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2 Dec 2009 : Column 107WH—continued

Mr. Lindsay Hoyle (Chorley) (Lab): The hon. Gentleman is correct. We are talking about a short-term gain for a long-term loss. We have seen production at the sweet
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factory taken overseas and the closure of the piano factory, yet the pound is now weaker and the euro has strengthened, so the people who made a quick buck ought to be reinvesting in manufacturing in the UK, as the economy is absolutely ripe for that. Does the hon. Gentleman agree?

Dr. Pugh: I do agree, but oh that it were so. I reflected on the enormous transport cost of moving a piano anywhere, let alone across the oceans, and just thought that it was not particularly in the world's or the UK's interest. If we add to that the general fact that Britain's slow emergence from recession is due in part to our difficulty in exporting our way out of recession and in part to our overdependence on financial services and a perceived and deteriorating imbalance in the economy, we have to say that it is an issue for Government in one sense or another.

The Government have a genuine interest in the shape and balance of the economy and the impact of such economic trends. To depend exclusively on the service sector, and particularly the financial sector, is an economic weakness for the country as a whole. It is a weakness in the same sense that dependence on tea was a weakness for Sri Lanka. When that commodity failed, the whole economy failed too. In part, we are in an analogous situation at the moment. Unlike Sri Lanka, which is one of the few places where tea can be grown, we have to accept that financial services can go to other places and, in certain circumstances, will do precisely that.

Since the turn of the century, manufacturing jobs have dropped by 16.6 per cent. in the UK, which I think is the lead drop in Europe. As a result, the balance of payments has worsened because manufacturing still makes up 48 per cent. of our exports, although it makes up only 12 per cent. of the economy. I do not think that anybody would disagree fundamentally with that analysis, but people often respond to it with plain resignation, as if it was simply a state of affairs that we must put up with. The reasons for that are partly ideological and partly historical.

One ideological reason that is strongly promulgated at the moment is that such economic fallout is almost inevitable, and not even a Government can buck the markets. Coupled with that is the belief that an unfettered market delivers, in some sense, the optimum outcome. I have heard arguments that it is acceptable for people to lose their jobs in Southport so that private equity firms can make money and invest somewhere else, because if that happens it will be the most efficient financial outcome so, at the end of the day, it is probably the best outcome for everybody. I see that as treating free trade almost as an article of faith.

I call that ideological because, speaking as a philosopher for a moment, I cannot see that either of those tenets-that people cannot buck the markets and that markets always produce the optimum outcome-can be conclusively verified or for that matter falsified. It is certainly the case that Governments are not particularly or universally good at bringing about the economic effects that they wish for on behalf of their citizens.

That brings me to the historical argument, and a different reason for a sense of resignation. Inscribed on the British psyche are memories of bad manufacturing policy, subsidising companies with a poor research and investment history, useless management, poor labour
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relations and sometimes no real market. One can think of examples from the past, such as DeLorean and British Leyland, as well as the expression "lame duck", and unsuccessful and politically motivated economic intervention.

Mr. Tom Watson (West Bromwich, East) (Lab): I am enjoying the hon. Gentleman's contribution. Does he think that there is a great untold story in this recession? The reason why unemployment is not higher is that, unlike in previous recessions, management and trade unions, through partnership working, have negotiated short-time working, pay freezes or, in many cases, even temporary pay cuts. That is a tribute to management leadership and to modern trade unionism, which have both played their part in trying to help us get through the recession.

Dr. Pugh: It is a tribute to modern trade unionism. No doubt when the Conservative spokesman makes his speech he will credit that to previous Conservative leaders who have contributed to modernising-

Mr. Mark Prisk (Hertford and Stortford) (Con): The hon. Gentleman takes the words out of my mouth. To concur with the remarks that have been made and to make this intervention appropriate, I shall say that if both sides of a company collaborate-and there have been good signs of that in the past year-it is good for British industry and it is to be welcomed. Clearly, it is nice to know that a strong, effective framework was put in place in years past, but I applaud a good attitude on both sides, and I hope that the hon. Gentleman does too.

Dr. Pugh: Indeed, I do.

I was going on to say that this is not a knock-down, all-purpose argument against any kind of intervention by Government. Looking back at history, we always forget the effective Japanese subsidy strategy and product dumping. If we have national interest foremost in our minds, in a sense, the Japanese did it right and we did it wrong. They caused the demise of decent British industries, which could and perhaps, with proper Government nurture, should have survived. I am thinking in particular of Triumph Motorcycles. I do not know how many people know about Triumph motorbikes or motorbikes in general, but they are still considered an aspect of British engineering excellence, unfortunately no longer mass-produced but popular on the second-hand market. We draw our lessons selectively and partially.

David Taylor (North-West Leicestershire) (Lab/Co-op): May I remind the hon. Gentleman that there has been a renaissance? Not to previous volumes, I acknowledge. The company is owned by a rich constituent of mine, who manufactures not in my constituency but near the town of Hinckley in west Leicestershire. Triumph is slowly on its way back. The hon. Gentleman should not forget that it is possible to have a Lazarus-type return from the grave.

Dr. Pugh: It is a small triumph for Triumph, and I am pleased by it.

Looking at the history or accepting the ideology, we might conclude that saving British manufacturing is as futile as trying to repopulate the jungles with pandas. We cannot stop a trend once it is in place. Government could concentrate on what some people call, and I have
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learned to call, the horizontal approach, regarding the task of Government as simply creating the environment in which industry may, if it can, thrive. A range of things-all of which I am sure that everyone in the room applauds-is done under that heading, such as encouraging enterprise. One of my earliest activities in the House was to work on the Enterprise Act 2002. Other things include encouraging competitiveness, good regulation, fighting protectionism, providing the right fiscal stimulus for research and development and investment, encouraging cross-industry collaboration-the Government have done a great deal of that recently, in particular in the motor industry-trying to boost skills through industry sector councils and the like, and encouraging science and the development thereof.

No one is against such activity, which is the widely accepted consensus on where we need to be. However, more strategic intervention is questioned, which is partly the reason why some politicians, who can be found on all Benches, question why we need a DTI, a BERR or a BIS, and have called for their disbandment or elimination. Some people propose getting rid of regional development agencies, because they regard them as not fit for purpose, not doing the job or whatever, or as poor pickers of winners in the economic stakes. There is a bar-room view that any firm in need of a state leg-up is ipso facto non-viable and should not get any help, or that anyone who was good at successful intervention in business would not be in a development agency but would be in business intervening and making money for themselves. I pass such views on as the observations they are.

People ask if the European Union does not have a point in inhibiting-if not prohibiting-state aid. Frankly, in this country we are rather good at applying the state aid rules in a ferocious and sometimes rather procrustean way. We could look at the facts about manufacturing at the moment and say, "In any case, hasn't British manufacturing, buoyed by the falling value of the pound, emerged from the recession leaner and fitter?" Indeed, that is true. Manufacturing is not a disaster story. However, although the sector is leaner and fitter, it is also smaller and continues to be so.

David Taylor: Although I agree that the sector may be leaner and fitter, in some cases that owes nothing to the British banking system. The east midlands is the region of the country with the highest proportion of manufacturing jobs, and car components are part of that. One particular firm looked to its long-term bankers to see it through a difficult period, during which it had gone down from five, to four to three-day weeks, but could continue to trade. Reply was there none. In the end, the firm had to turn to its Indian owners in Mumbai, who saw it through and did a magnificent job in that respect. Foreign ownership is not necessarily always a bad thing and a precursor to an outsourcing of jobs, is it?

Dr. Pugh: I certainly agree with the general point that the banks have not really done their part in resuscitating British industry or keeping it going through the dark days of recession. I am not unkind enough to read it out, but I received an e-mail from someone in manufacturing industry saying that Government schemes have not done a lot more either, and that credit insurance schemes and the like did not really have the teeth that the Government credited them with having.

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Andrew Miller (Ellesmere Port and Neston) (Lab): I counsel the hon. Gentleman not to confuse the number of people employed in manufacturing with the output of manufacturing. We are still the sixth biggest manufacturing economy in the world, and that must not be forgotten.

Dr. Pugh: That is a typically perceptive point from the hon. Gentleman, and one that I had considered enlarging upon, but he must acknowledge that if one claims that industry is just as vibrant but employs fewer people, one would expect to see a big increase in productivity gain across British industry, but I do not think that is there.

Mr. Watson: There is another thing we need to guard against when looking at jobs. We must accept that in the bad old days of the early 1980s manufacturing jobs would have included the security guard employed on the gate, the lady in the canteen and the cleaner in the factory. Those jobs have now been outsourced. They are totally dependent on the manufacturing economy but are now technically service sector jobs, so we must be careful when talking about employment figures.

Dr. Pugh: That subtlety had eluded me and justifies my opening remark that I will learn as much from the debate as I assert, so I thank the hon. Gentleman.

If Members will bear with me, I want to argue that the Government must do more strategically, meaning that they must do more in the way of having an industrial policy. After all, there must be some explanation why our manufacturing industry has shrunk faster than in other nations, which have all faced the same threat from the Chinas and Indias of the world, and why we may currently be making smaller inroads in the new export markets, such as China. I do not want to argue that the Government must do that, but they are inescapably bound to play a strategic role and cannot avoid doing so. It is inescapable. They must do that either skilfully, or in a ham-fisted fashion.

There are three reasons. The first is that the Government are the sole provider of public infrastructure, which can make a vast contribution to prosperity. Consider the multi-billion pound contribution the Government are currently doomed to make to Crossrail, partly to serve the financial services industry. Consider the protracted delays in projects of a similar ilk in the industrial north and midlands-Members from the north and the midlands present will appreciate that point. I could cite the Olive Mount chord in Liverpool as an example of a small engineering project that, had it been in any other city, would long since have been completed, and I dare say that other Members could cite similar instances from their constituencies.

When dealing with the current public deficit, we should consider the dangers of dramatic and ill-planned reductions in capital spending where that spending actually engineers development and economic growth. Some people believe it does not do that, but there is good empirical evidence to indicate that is exactly what it customarily does.

One has to tie in our poor manufacturing performance-or our relatively poor manufacturing performance, as there are also success stories-with our very poor record on public infrastructure when compared
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with other European nations. I am not sure where we are in the European league table, but we are certainly far lower than we ought to be. That is the first reason why the Government are doomed to play a strategic role and they just need to play it smarter.

Mr. Hoyle: One of the other issues we have failed to address is that our counterparts in France, Germany and even Wales have put in a short-time working subsidy to ensure that manufacturing jobs have not been lost, and that is a decision the Government should have taken. It is still not too late-we have seen France and Germany expand support for manufacturing. Does the hon. Gentleman agree that a way forward would be a short-time working subsidy, rather than Crossrail?

Dr. Pugh: There are difficulties with having an open market in Europe and not having each individual nation subsidising its own industries as it wishes, which would be antithetical to the whole spirit of having a free and open market. However, mechanisms are in use abroad that are well worth inspection by our Government because there are circumstances in which they appear to work.

The second reason why the Government are inescapably part of the strategic plan and cannot but have a strategic economic policy is that they control most of the levers of education and training. That again goes beyond the boost to nanotechnology and bioscience, and events within the golden triangle of Cambridge, Oxford and London. We need a wider range of skills and a wider application of skills to employ people who will not end up as research scientists but who are, none the less, capable of doing a skilled and satisfactory job.

Let me relate an anecdote. I recently attended my local tech college for the opening of a new drama studio by Alexei Sayle. I was delighted to see so many lively youngsters, all of whom could see themselves on "The X Factor". What slightly worried me was that the same college, excellent though it is, had a very strong reputation for teaching basic apprenticeship skills such as plumbing. I see nothing wrong with people who do one thing also doing another. However, I see something wrong in structuring education for children in such a way that their skills cannot easily be employed in a reliable way in the employment market. To some extent, Government initiatives in education have encouraged quantity rather than quality achievement, but I will not go into that now.

Thirdly, and most importantly, the Government are the principal provider of financial resources to the banks, and they have a right to know where the money is going-how much is going to small and medium-sized enterprises and to manufacturing in the UK, and how far credit lines are being tightened as the banks seek to recapitalise. They have every right to know such information, and they just need to assert themselves to get it from the banks. We are asking not for information about individual contracts with individual manufacturing firms, but for the gross trends to be plotted, analysed and identified and for the banks to be held to account for what they are doing. By and large, we own them, and it is our money that they are using.

Transparency is what it is all about, and a manufacturer, I am sure, would say that they would settle in part for that. However, transparency is not a direction; it falls
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short of that. Some people have put the case against transparency, but knowing how much the major banks are lending to the manufacturing cause, the SMEs and so on is information that we have the right to know.

The case against direction is also weakening. We have had the spectacle of lame ducks in the City being rescued, but we have decided that lame ducks in the midlands and in manufacturing industry should not to be. We may have done that with a degree of grudging approval because it is necessary, but fundamentally it is being done for economically strategic reasons. My point is simple; there is a major strategic reason for having a sustainable mixed economy. It is what is needed to pull ourselves out of recession. Despite the fact that we are all free marketers, we acknowledge that there is a strategic importance to the defence industry and the agricultural sector. We accept a level of Government intervention in both areas; it is pretty well normal. There is a strategic need for a balanced economy. That should mean, in addition to all the points that I have made so far, having a hard look at the overweening influence of the retail sector, in particular of the big supermarkets, on manufacturing, because it now controls the production chain in ways that make it difficult for large manufacturers to make a decent return on investment. I understand that the Conservative party has recently spoken about breaking up the big supermarkets, and that is something all parties should seriously consider.

Careful listeners will have picked up a northern bias in my remarks, for which I do not repent in the least. It is not only me; the manufacturing industry says that, for too long, the City and manufacturing industry have travelled different roads. Now might be a good time to reflect on where each sector is going, because the Government have a role to play as a marriage broker that influences the banks-perhaps even creating new banking facilities such as an infrastructure bank-penalises short-termism in investment and that ensures, I repeat, transparency.

I am genuinely comforted-even though few people are-by the remarks of Lord Mandelson, who seems to embrace and accept an aspect of strategic economic planning. If he is a convert to my way of thinking, I just hope that the conversion is not too late. I press upon Members the need for a balanced economy for the United Kingdom that involves, for some time to come, a good manufacturing sector.

2.55 pm

Andrew Miller (Ellesmere Port and Neston) (Lab): It is a pleasure to follow the hon. Member for Southport (Dr. Pugh) and I congratulate him on choosing this subject for debate. As all hon. Members will know, my constituency is dominated by significant manufacturing enterprises, many of which have been incredibly successful despite the recession. I shall concentrate my remarks first on Vauxhall, partly on Shell, then on downstream chemicals and finally on small and medium-sized enterprises. I will illustrate by way of example when I agree or disagree with the hon. Gentleman.

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