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Manufacturing Industry (Scotland)

12.59 pm

John Barrett (Edinburgh, West): After 18 months of trying, this is the first time that I have been fortunate enough to secure a debate in Westminster Hall, and I am delighted to introduce it. I hope that today marks a change in my luck. I am also delighted that the Secretary of State for Scotland is to reply to the debate. As she will know, manufacturing is important throughout Scotland. When I discovered that she would be responding, I thought that I would find out the latest information from the web, and was pleasantly surprised to discover an unofficial Secretary of State fan club that describes her as

Today's debate has been made all the more timely following the announcement last Friday from the Office for National Statistics of yet another fall in manufacturing output throughout the United Kingdom as a whole—down about 0.7 per cent compared with the previous month and 2.4 per cent. compared with the same time last year. Geoffrey Dicks of the Royal Bank of Scotland, financial markets described those figures as

I requested today's debate not because manufacturing is a major source of employment in my constituency, but because of its importance throughout Scotland. I shall be paying tribute to some of the positive aspects of the Government's work, but it is my duty to point out some general concerns. I will not be talking down Scotland. It is sometimes said that people do that when referring to bad news. Today provides me with an opportunity to make a positive contribution and I look forward to the Secretary of State's reply.

Manufacturing industry in Scotland directly employs 290,000 people. A further 150,000 jobs are indirectly supported by the sector. In total, that is almost 20 per cent. of the work force in Scotland. That is well down on the equivalent figures in the late 1970s and early 1980s, but it is still considerable. Manufacturing accounts for almost 70 per cent. of all exports in Scotland, with the electrical and instrument engineering sector accounting for three quarters of that figure. Other exports include industrial gases, pharmaceuticals, paints, coatings and metal products.

I turn now to the textiles industry, which is the fourth largest sector in Scottish manufacturing. We have already had one debate this morning on textiles and my hon. Friend the Member for Tweeddale, Ettrick and Lauderdale (Mr. Moore) set out the particular problems that constituencies such as his in the borders are suffering. I shall not repeat the arguments, so I hope that the Secretary of State will understand if I do not refer too often to textiles, important as they are to Scotland.

A trawl through business news stories in Scotland over the past few years unveiled alarming events. However, for me, the problems in Scottish manufacturing manifested themselves abruptly when Continental Tyres suddenly announced the closure of its factory in Newbridge in 1999. Although I was not a Member of Parliament at the time, as a local councillor

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and someone who worked closely with the then hon. Member, Donald Gorrie, and a Member of the Scottish Parliament, Margaret Smith, I remember the devastating impact that that decision had on the people of Newbridge and surrounding villages. All in all, almost 800 jobs were lost and one of the community's major employers disappeared from the area. From then on, we in Scotland experienced announcement after announcement, job cuts after job cuts and closure after closure.

In 2001, despite the direct involvement of the Prime Minister and £20 million of Government grants, the mobile phone company, Motorola, confirmed its intention to close its factory at Bathgate to the west of my constituency in west Lothian. A local union official said that the whole community had depended on the plant and that the area would now be destroyed. Three months later, west Lothian was hit again when the electronics firm, NEC, announced 600 job losses at its plant in Livingston. The United Kingdom managing director of the company said that the semi-conductor trading situation was the worst ever encountered by the industry. Some people have been over-pessimistic about the situation in west Lothian. Its ability to recover has impressed many.

In November of that year came the announcement of Rolls-Royce to cut 400 jobs at its Hillington factory outside Glasgow after a downturn in the airline industry after 11 September.

This year, the trend has continued. In May, Newbridge in my constituency was hit again following the decision by Grampian Foods to close its Edinburgh site in what the Scottish Executive described as yet another "severe blow" to the area. More than 1,000 jobs have been lost in a year. Elsewhere, 650 jobs have been lost at the Erskine plant of Compaq—the computer firm—in addition to the 700 jobs that were lost the year before. About 400 jobs were cut when the Sanmina-SCI plant in Irvine closed, and Chunghwa Picture Tubes cut 600 jobs at Mossend in north Lanarkshire. NCR—the Dundee cash machine company and electronics firm—cut 150 jobs. Last week, APW Enclosures announced a plan to close its Scottish plant at Hamilton, with the loss of a further 300 jobs. It blamed the closure on the worst ever downturn in global information technology and computer markets.

I managed to get a note from the Library that sums up the whole matter. It shows the scale of the decline in manufacturing in Scotland. Between 1998 and the summer of 2002, more than 100,000 jobs in total have been lost in manufacturing, more than 30,000 of which were lost in the past year alone. Those are worrying figures, and I do not agree with those who say that the service sector can fill the gap created by the fall in manufacturing. Frankly, that could not happen, and even if it could, I doubt whether it is desirable. It is bad for the health of the economy for Scotland to be a nation of call centres. That is not to decry service sector jobs. In my constituency, for example, we hope that the completion of the Royal Bank of Scotland's global headquarters will give rise to the creation of a further 3,000 jobs. As the Select Committee on Trade and Industry commented, manufacturing output supports a large number of service sector jobs. A strong manufacturing sector is crucial if we are to create the knowledge-based economy that we all want.

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The Secretary of State for Trade and Industry admitted that the Government have made mistakes. In particular, she admitted that they had given the impression that they had given up on manufacturing. At the Labour party conference in Brighton, she said:

I respect the Secretary of State's honesty and courage in admitting that mistakes have been made. However, I look forward to hearing the Minister say today that lessons have been learned from those mistakes.

In June, the Trade and Industry Committee produced a thorough report on the manufacturing industry in the United Kingdom. It produced several key recommendations. I accept that they are not all the Government's responsibility, but the report posed some difficult and challenging questions for the Government to answer. The Committee found that the major obstacle to improving manufacturing was the long-standing shortfall in capital investment, which creates a serious challenge for the country's financial sector. It also found that UK companies find investment more expensive to service than do their European or American competitors.

It is clear that UK banks must re-examine their attitude to manufacturing and become more flexible and focused on the long term when considering their lending policies. I am keen to hear the Minister tell us what steps the Government are taking to encourage this sea change in attitude.

I welcomed the Government's manufacturing strategy paper, which they produced in May, and the seven pillars that the DTI believes are the basis for a successful future for manufacturing. I hope that the Secretary of State will accept that it will take much more than words on paper to turn round the fortunes of the manufacturing industries, and I look forward to the right hon. Lady telling us what steps have been taken some seven months since the paper was published. I note with interest, however, that the first of the Government's seven pillars is macro-economic stability. That contrasts with paragraph 16 on page 10 of the Committee's report, which says:

I was also interested to note that the Committee reported the experience of business and the unions, which found the burden of regulation in the UK to be considerable. They called for further relaxation of the administrative burden. Clearly, the Committee felt that it was an important issue, but none of the seven pillars in the Government strategy paper appears to deal with it, which is odd, given that the matter falls so clearly under DTI responsibility.

I should not have been surprised either by the lack of mention of the euro. Irrespective of whether one is in favour or against it, the on-going uncertainty is at best unhelpful and at worst detrimental to the long-term strategic planning of business.

Globalisation has brought new opportunities for Scotland, but it has also brought new challenges. The increase in international competition has forced many

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companies to adopt even more efficient practices and structures and to produce cheaper goods of higher quality, which is not an easy square to circle. However, it remains clear that many companies have yet to adopt the best practice, which has been shown to improve productivity. The manufacturing advisory service clearly believes that companies can and should make greater use of lean manufacturing techniques and increased investment in information technology. I look forward to hearing what the Government are doing to help business in that regard.

Both the CBI and the National Skills Task Force highlighted the importance of making real improvements in the training of key management within companies. Responsibility for providing training and skills for workers and management in Scotland also falls under the Scottish Executive. There remains a need for work across government to ensure that the necessary skills are available to develop manufacturing. Once again, I am keen to establish what the Government have achieved in conjunction with the Scottish Executive.

Last August, the Centre for Economic Policy Research produced a report on Scottish manufacturing. I did not agree with the request for the Scottish Executive to cut income tax by 3p to encourage entrepreneurship. A year ago, the manufacturing summit concluded that the future for manufacturing lay in high technology, but that such a future would be realised only if there were investment in a high skill base. It will be no surprise that I, a Liberal Democrat, would rather see investment in education, training, IT and transport infrastructure before any tax cut. I also agree with the Federation of Small Businesses in Scotland when it said that the attacks were "misplaced" and that responsibility for red tape and employment and environmental legislation lies with Westminster and the EU, not with the Scottish Executive.

Before concluding, I accept that it would be wrong to pretend that the entire picture is doom and gloom. To be fair to the industry and to the Government, it is not all negative. The October announcement of new money to set up a wind turbine and generator engineering operation on the Isle of Lewes offers potential for new job opportunities in the area and will mean the re-opening of the Arnish oil fabrication yard in Stornoway, which was closed three years ago.

The renewable energy sector has enormous untapped potential in Scotland and offers real promise for a boost to Scotland's manufacturing. It is widely accepted that Scotland has enormous strategic potential for making use of renewable resources. It offers Scotland exciting new possibilities and a prize that is there for the taking, if the Government, the Scottish Executive, local government and industry have the courage and determination to go out and win it.

Scotland's enterprise companies should now be actively and aggressively pursuing the manufacturing capability of engineering components to harness wind energy. From there, the construction of large-scale wave energy and tidal stream devices could provide further long-term stability for the manufacturing sector. Such success would require real direction and support from the Government, for which I look to the Minister today.

Aside from renewables, it would be wrong not to highlight the new Rolls-Royce £85 million manufacturing centre near Glasgow airport, which will

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provide a welcome and much needed boost to the area. The managing director, Royan Anthony, said that the plans would provide a new centre of excellence for aerospace component manufacturing in Scotland. I wish the project well.

Closer to my own constituency, firms such as Excell Biotech in Livingston are flourishing in the expanding biotech market and making drugs that many of us hope will one day combat cancer and cystic fibrosis. There are good news stories, and it is important for balance, for the industry and for Scotland that they are highlighted. Regrettably, however, such announcements are fairly few and fail to make up for the on-going job losses across the industry.

I am conscious of the time and want to ensure that the Secretary of State has adequate time to address the points that I have raised. In conclusion, I have noticed in many instances that when anyone dares to utter concerns about the Scottish economy, they are rubbished as talking down Scotland. I hope that the right hon. Lady accepts that I have not done that today; I have merely tried to raise real concerns that I and many other hon. Members have about the problems in Scottish manufacturing and the trends in the industry over the past few years.

Mr. John MacDougall (Central Fife): I congratulate the hon. Gentleman on securing the debate and on the way in which he has introduced it. I share his concerns about the industry, but I want to highlight one or two of the points that he made. Does he accept that a key indicator for measuring the success of the economy is whether unemployment levels are better now than they were in, say, 1997? I think that the hon. Gentleman will accept that they are. With regard to a sound economic policy, will he also accept that we could not measure the type of unemployment figures that he may be considering, although he may have had slightly better manufacturing—

Mr. Deputy Speaker : Order. This is a rather long intervention.

Mr. MacDougall : May I just say—

Mr. Deputy Speaker : Order. This intervention is becoming a speech, and Mr. Barrett has the floor.

John Barrett : I take the points that the hon. Member for Central Fife (Mr. MacDougall) raises. When it comes to improvements in unemployment levels, whether in manufacturing industry or in the growing service sector, it is important to consider the overall picture. The picture is certainly not of doom and gloom: there are some areas where there is real growth in the service sector. In my constituency in Edinburgh, and particularly on the west side of Edinburgh, there is phenomenal growth in the service sector, but there are other areas in Scotland.

As I said at the beginning, I requested the debate not to raise the parochial interests of my constituency, but to raise wider concerns about those areas in Scotland where manufacturing is vital. In some areas, the work

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force that has been employed in manufacturing would like to see a continuation of manufacturing jobs, not a move to call centres only. I look forward to hearing the Secretary of States reply to the points that I have raised.

1.17 pm

The Secretary of State for Scotland (Mrs. Helen Liddell) : I congratulate the hon. Member for Edinburgh, West (John Barrett) on eventually securing the debate; I did not realise that it had taken him so long to come up in the ballot. I also congratulate him on a balanced speech. I was a little worried when I heard the hon. Gentleman's opening remarks: if he was trying to get on the right side of the Minister, he was not exactly going the right way about it. However, the speech was extremely balanced, as I said, and I would expect nothing less of him.

I am glad that the hon. Gentleman pointed out the success of economic policies affecting his constituency, because the unemployment rate there is 2 per cent. It has fallen by almost 35 per cent. since 1998 and is an exemplar of what can be achieved in a community that has much of its basis in the service industry, not least the financial services sector.

The hon. Gentleman also referred to the biotech industries, which are showing unprecedented growth in Scotland. Indeed, the growth of biotechnology in Scotland is outstripping growth throughout the European Union at something like 30 per cent. per annum, and we feel greatly encouraged by that. We are similarly encouraged by what is happening on software, despite the terrible catastrophe that happened in Edinburgh at the weekend and our anxieties about the artificial intelligence department at Edinburgh university. I hope that we will have reassuring news about that before too long.

Let me put the hon. Gentleman's remarks in context. I agree entirely with the statistic that he uses for manufacturing, and about the importance of the manufacturing sector to Scotland. I will not pretend that there are no difficulties, because the difficulties are apparent to all. Like the rest of the United Kingdom and, indeed, all the major economies throughout the developed world, Scotland has seen manufacturing companies struggle. In Germany, manufacturing output fell by 5 per cent. It fell by 6 per cent. in the USA, 14 per cent. in Japan and in the UK overall it is down by 5.5 per cent. He is concerned, as I am, about the fall in Scottish manufacturing output for the eight successive quarters up to 2002 and he acknowledges the impact of restructuring in the electronics sector. Our vulnerability in that sector is well recognised.

It is reassuring that the sharp decline in output was halted in the latest quarter. It was 0.2 per cent. down in quarter two, compared with quarter one, but there is no scope for complacency. Indeed, a large number of issues need to be addressed in a completely non-partisan way. They have been live in the Scottish economy for many years. There are structural issues about levels of skill, training and the nature of past investment in the Scottish economy. Our vulnerability to electronics, which we welcomed with open arms when that development came to Scotland, has meant that the corporate sector has perhaps not put enough emphasis on research and development.

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I am delighted that my right hon. Friend the Chancellor of the Exchequer in his last Budget extended the research and development assistance available to small firms to larger firms to ensure a bigger input of research and development activity in Scotland. Indeed, my friend and colleague, the First Minister of Scotland, is in Dundee today inaugurating a new intermediary technologies institute, which will help to stimulate research and development out of our universities to help industry on the ground to get that competitive edge.

There are specific issues relating to competition globally that we have to take into account. A number of low-cost labour markets that are anxious to secure manufacturing development are emerging. They include not just India and China, but the accession states into the European Union. That offers us an opportunity in that it expands markets, but it poses a challenge too. The main way to meet that challenge is through high added value. Scottish manufacturing has been highly successful in the high added value end of the market.

I am not sure whether British Aerospace is in the hon. Gentleman's constituency or in the one adjacent to it. I was privileged to visit there recently to see the Eurofighter helmet, which is a world-beating example of Scottish engineering, manufacturing and research and development. That kind of development will never be the volume development that we have been used to in the past. We have to seek a situation where we can develop more broadly our manufacturing output.

Annabelle Ewing (Perth): While we are talking about the plight of the manufacturing sector in Scotland, will the right hon. Lady accept that as the greater part of Scotland's exports go to European Union member states, being outwith the eurozone is deeply damaging to Scotland's economy?

Mrs. Liddell : I note the significance that the hon. Lady attaches to the single currency. As a Government we are in favour in principle of joining a single currency, provided that the economic conditions are right. That is a very important point for Scottish manufacturing. We must be confident that the economic conditions are right. My right hon. Friend the Chancellor has made it clear that he will evaluate the five economic tests between now and June 2003.

To look on the positive side—the hon. Gentleman was very fair in doing that—new technologies are transforming manufacturing as much as every other sector. We have to welcome the extent to which manufacturers are themselves embracing new technologies. I have one criticism. Everyone knocks call centres. People should bear in mind that many of the jobs in call centres, such as those in my constituency, are high-level jobs often filled by graduates and those with language and accountancy skills. They are significant generators of employment.

John Barrett : Will the right hon. Lady also agree that in many areas where manufacturing has been the traditional employment, the change to sitting in a call centre at an office-based computer is not the way forward?

Mrs. Liddell : I would disagree with the hon. Gentleman. We must get away from the notion that you

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have to get dirty to have a good job. There are good jobs, where you do not necessarily get dirty, which have a high skill component. It is a tribute to people who have been prepared to change their careers that they have moved on to such employment. The hon. Gentleman cited Motorola and Continental Tyres; they are examples of where, with a co-operative partnership, effort by the Scottish Executive, the Department of Employment, the local authority and local employers, the majority of people can rapidly be found new employment. We congratulate people on doing that.

As the hon. Gentleman acknowledged, the Government published the manufacturing strategy in May, strongly supported by many manufacturers, trade associations and the trade unions. About 18 months ago, our colleagues in the Scottish Executive published their own booklet entitled "Created in Scotland: the way forward for Scottish Manufacturing in the 21st Century". The Government and the Scottish Executive are committed to working together to harness the best of our high-skilled work force to ensure a future for manufacturing industry.

The hon. Gentleman almost dismissed in passing the impact of economic stability. Because we have had five years of macro-economic stability there is a danger that we take it for granted. Think back to the days when interest rates were 15 per cent. and think of the consequences that that had for industrial investment. The hon. Gentleman talked about capital investment; in his pre-Budget report, my right hon. Friend the Chancellor of the Exchequer made much of his attempts to encourage capital formation on the part of UK companies, and that capital formation is made a lot easier because we have had the longest period of sustained low inflation since the 1960s. Inflation has remained within the narrow band of between 1.5 per cent. and 3.2 per cent. since the 1997 election. That is a crucial platform for manufacturing industry for investment, innovation and enterprise in British and Scottish manufacturing.

I wonder whether the hon. Gentleman spotted a piece in yesterday's "Business a.m." about the poor take-up of the research and development tax credit in Scotland. That is an issue for us; we should all be working together to encourage Scottish companies to take advantage of the available opportunities and funding. I take the point that we must look at new means of encouraging companies to invest. The best way to do so is to allow them to keep more of the money that they earn. That is why the Government have reduced corporation tax. The UK now has the lowest ever corporation tax rates for small companies and the lowest starting rate among major industrialised countries.

Budget 2002 introduced a zero starting rate, which is very important. Many small companies in Scotland are unincorporated and as such they depend on low levels of personal taxation, which is aimed at helping them to get the necessary capital to allow their businesses to function.

I entirely take the hon. Gentleman's point about regulation. The Government are committed to ensuring that regulations are fair and effective, so that they protect the vulnerable but do not stifle enterprise or productivity. Our policy is to regulate only when necessary, and we have significantly strengthened the systems that control the regulatory burden. We are

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recognised as providing a more entrepreneur-friendly environment than the United States and many other major EU countries, and fostering growth companies more effectively, as a recent survey shows. We work hard with the Scottish Executive at improving regulation.

Many of the drivers of significant change in the manufacturing sector relate to skills and the Scottish Executive has been upfront in taking forward the skills agenda. It is taking steps to drive forward productivity growth, working with the Government. With the Minister for Enterprise and Lifelong Learning, I met the Chancellor yesterday specifically to talk about the productivity agenda and to discuss how we promote enterprise, innovation and skills throughout the country. Lifelong learning, which is driven in Scotland by the Scottish Executive, is a key to the Government's economic strategy. That partnership between the Executive and the Government is critical in driving forward the productivity agenda. The Government spend about £1.3 billion on in-work related training in Scotland. Learndirect is the Scottish Executive's one-stop shop to encourage people into learning.

The hon. Gentleman's points, which he raised in a very balanced way, are extremely important. We have to sit down and work out the inhibitors to productivity growth, and then work together to attack those inhibitors. The debate has been around for the better part of 30 years; we should now move towards a solution. I congratulate the hon. Gentleman again.

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