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9 Jun 2009 : Column 173WH—continued

Of course, smaller companies can already pay a training subsidy under Train to Gain. Again, that is nothing new. During the 1970s, to which people sometimes hark back, there was a temporary employment subsidy. Such schemes are nothing new; we have done it before and we must do it again. Why? Well, the alternative is to lay people off, which will cost. I know that there is a cost associated with such training schemes—the figure
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of £1.2 billion has been bandied around, which is the figure in the FSB and TUC paper—but it is not an absolute cost because people would go on to jobseeker’s allowance and draw down all sorts of other benefits. Therefore, I would like the Government to cost such schemes. I know that I am arguing with my hon. Friend on this, but I would, at least initially, limit such schemes to the automotive industry, and then see how long the recession lasts. This is a short-term measure. We are not talking about it being indefinite because, of course, we hope that the recession will not be indefinite. It is a short-term measure, but, nevertheless, we need to take it.

I have some specific questions for my hon. Friend the Minister. I am eternally grateful for the Delphi-Renishaws package being put together, but the ghost in the room—if I can put it that way—that has not been dealt with is the need for a wage contribution. The Delphi-Renishaws scheme is taking place on a per person basis, and one issue is the upfront costs of the awarding body. Those costs should be removed or at least scaled down, because there will potentially be—we would like to see this—at least 300, 400 or perhaps even more workers undertaking the upskilling to get national vocational qualification levels that they have not previously managed to achieve.

Secondly, there is the question of what happens when someone drops out of the scheme. At present, the full cost is borne by the company. As that is something that companies in difficulty always worry about, we hope that there will be some flexibility so that the company does not have to bear the full cost of people leaving, for whatever reason, whether it is another job, family illness or so on.

Thirdly, apprentices are key to the scheme. Both companies have committed themselves to taking apprentices this year and next year, because they feel that that is the future. At present, the use of European social funding for those under 18 is not allowed, so we wish to have flexibility to include under-18s.

Finally, setting up such schemes is expensive; it requires a big budget. We want some clarity that they can continue in the future, because, whatever we do to begin with, we will want to roll it out. I would like other firms to join in and follow that model, which is exciting, innovative and absolutely right. Those are my specific questions.

In conclusion, I think that what we are trying to do in my constituency is absolutely right, but we do not want to be hung up on or hamstrung by the question of whether a wage contribution will be paid. There is a matter of justice: if the state is asking people to use their time and money to undertake such a scheme, the least it can do is make a contribution as they do so. We will get a benefit, as our firms will be even more competitive when they come out of the recession.

I hope that my hon. Friend the Minister hears my earnest pleas. I am grateful to the Government for putting enormous resources into supporting employment. I know that the scheme is a pioneer project, a pilot—it is pushing forward the boundaries—but, as I have said, the problem is not new. If we can crack this, other parts of the country and other companies can learn from us, but we need clarity about whether a wage contribution for the automotive industry is a possibility, albeit for a short period of time, because it would help everybody. We will push on with our plans regardless, but we really need that back-up.

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10.22 am

Tony Lloyd (Manchester, Central) (Lab): In the little time that is available, I wish to make several brief points. I congratulate my hon. Friend the Member for Chorley (Mr. Hoyle), who, as ever, has picked up issues that really matter to our constituents.

My hon. Friend probably agrees that we need to draw a careful distinction between saying that the Government ought to be active in their policy on employment and encouraging the industrial and manufacturing base, which can involve the proper use of Government procurement to ensure that British firms are advantaged, and saying that we ought to move to some kind of economic protectionism. I am not a natural free-marketer, but, nevertheless, we are a trading economy. My hon. Friend gave examples of British companies that successfully manufacture all over the world—those companies do not necessarily assemble cars in the end, but they manufacture the parts that go into them. We cannot take part in a process that involves cutting off our nose to spite our face, which would happen if we got the balance wrong. There is nothing inconsistent about adopting the kind of policies that are adopted by some of our European neighbours to support home industries. We do not have to cross the boundary into the wrong kind of protectionism.

Mr. Hoyle: I totally agree. This is about using the same rules as our European counterparts. In the case of Japan, does my hon. Friend think that a Japanese Minister would ride around in a British-built car? The answer is no, because the Japanese Government have a policy that ensures that that does not happen. The rules should be the same for all of us.

Tony Lloyd: We all agree with that. We want the rules to be used judiciously and carefully to the advantage of our employment and manufacturing base.

The Government must look at the role of Government procurement. I do not say that unkindly, but procurement over the years by all Governments has perhaps not shown Britain at its best. The civil service has not always known best how to work in partnership with manufacturing. That might seem like a plea for manufacturers. It is sometimes said that we have feather-bedded manufacturers in the past. We have allowed poor management to get away with an approach that allows them to become lazy and not as cutting edge as they ought to be. The Government ought to be using their purchasing power to promote the dynamic cutting edge. They should ensure that those who provide goods and services to them are at the forefront of global manufacturing.

I give the example—it is an important one—of BAE Systems. There is no doubt that in the past it got away with ridiculous prices, ridiculously slow delivery times and so on. The overly cosy relationship with previous Governments was not in the interests of BAE Systems or our employment and manufacturing base. Such things are now changing. There is a much tougher view in the Ministry of Defence and the Department for Business, Enterprise and Regulatory Reform about the procurement process, but we need to refine it to ensure that there is value for money and that the Government play a part in driving an industrial policy that leads to success.

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I support my hon. Friends the Members for Chorley and for Stroud (Mr. Drew) in their plea for a proper look at a judicious use of employment subsidies in parts of industry. The Government rightly recognised that the importance of the banking system was not in whether individual banks succeeded or otherwise but in the fact that if the system had collapsed, knock-on effects would have spread throughout the whole of the UK’s services and manufacturing economy. What the Government did was high risk but absolutely right, which is now being proven.

The argument for support for LDV, for example, is similar. The issue concerns not only LDV, but the supply chain that it is involved in and the importance of maintaining that whole infrastructure within our industry. We need to take a strategic view in respect of critical manufacturing firms and ensure that we offer support at this particularly difficult time. Conditions are likely to be difficult for manufacturing for some time to come, so I support the plea made by those who have already spoken.

The future will not be with the large manufacturers of the past but with small and medium-sized enterprises—those little firms that are highly innovative but often feel that they are not supported. I wish to make several points about them. First, while I agree with the arguments about traditional apprenticeships, we have to understand the position of the traditional apprentice in the modern world. A small firm on its own cannot devise a proper apprenticeship structure. There has to be a well-defined structure and access to further education. As I have said to the hon. Member for Hertford and Stortford (Mr. Prisk), further education is fundamental, and any attack on it would be massively damaging to our manufacturing base. There has to be proper partnership between our education institutions, if we are to offer upskilling to the people who work in our economy.

We should bear in mind that this is not just about apprenticeships but about the reskilling of those who are in work and who already have good skills. My hon. Friend the Member for Stroud discussed labour subsidy. The reality is that people with skills who drift out of jobs usually do not come back, and we could lose that skills base in the future.

My final point is about the banking system. Historically, our banking system has seen itself as a great success, but it has always failed this country in the particular area of early innovators—those who do high-technology, quality research and who want to move into production. We are spectacularly bad in dealing with that gap, and many highly qualified, highly competent people leave these shores, often for America and the rest of Europe, to produce their products, because our banking system fails to take a risk at that risky stage of investment, which, nevertheless, is fundamental if we are to see a transition from idea to manufacture.

A firm in my constituency, Liberalto Engines, is currently suffering from that gap. Everyone says that its idea is great and that it will have all the backing that it needs, if it can get its idea into production. The idea is good, and the company knows that the product will work, but moving into prototype and demonstrating production capacity is, of course, risky. The company may fail, but the whole point of the banking system is to take risks and get a price for those risks. At the moment, however, the banking system is not doing that.
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That is one thing that the Government could do to ensure that we have a future in respect of the small, highly innovative, advanced technologies that we need.

We have some world-beating industries in this country. I visited a firm in my constituency last week called SSR. It is a training company that works with the media industries, which have produced bands such as the Happy Mondays, New Order and all the other great Manchester bands of the past. It trains people and gives them the skills of the future. There is a blurring of the distinction between services and manufacturing in that area, but those are the industries of the future. Those industries are massively high-tech and massively important for our future, and they are there now. They are successful and they will weather this economic storm and provide us with high-quality employment for the future. The future is good, but it needs a little bit of assistance from the Government now.

10.30 am

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

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

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

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

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

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

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

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

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

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

10.40 am

Mr. Mark Prisk (Hertford and Stortford) (Con): I welcome you to the Chair, Mr. Fraser. This is the first occasion on which you have chaired a debate in which I have participated, and it is good to see you in your place.

I welcome the Minister to his place on this first occasion in his new role. He is the seventh or eighth Minister whom I have shadowed in the past few years. It is good to see him in his place, and I hope that he will last a little longer than some of his predecessors.

The hon. Member for Chorley (Mr. Hoyle) has a long and distinguished track record in raising important issues concerning manufacturing. He speaks with great passion and verve, and rightly so. He raised a matter that other hon. Members also raised—the role of procurement. The debate has been useful and timely, and I commend all hon. Members who have contributed to it, including the hon. Member for Stroud (Mr. Drew), my hon. Friend the Member for Mid-Worcestershire (Peter Luff) and the hon. Member for Manchester, Central (Tony Lloyd), who was right to consider the way in which procurement can be used without going down the path of protectionism. I share that sentiment.

As all the contributors to the debate said, manufacturing matters. It represents 13 per cent. of our gross domestic product, and generates more than half of our exports. It helps us to pay our way around the world. As my hon. Friend the Member for Mid-Worcestershire said, last year we were still the sixth-largest manufacturer in the world. We can and should take pride in the quality and strengths of the businesses and the work force in this country. We should not be unduly negative, cautious, careful and aware of the threats and problems, and we should not write manufacturing off.

Clearly, the sector has had problems. One million jobs have been lost during the past dozen years or so, even before the current recession. Since 1997, 10 per
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cent. of manufacturing businesses have closed. I hear from business and industry about a continuing and rising sense of frustration at the Government’s policies as key investments go elsewhere. For example, last year Rolls-Royce chose to locate a new testing facility in Germany, not in Derby. It told me that that was largely because of its frustration at the Government’s lack of support. One of its directors said:


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