Select Committee on Trade and Industry Minutes of Evidence

Examination of Witness (Questions 320-339)



  320. The metal bashing that supplies them sometimes is.
  (Ms Hewitt) No. I really do have to challenge you, Chairman, on this characterisation, and I must say I dislike this phrase "metal bashing" intensely because it is used much too often to describe manufacturing industry. It is used to describe steel, it is used to describe motor cars, it is used to describe the supply chain and although, yes, clearly companies vary in the level of value that they add, by and large, in our automobile sector, including down the supply chain, what we are looking at is increasingly high value added production which means high wage jobs. If you just go around any car plant, I have been around a lot of them, but also if you go around many of the smaller engineering companies that supply the volume assembly plants, these are companies which are at the cutting edge of innovation, at the very least they are pretty good in their practice. Now we do not have a magic wand to wave over the current situation and say "yes, we can save jobs that are going because of the external conditions", whether it is in aerospace, particularly following 11 September, or whether it is in steel with the situation which confronts Corus and now the possible impact of the import tariffs, although I have dealt with what we are trying to do on that. If the Committee can come up with a magic wand I will look at it with enormous interest, believe me, but what we will go on doing, and we really are redoubling our efforts on this, is to work with companies, particularly down the supply chain, to get them even more productive and we have done that with enormous success in the automobile supply chain for some years now through the Society of Motor Manufacturers and Traders and the Industry Forum Programme which has delivered demonstrable and lasting improvements in quality and in productivity and therefore in the bottom line. It is not the glamorous stuff and it is easy to say "This is not delivering huge job savings" but actually this is the work that has to be done within companies with our help where the companies want it and will take it to get the productivity improvements that we need. You see I look at textiles, which I see a lot of in my own city of Leicester, and where you have a company that is employing people, and there is a sweat shop end of the market and there is not much we can do if those companies do not want to change, but if you look at companies that have not invested in design, that are using old machinery, they have not trained their workers, if they are not willing to change I cannot save those jobs. The best thing the Government can do in those circumstances is to improve the skills of the workers and help them get better jobs. If the management is not willing to change then Government cannot force them to.

Mr Djanogly

  321. Just keeping on the supply chain aspect, which is a very important aside of this, many people who gave evidence said that in reality what a lot of people within the supply chain are doing are moving out of the country as a way of increasing their productivity. The question of Dyson moving out came up. The fear that a lot of people had was that as people move out to the Far East it becomes self-fulfilling, in other words it will increasingly become the case that the supply chain becomes attached to the Far East and therefore people will move out to the Far East not only for the predominant reason they gave, for lower employment costs, but also because they will want to be near the other elements of the supply chain, and therefore you get into a vicious circle. I would just make the point, I would be interested to hear your view, Secretary of State, at this moment in time we are increasing the amount of employment regulations and the Employment Costs is the Bill going through Parliament at the moment, in other words from these employer's point of view we are doing the opposite to what they maintain is necessary in order for them to stay in this country.
  (Ms Hewitt) Let me make a few comments on that. Clearly there are parts of the supply chain that are moving to the Far East, there are parts moving to Central and Eastern Europe, also to take advantage of lower wage costs but closer to the European market. The Dyson example is a very interesting one because, of course, he, as I understand it, has made the decision to shift the manufacturing of the vacuum cleaners to a Far East factory and to get the advantage of scale as well as labour costs in order to supply the global market. What he is keeping in Britain is not only his R&D but also the manufacturing of the new product that he and his firm have now created. I think that is quite an interesting example of a much larger story, which is that the lower value added stuff, the less innovative stuff, may move for a variety of factors, but cost is a crucial one. What we have to do is ensure that we continue—

  322. They are top end vacuum cleaners.
  (Ms Hewitt) The difficult process, the process where you need highly skilled and highly paid labour is in the original research and development, it is in the original manufacturing, where actually the manufacturing and the R&D are still very, very closely linked and then going forward it is going to depend on how much the labour costs, what proportion they are of the total costs, and I do not know all of the figures underlying in the Dyson decision. The point is that we have to keep continuously moving our companies and our sectors up market, up the valued added chain so they are producing the higher value added stuff, where they need to stay here and where wage costs are not the issue, they are simply not the issue. In order to do that what we have to do is to get far more companies investing in R&D, which we talked about, but also partnering with our absolutely outstanding universities and doing far more to generate new products and new processes. It is really shocking that fewer of our companies, rather our manufacturing sector, generates less of its income from new products than the manufacturing sector of any other country, it is a real source of weakness. It is equally dismal that only a tiny proportion of the manufacturing industry, about five per cent, are in partnership with science departments and university departments on R&D. We need to increase that hugely and that is why we have the innovation centres, the centres for manufacturing research and the centres for manufacturing excellence all now coming on stream. I mentioned the Sheffield Metal Centre, in the northwest there is now a Aerospace Innovation Centre partnering the hundreds of the aerospace companies with the eight universities, backed by the RDA and, indeed, initiated by one of the businessmen on the RDA who chairs the Northwest Aerospace Group. That is the sort of thing we have to do to keep the high tech, high value added manufacturing here. Individual companies will go on making decisions, we just have to keep generating new jobs and new companies and whole new sectors like biotechnology, nowhere 10 years ago and now growing very fast and will grow faster over the next 10 years.

  Chairman: Before Roger Berry comes in I just want to make the point that we may well get a message that we are going to have to vote. A friendly Tory bleeper—if such a thing exists—has informed me that a vote is likely. I am giving you due warning of it as I am giving everyone else, we may have leave for a few minutes. We have not got to it yet, Mrs Keeble is continuing to speak.

Mr Berry

  323. Can I briefly return to this issue about the euro? The evidence we have received relates to two distinct things, one is uncertainty about the future and the second is the exchange rate. Of course potential investors like certainty, as much certainty as possible then they can make a decision about whether to invest in the United Kingdom or somewhere else. What they will do with more certainty is a matter of judgment. Of course they want certainty. Many have said that the exchange rate itself is an issue and I entirely understand that the Government has no published exchange rate target and I entirely understand that some say that the evidence suggests that exchange rates in the long term do not matter. Would I not be wrong to deduce from that that your Department is not indifferent—let me rephrase that, is your Department indifferent to the exchange rate at which we join the euro should we do so?
  (Ms Hewitt) As I said, I am very clear that the weakness of euro is very damaging to many of our manufacturers who are dependent on exports to the euro-zone, so we are certainly not indifferent to the exchange rate issue. I agree with you that that is a separate question and separately related to the question of certainty. We do not have an exchange rate target. It is a foolish Minister who starts speculating on exchange rates and I do not intend to do so.

  324. Exchange rate does matter?
  (Ms Hewitt) Of course it matters, we can see what is happening to companies.

Mr Hammond

  325. I apologise, Secretary of State, if we do have a division I may not be able to come back. There are many taxes which impact on business but the one which is the particular focus of attention of many a manufacturing company is the Climate Change Levy, because it impacts particularly on manufacturing because it is a cost rather than a levy on profit and also because it has been imposed at a time when manufacturing was beginning to face a very difficult period. We understand, of course, that the Climate Change Levy overall is neutral, but it is not neutral as far as many individual companies are concerned, small and medium enterprises, those who are operating in sectors where it is not possible to negotiate agreements, for example in the plastics industry. There is little doubt among manufacturers in these areas that whatever the rights and wrongs of the tax or the levy, whatever its overall intentions the practical effect is to burden British businesses with a competitive disadvantage when viewed in the wider European and international context. That, surely, cannot have been the Government's intention, and I wonder if you can respond to that concern that has been expressed to the Committee.
  (Ms Hewitt) When the Treasury was consulting not only with DTI and DEFRA but with business as a whole on the Climate Change Levy, obviously one of the key issues was that of competitiveness for the traded sector, particularly with the rest of the European Union. Of course a number of countries have their own energy taxes with a variety of designs. As you rightly say, the Climate Change Levy and the reduction in national insurance contributions were designed very specifically to be neutral across the private sector as a whole, so there was no revenue gain to Government as a result of the introduction of the tax. Clearly it is not possible to design a tax so that it is neutral for every specific company, it depends upon their specific situation. The 80 per cent discounts that follow for those companies who have entered into the negotiated agreements with DEFRA are hugely important here. I know, as you rightly said, that of course they do not cover every company that would like to be included and that is an issue that we and our colleagues at DEFRA will continue to look at. But there is no doubt at all the consultation around what the basis for those negotiated agreements should be made it clear that taking the IPPC definition was by far the simplest and most sensible way of approaching that issue. I make two further points. One is that, of course, there is a real incentive in the design of the Climate Change Levy to businesses to secure energy from levy exempt sources, renewable sources, which gives them, if you like, a double benefit, they continue to get the reduction in the National Insurance rebate but they also do not pay the levy because they are getting their energy from the exempt renewable sources. The other point is if we look at the medium and longer term strategy, and that really is where Government does have to make the big changes, then improving the resource productivity of our companies is a very important part of the overall productivity strategy. Giving companies an effective incentive to do more rather than less is what the Climate Change Levy is designed to achieve and I believe it is beginning to have that effect. Most European Union countries do now have some form of energy or carbon tax. We are not alone and we should not pretend that we are.

  Chairman: I think we will pursue this matter after the division. We will be back in no more than 15 minutes.

  The Committee suspended from 5.27 pm to 5.41 pm for a division in the House.


  326. We have a number of areas we want to cover with you Secretary of State so we will try and get through them in the next 25 minutes or so. I do not think there are likely to be any more votes in the short term. We were talking about the question of the CCL. Can I just raise this issue with you because I know Philip Hammond was anxious to have it brought to your attention. We have seen in the chemicals industry, for example, PET conversion plants and there is the prospect that businesses of that nature might move out of the United Kingdom to areas where the fiscal regime is more friendly. In many respects this is down to the way in which the Treasury views the CCL. You have already made the point that there are arrangements under which companies can get exemption or be eligible for the discount. There are companies, also, accidents almost of history, who are not in a position to benefit from that kind of exemption. To what extent is the Department exercised by this and to what extent do you think you can get the kind of relaxed view that we would expect either from the Commission through the European exemption or some kind of consideration by the Treasury, as Lord Marshall has suggested in the original report, that international competitiveness should not be disadvantaged by the CCL? Have you thought about either of these two areas and if you have, can you give us your view and if you have not, why not?
  (Ms Hewitt) As I said in response to Mr Hammond's question, the whole issue of international competitiveness was part of the consideration, it was one of the very important considerations that obviously Lord Marshall took into account in recommending a Climate Change Levy and that the Treasury took into account in designing the levy. There are issues for sectors or for specific companies which, for whatever reason, are not included within the IPPC embrace. I think that is an issue that we need to continue looking at to see whether there are ways in which my colleagues in DEFRA could extend those negotiated agreements to other companies. It is an issue we are very aware of. The levy, of course, is fairly new and of course we are continuing to talk to business and to listen to business about the impact and the practical experience of it.

  327. One last point. In our last report, on Security of Energy Supply, which you have yet to respond to and I am not asking you to respond to tonight, we did make the point that CCL has not been in place for 12 months yet.
  (Ms Hewitt) Exactly.

  328. But it would be helpful if there was a proper report produced on the impact of it both in respect of energy savings, the decline in energy consumption and the impact on industry and its competitiveness. I do not think I would be out of order to ask you if you would be prepared to give a view on the desirability or not of such a report, either produced by the Treasury or in respect of those areas specific to the DTI for the DTI to pass comment on?
  (Ms Hewitt) I think that is a very helpful suggestion. Clearly it is a bit early to be producing a report when, as you rightly say, the Levy has only been in effect for less than 12 months but I think it is a helpful suggestion going forward, and certainly I will discuss it with Treasury and with DEFRA colleagues.

Mr Hoyle

  329. Obviously if I can take you on to something slightly different, Research and Development and the fact that we seem to be the poor relation wherever we go. If we think of America they spend three times as much as Europe, the European aerospace industry spent 14.5 per cent of its annual turnover, with the United Kingdom spending only 10 per cent. I do know in the case of R&D the Government has tinkered at the edges with some tax incentives. I wonder why we cannot following the lead taken by Canada, where they really have got a grip about how R&D can help. If we think of Canadian industry, we have seen their development take place and it has gone from seventh to fifth largest supplier in the world, I think that is very, very important. I wonder why we cannot follow the way they have done it, with real money being put in and we have seen the benefits of that money. The approval of $240 million was repayable money back for 22 Canadian research and development projects and what is expected from that is an additional investment of Canadian $1.7 billion in innovation spending and the creation of 4,426 high quality jobs, so recognising that you do get the money back but there is real money going in at the beginning to act as a catalyst and it is really working in Canada.
  (Ms Hewitt) I am interested in the Canadian model and I know it has been the subject of comments in an earlier Select Committee Report. We always have a look at other country policy initiatives to see if we can learn from them. Clearly companies are very pleased with the fact they can get very substantial grants under the Canadian Partnership Scheme. If you look at the overall effect it is actually not obvious that it is working better for them than our position does. If you look at the latest OECD figures, the figures for 2000, our business enterprise R&D as proportion of GDP is still a bit higher than that of Canada, it is 1.24 per cent and Canada is 1.1 per cent. The micro position may be attractive for companies, it may not be created for the increase in private sector R&D, which is what you need here. In the case of aerospace specifically, as I said earlier, we are looking very closely with the aerospace sector at what we can do to increase R&D spend. We will certainly see if we can increase public sector R&D spend and we also need to see an increase in private sector investment.

  330. In fairness Canada has gone from seventh to fifth largest supplier in the world, so that in itself proves that the model is successful and I think the creation and the return in generating sales of $16 billion in that investment is a positive way forward. I am pleased you will look at that. The other question I have on research and development that has always bothered me, is you mention the vacuums and say, they have gone overseas, that is the manufacturing bit. How long before—and can we really stop—R&D following manufacturing?
  (Ms Hewitt) Yes, I believe we can. I think one of the reasons why we are so successful in attracting inward investment is that more and more companies, the inward investors, want to tap in on our science departments in the universities, that is a very significant factor for Boeing, and it is for a number of other countries, in the initial decision and in a sustained way. One very noticeable element over the last year when we have seen bad news after bad news in the electronic sector, very often companies that have been scaling back globally on the manufacturing capacity and their jobs they have kept their R&D and kept it very often in the United Kingdom. I think we are a very attractive place for R&D. The investment that we have made in the science-base, and will continue to make in the science-base, that is crucial in keeping us at the forefront of R&D. What we need to do is to make an equally intense effort to translate that science and technology into new companies, but also into new products and processes in existing companies. There is a lot more to do in that area.

  331. Can we look forward to see some real hard cash put on the table of companies in R&D partnerships?
  (Ms Hewitt) We have put on the table rather significant funds through the tax credit, for SMEs, more to come with the extension of that tax credit to large companies. If you look at the investment in aerospace specifically we have committed £1 billion, or thereabouts, to launch aid, much smaller amounts of round £200m into R&D investment. We are looking at what more we can do there but we must leverage in much larger amounts of private sector investment in the sectors that are not making investment at the level of our pharmaceutical sector, which is a world leader in terms of R&D and its productivity.

  332. In recognising aerospace and pharmaceutical as the world leaders, innovation that comes from the Dyson product range would not have been helpful if you had to wait for tax breaks and tax incentives because for somebody starting off with that R&D it is not helpful to them unless you already have profits to take your tax breaks out of, it is hard cash for those innovations that come out of the United Kingdom that we need help with as well.
  (Ms Hewitt) If I may say so, you misunderstand the nature of the R&D tax credit because it was designed to kick in with hard cash for companies who are not yet in profit but who are at that early stage of innovation.

  333. We are missing each other, they might not have a business set up but they have this idea and how can they develop that idea before they have the company?
  (Ms Hewitt) At the very early stage, I would say that is where the SMART programme, which I mentioned, comes in. It is hugely important, it is very successful and it has been evaluated as part of the review of business support from my Department we are looking at how we can build on that. I hope we will be able to put more money, depending on my Spending Review settlement, and I am sure the Committee will be supporting me in needing substantial investment there.

  Chairman: The Committee recorded accord on that one!

Dr Kumar

  334. Secretary of State, can I explore the role of RDAs? In your statement earlier on you recognise and emphasise very strongly the importance of RDAs in ensuring to increase productivity and encourage innovation and investment in regions. One thing that is emerging in as the RDA is maturing, if I can use that phrase, was an example given to us by the Engineering Federation, where we heard that a major American firm was approached by two RDAs, two separate RDAs to encourage a particular firm to invest in their respective regions despite the fact that the company had a significant United Kingdom subsidiary already. Obviously a lot of time and effort has been gone to by these two RDAs to compete against each other and trying to get the company to locate. How do you think, you may not think it is necessary, for the RDAs to coordinate together? There is a lot of time and effort being made. In this particular example, it is a minor example, but in the future there could be a lot more problems because all of the other nine regions may start competing against each other vigorously. There has to be some form of coordination. Do you think some form of coordination is needed? If you do, how will you go about doing that or do you feel it is not necessary and they should compete against each other?
  (Ms Hewitt) Of course there needs to be coordination at various levels. In the case of inward investment we have now created British Trade International, which is doing both the export promotion through Trade Partners UK and the attraction and the support of inward investment through Invest UK. British Trade International now has a regional presence that is housed in the Regional Development Agencies. That is, I think, really working very well. I have not come across in relation to the RDAs the problem you mentioned of two of them chasing after the same attractive inward investor. Clearly it has happened in that case, I do not think it is a particularly common problem, but I will check. It has been a common feature in the past of different cities, counties and different parts of the United Kingdom all doing their own promotion. That does in part reflect the fact that there is growing evidence that if we are to get prosperity in every part of our country then you have to have strong regional and sub-regional organisations and partnerships where you have the local people, the business leadership but also other people in the public sector, on councils, people in the not-for-profit sector, and so on, all working together because they understand the real strength and potential of their region or their city or their county. They have to be enabled to build competitive advantage. That is why the Regional Development Agencies are so important and it is why we are strengthening them, increasing the budget from £1.2 billion in the current year to the £1.7 billion by 2003/2004; given them from next month a single pot of money rather than being tied to very specific and small funding streams; giving them much more flexibility and it is why we are encouraging, pushing them, if you like, to show real delivery, in particular delivery for their manufacturing and industrial strategies. Following the manufacturing summit I asked all of the Regional Development Agencies to come back to me on 27 March, when I will be chairing the next meeting of the chairs of the RDAs, to report on their regional industrial strategies and what they have delivered so far and what is coming down the track. As I go round the country I see all of the time evidence of the RDAs starting to make a difference, sometimes with things where the RDA has not necessarily told me they are involved, recently in my own city I saw De Montfort University—I was in fact opening an innovation centre at De Montfort University—where there is a rapid manufacturing, prototype equipment and expertise available to every manufacturing SME, regardless of the sector. That is an RDA backed initiative and it would not have happened without the RDA. That sort of thing is happening everywhere. What we need to do is ensure those different support centres and innovation centres are really effectively marketed today to SMEs in particular and that we see real measurable results over the next year, two years and three years.

  335. Thank you for that very detailed explanation. I just still want to push you a little bit more, are you saying that you welcome a certain amount of competition between the RDAs, because it is important, especially if they are going for the same particular inward investor because in this particular example there were two particular RDAs, but there could be seven or eight, it could be all of them competing—I may be taking an extreme example—it is whether it is appropriate for them to be spending their time at De Montfort. Are you also saying that as long as they meet the targets you have set down, and you are going to set it from this year, you do not mind if they do compete in a particular instance?
  (Ms Hewitt) As I said in response to your first question, I will talk to Sir David Wright and BTI as well as to the RDA chairs about whether enough is done to make sure they are not wasting time, lots of them going after the same inward investor. I do not think it is a big problem but I will check on that. What I do want, and it is happening through those regional economic strategies, is for each region to have a clear vision of where its particular strengths are, where it can build on those strengths, in particular where it can get its universities partnering with industry and building up clusters. In some cases you will have technical textile strengths in more than one part of the country. Through our textile strategy we have actually created, if you like, a virtual cluster, bringing three universities together with a number of industries. With the motor sports cluster that already covers three different RDAs who are working very closely together to support that cluster, that area of very high engineering expertise in order to develop that. There is coordination but it is not possible in the modern economy for us to sit in the centre of government and say, right this inward investor is in chemicals, he should go there, this one should go there: it has to come from the bottom up, with some sensible coordination and not central government dictation.

Mr Lansley

  336. Can I follow slightly on that point, clearly you are beginning now the process of giving the budgets to, in some cases, in other cases adding to, and in other cases reallocating budgets to the RDAs. At the same time you look at a whole series of the Department's own schemes, there are some conducted on a sector basis, there are some conducted on the basis of SMEs on a national basis, there are others set up on a regional basis, even some of these RDAs working together across the country. It has been put to us, not necessarily entirely in this context, generally that it would be very helpful if all of these initiatives were at least seen to be linked together in a manufacturing strategy and they focus inside the Department of Trade and Industry—whether it is with Ministers is a secondary issue—to which people can relate these various initiatives. Do you have any sympathy with that view?
  (Ms Hewitt) Of course. When I became Secretary of State I initiated quite a fundamental review of how the Department is organised and whether that organisation actually delivers our strategic objectives. At the highest level our strategic objective is to contribute to greater prosperity for everyone right across the United Kingdom. Our way of doing that is in particular by helping to drive up productivity and competitiveness across the United Kingdom economy but crucially within the manufacturing sector. The strategy for doing that as far as the DTI are concerned, clearly there are other parts, infrastructure investment, that are crucial to the productivity and manufacturing and elsewhere, where we are not the lead department. If you look at what we can do we need to work with the Treasury to ensure that there is that climate for investment, which we discussed, we need to work with the DFES and DWP to ensure that there is the right supply of skills for the manufacturing industry. We need to ensure that there is a dynamic competitive framework because there is very clear evidence that the greater competitive intensity of your economy the more you will get innovation and high productivity in your manufacturing and in your other sectors. We need to have a focus, a much stronger focus, on innovation and on the exploitation of leading-edge technologies and the transfer of proven technologies into the manufacturing industry. We need to have direct business support services, national, regional and sectorial that meet the needs of businesses and that are simple and user friendly. Having said that as a strategy we are organising the Department to deliver that with a new group devoted to innovation, within which this crucial aspect of transferring technologies into the manufacturing industry will sit. I think what we will achieve, this is not overnight, is a much clearer framework for the manufacturing industry and the other business will relate to it and can respond to it and we will then ensure that at the regional level of the RDA there is a clear industrial strategy for that region, that it is understood by a growing number of companies as the RDA builds its partnerships with businesses and that we have at a more local level business links and, indeed, Learning and Skills Councils delivering really good, high quality support services directly to businesses. We are building that, it is not overnight, but I think we are putting in place a much clearer framework to deliver the manufacturing strategy.

  337. Can I just put it to you, on various points in talking about the RDA, you were saying you are looking for them to report to you on their regional strategies for manufacturing, another point you refer to is regional economic strategy. When I ask you a question about manufacturing strategy your answer is to describe the strategy of the Department. Now, the issue, I suppose, for manufacturers and those of the manufacturing industry is it simply that they must participate, as other countries do, in the strategy of the Department of Trade and Industry generically for industry, or is there some focus for manufacturing? Is there something special for manufacturing? Is there an understanding? If manufacturing matters then within the Department it has restructured itself in a way that is focussed upon that and upon schemes that are designed round the needs of manufacturing and whether they can communicate their needs to some focus within the Department?
  (Ms Hewitt) Yes, there will be a focus on manufacturing, not exclusively, because obviously we have other partners in other sectors that we work with, but manufacturing is central to what we do. The reorganisation of the Department will give us three separate groups, one dealing with business relationships and business support, one dealing with innovation and one dealing with fair markets, and the way we shape the competitive environment. In the business group, where we are reorganising, we will have manufacturing sector teams where particularly the larger companies, but also the companies that are really crucial in terms of innovation and driving up value added have a very clear relationship with a team and, indeed, in most cases an individual, who understands them and their needs. We have the Innovation Group focussed on the new technologies and knowledge transfer and the Fair Markets Group focussed on getting the environment right, whether it is a matter of labour standards or World Trade Organisation competitive framework generally. It will be a great deal easier for a company and their sectors and trade associations and unions to relate to the Department and to see what it is that we are offering. The support we offer and will continue to offer for prototyping, we were talking about SMART, is almost entirely geared to manufacturing, the regional selective assistance, the support for investment almost entirely geared to manufacturing. What I want to do is not create a whole lot more schemes, that is the last thing that manufacturing companies want, but to ensure that we have an understanding of how we can drive up productivity within companies—I think we are getting much better—then putting the money behind proven forms of investment, proven programmes that will deliver that. That is why we put more money into the CBI-led For the Future campaign, where we are working with businesses and trade associations in specific manufacturing programmes and it is why we are working with the CBI and Partnership Fund because, again, we have good evidence that businesses that work in partnership with their employees as well as businesses that are sorting out their processes actually deliver greater productivity and greater success.

Linda Perham

  338. Skill shortages, it is another area of concern mentioned by a lot of witnesses. When we saw the Engineering and Machinery Alliance people, the Chairman mentioned them earlier, last week, they told us they thought there were 10,000 fewer people undertaking advanced modern apprenticeships than the industry needs. They did welcome the graduate apprenticeship scheme as well, it is really about what support the Government provides to SMEs in taking up particularly graduate apprenticeships and really where you see us plugging this gap of skill shortages?
  (Ms Hewitt) I do think that modern apprenticeships have really an important part to play in this. We currently have over 200,000 people doing modern apprenticeships. The engineering/manufacturing sector has the largest number of advanced modern apprentices in training. We do need to increase the numbers and we are planning to increase the number of places so by 2004 more than a quarter of young people can enter an apprenticeship. Alongside that Estelle Morris has just announced the radical reform of the 14 to 19 year old curriculum and the introduction of vocational GCSEs. Those two things and the role of the Learning and Skills Councils and the Sector Skills Councils and Centres for Vocational Excellence I think give us a strategy that has a real chance of overcoming what is about 150 years neglect and, frankly, snobbery, towards vocational education in our country. It is a huge problem but I think we are making some real advances, and modern apprenticeships are, perhaps, the most advanced.

  339. The 10,000 they say we are lacking at the moment they say by 2004 we are going to increase it—it is about 230,000 now?
  (Ms Hewitt) I am told 217,000. Obviously this is a matter where DFES are in the lead. I can certainly check the numbers for you that we hope that will come through in engineering specifically with that increase. We have a very real shortage at the moment, and it is projected to increase if we cannot make these things work, particularly for engineers and not just at the graduate level but at the technician level where modern apprenticeships are designed to work. Looking across the information and communication sector we already, even now with downturn, we have some skill shortages and the projections are really quite worrying. The other thing I think we have to do is persuade more young women, as well as young men, that engineering and modern manufacturing is incredibly exciting. It should not be difficult to do because that is the reality, as all of us know who know engineering and high tech manufacturing companies. That is not the image in schools. It is difficult to get the girls as well as the boys doing the maths and science subjects at the level they need to do them in order to progress on to an engineering or science qualification that will stand them in good stead. There is big set of issues there that we are trying to tackle.

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