeks with me the achievement of a second industrial revolution--a renaissance of manufacturing in this country. He has a great deal on his

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shoulders, but I am confident that he is prepared to tackle the issue. I hope that he will respond positively and constructively to my firm proposals.

10.1 pm

The Minister for Industry (Mr. Tim Sainsbury) : I am glad that my hon. Friend the Member for Macclesfield (Mr. Winterton) has provided the House with another opportunity to debate an extremely important subject, manufacturing industry. I am sorry, however, that the title of the debate referred to import substitution rather than the much more important and relevant issue of the competitiveness of our industry.

I regret that some of my hon. Friend's introductory remarks focused on what he called a decline in our manufacturing industry. That is an inappropriate description when our manufacturing industrial productivity and our manufactured exports are at all-time record levels--even today, we learned of further increases. Those increases have been achieved in difficult world trading conditions. Despite those difficulties, the output of our manufacturing industry is one quarter higher than it was in 1981, and 1.5 per cent. higher than it was a year ago.

I was delighted that my hon. Friend recognised my right hon. Friend the Prime Minister's commitment to manufacturing industry. I hope that he appreciates that, within our party, there is a far wider recognition of the importance of our manufacturing industry and that that recognition is not by any means recent.

I hope that my hon. Friend will not continue to judge the performance of our manufacturing industry, as he appeared to do at moments in his speech, by the number of its employees. My hon. Friend should consider one statistic that relates to our vehicle industry, which, as he is aware, is an important part of our manufacturing industry not only because of the direct employment it provides, but because of the indirect employment it provides to many

subcontractors. Last year, it produced 300,000 more vehicles than it did 10 years ago, but it employed 100,000 fewer people to do so. That is a sign of what was a necessary increase in productivity. My hon. Friend accused my Department of having provided a drab and depressing answer to a question he asked. Indeed, I understood him to say that my answer had made him dumbstruck. He was not that tonight. He was far from dumb. If he was dumbstruck, perhaps it was because he failed to analyse sufficiently the nature of international trade today. I am grateful to him for his occasional tributes to me and what my Department is doing. I would be even more grateful if we could have his more consistent support.

Mr. Winterton : My right hon. Friend is being somewhat unfair to me in his introductory remarks. Does he not pay attention to, or is he not aware of, the huge trade deficit that Britain has and the tremendous concern that is now being expressed--I referred to it in my remarks--by, for example, the Engineering Employers Federation? That organisation is not my mouthpiece, although I hope that in some ways I may be a mouthpiece for it. It is articulating much of the concern that I expressed tonight. In other words, I am not the only person expressing concern about our manufacturing base. That concern goes much further. Indeed, it goes as high as the Prime Minister, who has publicly stated his belief that manufacturing deserves a better deal.

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Mr. Sainsbury : I am as aware of the nature of our trade balance as I am of the inconsistency of my hon. Friend's support for the Government he was elected to support. As I said, I am grateful for his occasional tributes, but we would like a little more consistent support from him. I assure him that I and my whole Department keep in close contact with the Engineering Employers Federation, and only yesterday I was discussing manufacturing industry with Mr. Neil Johnson.

I would like my hon. Friend and the official Opposition to recognise more readily the considerable achievements of our industry. My hon. Friend and I have a shared objective in wishing to see our manufacturing industry flourish, our manufacturing base expand and our manufacturing industries win more export orders and obtain a bigger share of the home market. Even so, we disagree over a number of aspects and methods by which we can achieve that aim.

I come to my hon. Friend's interest in import substitution, a subject to which reference is often made. It is frequently spoken as an appeal to patriotism, but I suggest that such an appeal in connection with import substitution is liable to be expensive and damaging to the economy. It is a common, if understandable, reaction to the trade deficit to which my hon. Friend referred.

I hope that all customers--individuals and retail and other business customers--will always consider whether there are United Kingdom suppliers of the products that they wish to buy. If there are, and if the foreign and domestic made products are, to all intents and purposes, of the same quality and of similar value, I hope that the purchaser--as I say, business or individual--will always buy British. I hope that British businesses will work with their suppliers to see whether those suppliers can fill gaps so that they can purchase goods from British sources. They should recognise the benefits of having their suppliers close to their places of production, their manufacturing plants and factories. I hope that they will appreciate the considerable advantage of easier contact between a business and its supplier. Obviously, if a supplier is close by, telephone conversations are more economical and people can be in and out of each other's production facilities, readily discussing problems and opportunities face to face.

My Department, along with the Confederation of British Industry, is backing the partnership sourcing initiative, which is not new, but something that we have been involved in for a number of years. The initiative is aimed at strengthening the relationship between British purchasers of goods and their suppliers. That sort of relationship will be of mutual benefit to both parties.

There are three good reasons why the sort of import substitution that my hon. Friend appeared to be suggesting in the form of a buy British campaign is misguided and could well do more harm than good. First, the implication of such a campaign is that the Government should try to persuade customers to buy goods against their better judgment--

Mr. Andrew Mackinlay (Thurrock) : Manufacturers.

Mr. Sainsbury : If the hon. Gentleman will restrain himself and listen, I can continue with my argument that the fundamental flaw of such an appeal is that it would, if successful, send the wrong signals to British manufacturers. Buying British regardless of the price or quality of

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goods would not help British firms to improve their international competitiveness. It would not help them to sustain any increase in their share of the United Kingdom market. It would simply make matters worse in the long run.

That argument is particularly true because, as my hon. Friend the Member for Macclesfield must surely recognise--I know this to be true from my business experience--if one tries by whatever method to make customers buy goods that do not present the best value, it will not work in the longer term. Sooner or later, those customers will buy products that offer better value for money.

Mr. Nicholas Winterton : Will my right hon. Friend give way?

Mr. Sainsbury : My hon. Friend spoke for a long time, and I should like to develop my argument.

The second fundamental reason why the sort of campaign that my hon. Friend appears to be advocating would be ill conceived is one that he attacked in his speech. A Government-sponsored buy British campaign would clearly run counter to their international obligations under the general agreement on tariffs and trade, and the treaty of Rome, as would more explicit forms of import control such as licensing. We take those obligations extremely seriously, for a good reason. It would be totally unrealistic to ignore them and, worse, it would run very much against our national interests.

Mr. Winterton rose --

Mr. Sainsbury : I shall give way, to my hon. Friend for what I hope is a brief intervention.

Mr. Winterton : The Minister seems to have been listening to a totally different speech from the one that I delivered. At no stage did I say that I wanted protection or a buy British campaign. I do not think that I used the phrase "buy British" once during my speech. I want the Government to identify sectors where we are currently importing goods that we could competitively and qualitatively provide and produce in this country for our customers. Every other major industrial country does that, and I am merely asking that the United Kingdom Government should do the same for British industry.

Mr. Sainsbury : If I in any way misinterpreted what my hon. Friend said, I am glad, because, if he agrees with my analysis of why an import substitution campaign of the sort that I understood him to be suggesting would be counter-productive, we are coming together in our recognition of the realities of international trade.

My hon. Friend referred to his belief in free trade. On a number of occasions I have wondered whether his belief in free trade extended as fully to trade in textiles as it might in the interests of the consumers, as well as the producers, of Macclesfield. I hope that my hon. Friend agrees that it is in our national interest to maintain a free and open international trading system and to have fair rules firmly enforced--on that I agree with my hon. Friend.

The liberalisation of world trade benefits this country in particular. The last thing that our exporters want is to find Governments to which they export promoting nationalistic campaigns--whether they be campaigns to buy French, buy Danish, buy Argentine or buy Malaysian. When exporters hear of such campaigns, they ask us to stop them, and we do. That is why the Government believe that

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a successful conclusion to the Uruguay round, including the phasing out of the multi-fibre arrangement, is well worth fighting for. As my hon. Friend, I am sure, knows, we export a quarter of our output, and our trade and manufacturinjg industry would suffer disproportionately from any Government-sponsored import substitution scheme. Those who believe otherwise are deluding themselves. There is another powerful objection to a buy British campaign. It is too often assumed--this is my third point--by those who are perhaps not too well informed about the global nature of today's industry that it is easy to distinguish between foreign and domestic goods. I hope that my hon. Friend recognises that in practice these days it is simply not possible to do so.

Component supply knows no international boundaries. Our businesses are operating in an ever more international market. It is not just that more goods are imported and exported--that is welcome and it helps add to the wealth of nations ; it is also that most products contain parts from different sources and countries. It has become steadily more difficult to identify a product that would satisfy the label "Made in Britain". A product might be assembled in Britain but consist largely of foreign-made parts ; it might be assembled overseas from largely British-made parts. The same product might be made in more than one country in the Community.

I will give my hon. Friend some examples. If he were, when driving in his constituency, in Macclesfield, to overtake a Peugeot, that Peugeot might have been made in France. If he happened to be in Marseilles, for example, and overtook a similar Peugeot, it might well have been made in Coventry. And those are identical cars. If my hon. Friend were to fly to the United States on a Boeing 747, he might be in one which had a British content of no less than 40 per cent., starting, of course, with those splendid Rolls- Royce engines--the makers not to be confused, of course, with the company that makes the Rolls-Royce cars to which he referred. He might fly on another apparently identical Boeing 747 which had hardly any British component at all.

Mr. Greg Knight (Lords Commissioner to the Treasury) : Shame.

Mr. Sainsbury : I hope that he would not do so, as my hon. Friend indicates ; I hope that he would always look before he got on the aircraft to see that it had Rolls-Royce engines.

So there are three overwhelming reasons why advocating import substitution in these ways is totally misguided, would not work, would send the wrong signal to British manufacturers and would be counter-productive for our exporters, as well as being against our international obligations. In today's global market, it is just impracticable. If my hon. Friend agrees with me on that, I am delighted. If I have misunderstood what he is advocating, I apologise. If he can agree with me in what I have said about import substitution, we have made real progress.

Mr. Winterton : If my right hon. Friend is merely talking about a buy British campaign whatever the quality and whatever the price, and he has been addressing himself to that sort of thing, I agree with him. But our right hon. Friend the Prime Minister has told me that he wishes to encourage import substitution and wants this country to

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identify areas of manufacturing which we can re-stimulate to get back into, for instance, textile machinery, which is made in my constituency, and to rebuild that sector of our economy rather than importing all the machines from Italy, Belgium, Spain, America or Germany. It seems to me that that is not an insular, inward-looking--

Mr. Mackinlay : Coal from Colombia.

Mr. Winterton : I do not wish to talk about coal from Colombia ; I wish to talk about the ability of this country to regenerate the manufacturing base that it had in the past, bringing that machinery and production up to modern techniques and design. I have never stated--

Madam Deputy Speaker (Dame Janet Fookes) : Order. I am very tolerant of the hon. Gentleman, but I am aware that, as a member of the Chairmen's Panel, he knows that interventions should be brief, and this is becoming a speech.

Mr. Winterton : I am trying to say to my right hon. Friend that I am not looking for a think British or buy British campaign. I am looking for the Department in which my right hon. Friend is an important Minister to seek to identify areas where we can rebuild our manufacturing base in order to reduce our huge deficit in manufactured goods.

Mr. Sainsbury : We have made some progress. I am glad that my hon. Friend agrees with me about the unsuitability of import substitution campaigns of the type that we have been describing. I hope that he will understand why I will not be able to give way to him again. We should now turn to what the Prime Minister, the Department, the President of the Board of Trade and I all have in mind as a sensible way of helping British industry obtain a larger share of the home market. It is to help British manufacturing industry to become more efficient and more competitive against the best standards in the world. The real answer is to help British firms beat the competition, not protect them from it. That brings me to the policies that Governments should pursue.

I hope that my hon. Friend recognises that the Government whom he was elected to support can and do help British manufacturing industry win in world markets. Our policies, our initiatives, are directed at the creation of a climate for business within which companies can prosper by their own efforts. I fear that he is remarkably reluctant to recognise the progress that we made in the past decade. Our policies are directed at achieving low inflation and interest rates, a competitive exchange rate, lower tax rates, deregulation--there is further to go, and we are determined to achieve more in this area--privatisation and trade union reform. This last was perhaps the most important of all, and I hope that my hon. Friend fully supported it.

As a result of those achievements, British industry is in a much stronger position today than it was in the early 1980s. This is clear from the way in which firms have responded to the extremely difficult world trading conditions of the past two years. We should warmly congratulate our exporters. Export volumes, excluding oil and erratics, were at a record level in the fourth quarter of 1992, despite sluggish or falling demand in our main markets. United Kingdom manufactured export volume

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has risen by no less than four fifths since 1981. In fact, over the 1980s, it grew faster than in France, Italy, Germany, Japan and the United States.

We should also acknowledge the efforts of our companies to maintain vital investment : investment in capital equipment and in the work force, both despite the recession. In the last quarter of 1992, manufacturing investment was 2.5 per cent. higher than in the previous quarter. We should praise manufacturers for their remarkable achievements in productivity. Let us not be complacent, however. There is still a long way to go if we are to become truly competitive against the best in the world. Thanks to British manufacturers' efforts, productivity has increased by 7 per cent. over the past year.

My hon. Friend should not need to be reminded that, during the 1980s, United Kingdom productivity grew faster than in all other major industrialised countries. This was after decades at bottom of the league. In addition, our policies to encourage inward investment have helped to reinvigorate key sectors of the economy. Inward investment has helped Britain to become a major exporter of vehicles, office equipment, television sets and chemicals. Indeed, we have an exporting surplus of television sets now.

British firms are now in a position to achieve even greater gains. I am sure that my hon. Friend recognises the extent to which we helped industry in the Budget. For the second year running, no business will face a real increase in rates. The burden of advance corporation tax will be reduced, and small businesses will be helped by a range of measures, including changes to the loan guarantee scheme. Overall, Budget measures will reduce the burden on business by £1,000 million in the coming year. There are clear signs that industry is responding well. New orders are being placed. According to the CBI's latest survey, most manufacturers expect output to increase. Order books are at their most favourable since mid-1990. Our industrial strategy does not end there. The DTI has established a number of valuable services that help British firms to meet the challenge of international competition. The enterprise initiative addresses key aspects of management : production processes, business planning, and financial and information systems. I hope that my hon. Friend is familiar with the "managing into the 1990s programme". I commend to him attendance at one of its mobile shows if it arrives in his area. The programme is designed to highlight the need for a strategic approach to improve competitiveness.

I am sure that my hon. Friend is familiar with our programme to develop one -stop shops to provide high-quality support services to British businesses. They will do that by bringing together not just the services of my Department but chambers of commerce, local authorities, TECs and other providers of business information. The DTI's new industrial competitiveness division is examining how to promote the competitiveness of British industry.

To give Ministers a better understanding of what is happening in the marketplace, the President of the Board of Trade has asked his chief economic adviser to obtain information directly from a number of major British companies. Ministers are eager to develop a more effective dialogue between Government and industry to ensure that Government policies enhance rather than impede

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industry's performance. That is why the President reshaped the DTI last July to achieve clearer communications with industry. Each industrial sector now has a recognised and knowledgeable point of contact. That greater knowledge in industry and in my Department is beginning to pay off.

My hon. Friend spoke about capital allowances. Of course, he will be aware of their large cost. If they were to be increased, the cost would fall at a time when the public sector borrowing requirement is high. He will be aware of the frequent criticism that high capital allowances provide a tax stimulus to businesses to do what they were about to do anyway. Worse still is that in many cases they distort investment decisions and lead to lower- quality investment. Allowances for plant and machinery are already more generous than commercial depreciation.

I appreciate my hon. Friend's important point about market intelligence. The Government can help with that. Knowing about potential markets is usually not a problem for the large, sophisticated and well-informed manufacturer. Large com know the main importers of their competitors' products nor which firms buy from those importers.

Market intelligence on suppliers is provided by numerous commercial sources, including the Kompass database and the "Machinery Buyers Guide". Quick and easy access to such information is valuable to small firms. A recent innovation is Chambernet, which relays the Kompass database to chambers of commerce. The Government also provide valuable market intelligence on the names of importers and on import flows of particular commodities. That is done through appointed commercial marketing agents, and data on trade flows are available from CSO publications. In that way, the Government act as a facilitator to assist business. My Department is happy to help any firm requiring details of that service.

My hon. Friend referred to transport infrastructure. I remind him that British Rail investment in 1993-94 is higher in real terms than in any year in the 1980s. London Transport's investment has been unmatched in real terms for 20 years. The roads programme, maintained in cash terms, is permitting higher volume because of lower construction prices. In addition, the Chancellor's private finance initiative will play an increasing role in the modernisation of Britain's infrastructure.

I agree with my hon. Friend on the importance of deregulation. I hope that he heard what our right hon. Friend the Prime Minister said today on that subject. The President of the Board of Trade has announced the formation of seven task forces from the private sector to mount an onslaught on the regulations affecting companies. They will report progress every eight weeks to the President and the Prime Minister. Ministers have agreed that no further regulations will be imposed on British companies unless the cost to them is spelled out before the regulations are put to Parliament.

The key to sustaining growth and increasing market share for British manufacturers is improved competitiveness. United Kingdom firms now have a great opportunity. Our inflation is at its lowest for 25 years, we have the lowest interest rates in the European Community, and our exchange rate is very competitive. The Budget

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measures, which, as I have said, are worth £1 billion to business in the coming year, are set to boost confidence and stimulate growth.

The evidence of today shows that firms are responding to the improving economic climate. Surveys show that confidence is rising. Manufacturing output is increasing. Like my hon. Friend, the Government are keen to see British industry win a bigger share of the home market. We do not underestimate the challenge. There is no instant or

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easy way to become globally competitive, but we are working with industry to improve British competitiveness. I have no doubt that-- The motion having been made at Ten o'clock and the debate having continued for half an hour, Madam Deputy Speaker-- adjourned the House without Question put, pursuant to the Standing Order. Adjourned at half-past Ten o'clock.

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