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6.49 p.m.

Lord Wedgwood: My Lords, I join all noble Lords in welcoming this debate and congratulate the noble Lord, Lord Borrie, on introducing the subject in such a timely manner. I must declare an interest as I represent a company, based in Staffordshire, by the name of Wedgwood, a manufacturer of solid things, as described by the noble Lord, Lord Desai. Travelling globally to support marketing and sales efforts, we are often presented alongside a number of other companies that exude the elements of which we are justly proud, elements such as quality and design.

In fact I have just returned from the United States. My tour included a visit to San Francisco where we participated in an event appropriately called "Britain meets the Bay". Thanks to the efforts of Her Majesty's Consul-General, a number of companies were encouraged to showcase their products in the San Francisco Bay area, which includes Silicon Valley. The highlight of the events was the visit of His Royal Highness the Duke of York. His Royal Highness seemed to be extremely well briefed, and his enthusiasm added considerably to the occasion. I cannot speak for all who participated, but sales have increased, not to mention the vast amount of good will generated in great part through the local press and media.

In 1996 a similar event took place in Salt Lake City entitled "The UK/Utah Festival". The honoured guest on that occasion was my noble friend Lady Thatcher. My noble friend will be pleased to hear that sales have increased considerably as a result of her efforts.

It is events like these that give us the winning edge in a very competitive global market. I applaud the Government for their initiative to increase support for regional offices that are designed to help drive the sales and heighten the awareness of British products on an international level. Hopefully these agencies will work closely with Her Majesty's trade representatives in all continents.

I have said in your Lordships' House before that there have been occasions of disappointment when industry has not benefited from the full support of embassy and consulate staff. Perhaps with greater encouragement and co-operation from regional offices the examples of San Francisco and Salt Lake City can be repeated. I am interested to note the recent appointment of the noble Lord, Lord Simon of Highbury, as Minister with responsibility for trade and competitiveness in Europe. Should we not consider such a position on a more global basis?

We are experiencing tremendous growth in several countries that require a serious focus. The Japanese are an example of a consumer obsessed by the tried and true manufacturers of quality and design. Companies that have conveyed this to the customer in Japan have been successful. The rewards go beyond Japan, as retailers who carry our products wherever the Japanese travel will attest. In a recent survey by the Corporate Intelligence on Retailing it was shown that the Japanese department store, Mitsukoshi, here in London sells more per square feet than any other store, including the great emporiums of Harvey Nichols, Selfridges and Harrods.

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In the same survey, Wedgwood was number one of the top ten buys in luxury goods which also included Burberry and Dunhill. Japan heads the list of other Asian countries that are emerging with excellent opportunities to market our products; to name a few, Malaysia, Thailand, Indonesia, Taiwan, Korea, Vietnam and the Philippines--not all without their own problems, but with enormous potential and increasing demand.

For most of us it is very difficult to predict the development of trade in China. No doubt His Excellency the Governor of Hong Kong will have an interesting insight on his return at the end of the month. Also, India, which recently lifted some very restrictive tariffs on certain luxury products, presents us with a market with which we have close links.

This is all very well, but we live in a global market that is in itself very competitive. The legacy of our forefathers spanning many generations, even those of this century, is not sufficient to bring success. Our competitiveness must start in the workplace, as many noble Lords have said, and on the shopfloor.

The painful exercise of downsizing and reducing overheads has been essential for many companies in recent years. For those that have accepted this challenge and been successful the rewards are significant. No longer is it acceptable to have numerous management layers with complicated reporting systems. Individual responsibility and accountability is the required direction. This can be achieved with a number of programmes and initiatives. Educating the employee through programmes like NVQ has gone a long way to improving professional skills in the workplace and, in turn, providing greater efficiency. Sadly, as has been pointed out, the NVQ programme has been subject to some criticism recently. The value of these awards to a wide variety of employees is enormous and should not be underestimated. This continuous process of training and improving skills should be constantly re-evaluated to ensure that vigorous standards are maintained together with the value and prestige of the awards.

In the area of production alone many companies have had to focus on reorganisation. The rapid development of technology and information systems is available universally. To remain competitive--and even the Japanese are price conscious--it is necessary to reinvest in equipment and machinery, and because of the expense it must be maximised. In other words, responsibilities are brought right down to the shopfloor and the individual employee's motivation takes on an even greater significance.

By improving the competitiveness in British industry, we could better respond to the rapidly changing demands of customers on a global basis, but there can be no compromise on quality and design.

We should avoid preserving any legislation that restricts our companies from operating on a level playing field. While we agree that, for example, health and safety standards are essential--an area well covered by my noble friend Lord Astor of Hever--we must ensure that British companies are not penalised for

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following the law while other European companies pay scant regard. I hardly need remind the House that we compete on a global basis, not just in Europe.

We would do well to consider how other nations support their valued manufacturers. The Irish are fiercely proud of Waterford Crystal, a company with which I have a unique corporate association. From its dynamic chairman, Dr. Tony O'Reilly, downwards, the product is championed the world over by the widely dispersed Irish family. We have much to be proud of in British industry. The legacy can continue but it requires considerable vision, vigorous support and direction. In this instance we can competitively continue to make quality products here in Britain and not in some far-flung country in east Asia. In fact we can further create demand in those countries for our products. It is my fervent hope that the Government are equal to the challenge.

6.57 p.m.

Viscount Hanworth: My Lords, I wish to join my colleagues in thanking my noble friend Lord Borrie for introducing this timely debate on the topic of Britain's industrial competitiveness. I should also like to thank my noble friend Lord Haskel for challenging some of his more reluctant colleagues, including myself, to speak on this topic for 10 minutes without repetition, hesitation or deviation.

I must say at the start that I may fail this test since, instead of grappling with abstract notions of industrial competitiveness, I intend to tell a story. The story is to illustrate the thesis that many of the policies that have been pursued by large industrial corporations in the past two decades have been utterly inimical to our long-term economic prospects. The new Government are mindful of the need to enhance the skills of our industrial workforce; but I fear that, without a fundamental change in the industrial policies of large corporations, their efforts will not be rewarded.

I will declare three propositions. The first is that the unbridled pursuit of profit is liable to be self-frustrating, even in the short term. The second proposition is that industries which are based on sophisticated technologies need to be managed by technologists. The third proposition is that the industries themselves must play a major role in training their workers and in sponsoring their careers.

In telling my story, I shall conceal the true identities of the parties concerned. Three years ago, I was invited by two friends to accompany them on a routine engineering inspection of a large industrial plant. The plant in question is the brewery at Merton-on-Weir which is owned by the multinational conglomerate corporation Grand Amalgamated Brewers. Since the interests of the corporation nowadays extend far beyond brewing, its directors prefer it to be known simply as Grand Amalgamated; but it is commonly known on the stock market by the acronym GRABS.

The brewery itself was founded in the 1850s; and the original building still stands as a brick precipice on the bank of the river. Set behind this facade and towering above it is a massive steel-girdered structure erected in

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the 1970s to house a state-of-the-art continuous-process plant. The plant was modelled on a brewery in Hamburg and it resembles a small petrol refinery.

I am told that the design was unprecedented in this country. The German firm responsible for its construction reproduced most of the features of the prototype plant in Hamburg with the consequence that the plant was expensive and overspecified in engineering terms. There were in fact no industrial designers of such plants on the payroll of GRABS, nor could any be found to give independent advice to the directors, and it seems that a considerable amount of money was wasted.

I visited the plant during one of the monthly inspections which my colleagues had contracted to undertake. My own interest is in the electronic technology which is used in inspecting the machinery. We were using electronic sensors to transduce a record of vibrations from the outer casings of machinery. The aim is to determine its fitness much as a doctor aims to assess the health of a patient with a stethoscope. A so-called spectrum analysis of the vibration record is liable to highlight any aberrant vibrations which are due to excessive wear in the bearings of the rotating parts or to the loosening of some of the fixtures.

I should say that our high-tech apparatus is simply a substitute for a well-trained human ear. In truth, our task could have been performed more easily and more effectively by the resident engineers of the brewery given their intimate knowledge of the machinery in question. However, some five years ago, Grand Amalgamated sacked its resident engineers in favour of the seemingly cheaper solution of contracting-out. They reduced their workforce to a skeleton. This sort of policy was, in fact, the basis of many of the much-vaunted productivity gains of the later years of the Thatcher administration.

I should describe the plant itself. This consists of three parallel production lines, each of which encompasses a process which begins with the milling of the grain and which ends with the piping of a premium lager--Steinpilz--into waiting tankers. The original intention was that, at any time, two of the three lines would be in process whilst the third would be undergoing maintenance. More recently, the brewery has been running all three lines simultaneously in pursuit of greater efficiency and against the advice of engineers.

During our visit, only one of the lines was operating. The other two were awaiting the attentions of an engineering task force--engineering mercenaries if you will--who had been called for in desperation but who, at the time, were tied up in another job. The delay was entailing a considerable loss of profit. The sad conclusion was that the value of the lost production was so great that it could have easily financed a meagre resident force of engineers who could have averted a mechanical breakdown--but it has to be admitted that it is difficult these days to find the engineers to employ in some capacity. Companies such as Grand Amalgamated--which is nowadays best described as a holding company--no longer have any interest in training them.

My two engineering colleagues both have personal histories and work experiences which are characteristic of a bygone era and which cannot be reproduced. They both

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owe their training to their former employers, who were the Coal Board and British Aerospace respectively. Both of them started as 15 year-old apprentices and one of them was sponsored by his employer to attend a university engineering course. Few such avenues of training survive these days and the conclusion is that the very skills on which Grand Amalgamated has been predicating its modern industrial policy are no longer in adequate supply.

As regards the brewery itself, this is scheduled for closure. For the reasons that I have already alluded to, its profitability has fallen far below expectations. It is now proposed that on the site of the dismantled plant a new bottling plant should be established. This facility, which would be highly mechanised and computerised, would be installed by the Esel Machine Tool Company of Milwaukee. The beer itself will be imported in tankers from Hamburg.

I believe that this story speaks for itself, but I should add a few observations. My first observation is that any attempts by the Government to enhance the productivity and the competitiveness of British industry are in danger of being stymied by the gentlemanly and the not-so-gentlemanly pursuit of immediate profit of which the directors of GRABS are exemplars.

Next, I would contend that we cannot expect any great improvements in industrial competitiveness until the control of industry is devolved to some considerable extent to the workplace. One measure which might be adopted is a legal requirement for the appointment of worker-directors. Such a requirement has existed for many years in West Germany where it is regarded as unexceptional.

My final assertion is that I believe that the emphasis on labour mobility and flexibility which has characterised some of the recent political debate is misplaced and that such precepts may be inimical to the acquisition of industrial skills.

My two friends, whom I have mentioned, both envisaged giving lifelong service to their companies until their careers were cut short by redundancy. From the start, they were able to identify their personal interests with those of their employers; and, in return, the employers were keen to invest heavily in their training. Nowadays we seem to expect individuals to acquire such skills independently and in advance of their employment. Then we expect them to market their skills. These are unrealistic expectations.

Of course labour mobility is highly desirable if it serves to mitigate the effects of industrial failure; but it cannot be argued that it is a precondition of industrial success. Job security is doubtless a bugbear in failing industries which require restructuring, but to suggest that it is an impediment to industrial recovery is nonsense.

7.6 p.m.

Lord Graham of Edmonton: My Lords, this is the speech that all noble Lords have been waiting for: it is the one before the winding-up speeches. I am delighted to follow the excellent opening to the debate given by my noble friend Lord Borrie. We are indebted to him.

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On Monday I attended a conference organised by the Fabian Society. It was launching a pamphlet called Sold short: Government and retailing. Around the table were representatives from Tesco, Sainsbury, Marks and Spencer, Superdrug, the Civil Aviation Authority and others. The raison d'etre for the conference was that over the years governments, when talking about industry, were really talking about manufacturing industry and exports. Retailing as an industry has perhaps been neglected. The argument was not that it needed hand-outs and financial incentives because, as we all know, the major retailers are well able to look after themselves. What they were really pleading for in the Fabian pamphlet and in general around the table was that the retailing industry ought to be taken more seriously for its contribution to the national economy.

Britain's retailers have a massive impact on our daily lives. Be it prices, opening hours, location or wages, we are all affected by the way stores are run and regulated. Yet our politicians seem to have little to say about one of the key sectors of our economy. I was delighted to hear the contributions of the noble Earl, Lord Kitchener, and the noble Lord, Lord Wedgwood, who certainly did not neglect the contribution that retailing can and is making to the general economy. Therefore, I am very pleased about that. They will share my view that retailing adds real value to the economy. It has been the backbone of our economic growth for much of the past 20 years. Politicians should recognise that simple fact and act in the best interests of all sectors rather than pine after the "manufacturing good old days" which are unlikely ever to return.

Any political party which claims to protect the interests of consumers needs to work with the retailers who directly serve them. Many of the policy issues on the horizon--the protection of quality standards along the food chain; the regeneration of town centres; and the introduction of the single currency--will depend on effective collaboration between government and retailers. I believe that this Government (my Government) should seize the opportunity to develop a new partnership with the sector. We are not primarily concerned with the past. I believe that we start from a bright new beginning. Retailers and retailing are waiting and eager to make that partnership a vibrant, living thing.

One of the issues raised at the conference was the lack of a strategy. Most of the big companies have their own strategy. They know where they want to get to and the market penetration they want to achieve in various parts of the country, but nobody can point to what one might call a national strategy for retailing. Of course, that is difficult because we are talking about both big and small businesses. However, I detect a willingness on the part of major retailers to involve themselves with the Government in working on the development of the retail sector of our economy over the years.

Reference was made to the disparate way in which planning applications are considered. Of course, the ministry gives guidance on town-centre, edge-of-town and out-of-town developments, but decisions are left very much to the local councils. Speaking as a local councillor, like many noble Lords present, I say that that

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is right but that there is a positive lack--if that is not a contradiction in terms--of direction from the centre on how we can achieve a more vibrant and more efficient retailing industry. Many retailers are blamed for social and economic changes which are beyond their responsibility and control. Encouraging examples suggest that local authorities can work with retailers through town centre management to the benefit of local residents and shoppers. Best practice should be disseminated to stimulate urban regeneration and partnership between local authorities and retailers.

The expansion of the economy in the past 20 years has come largely through the service sector, including retailing, and not from the manufacturing sector. That trend has been matched across all OECD countries. Between 1975 and 1995 the output of UK service industries grew by 57 per cent. in real terms while the output of manufacturing industries grew by only 17 per cent. The service sector now accounts for almost two-thirds of GDP while manufacturing accounts for less than one-quarter. Within the service sector, retailing and distribution account for more than 10 per cent. of GDP. Those figures ought to impress.

I have the great pleasure of being the honorary secretary of the All-Party Group for the Retail Industry. Naturally, we look to the views of the British Retail Consortium, which represents 90 per cent. of retailers--all of the large ones and many of the small ones. In a Budget submission earlier this year, the consortium said that an efficient and competitive retail sector is a valuable contributor to the health of the UK economy in two important areas--control of inflation and job creation. The appreciation of sterling has lowered the cost to retailers of goods sourced abroad. Fierce competition in the retail sector has resulted in those savings being passed on to the customers. Annual retailed goods inflation in March and April was just 0.9 per cent., with the prices of many goods lower than a year earlier. Retailers can continue to play their part in controlling the rate of price increases if the Government avoid changes which impose extra costs on, or hamper the efficiency of, the retail sector. The existing cost and tax burdens need to be kept to an absolute minimum.

In addition to their influence in containing inflation, retailers are also significant employers, accounting for over 2.3 million jobs or about 11 per cent. of employees. Retailers created 75,000 new jobs in 1996 and there is scope for further employment growth in the sector if the costs of hiring labour do not become a disincentive.

The British Retail Consortium would welcome the early introduction of a competition Bill. It shares the view that the current UK system is ineffective and that a new Bill is therefore needed to address both restrictive agreements and the abuse of market power as well as the structure and operation of the competition institutions.

Retailing impinges on a great many of our social problems. That is why retailers in general welcome a review of the criminal justice system. The House will be aware that the retail industry arrests some 1.6 million customer-thieves a year, of whom 49,000 are convicted in a magistrates' court, from an estimated 5 million known offences. That situation clearly sends the wrong

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message and undermines any moral authority that retailers, schools and others may wish to instil. One way forward could be a "civil recovery" system which would address the fact that there are currently no tangible disbenefits for the majority of shop thieves. Such a system would not devalue crime; nor divert from it those who should be so diverted. Only retailers really appreciate the brake on efficiency and competitiveness suffered by retailers and, ultimately, by the consumer as a result of thefts. The Government should take that point on board.

Retailers in general would welcome a strategy to bring together policy making and implementation covering the environment, transport and the regions. They believe that that will be vital in developing the integrated planning and transport system which this country needs. An example is the vitality and viability of town centres. Retail outlets are subject to planning controls, but a key ingredient in the success of a town centre is accessibility. Retailers will be pleased to see that decisions about development and the infrastructure will no longer be taken in a vacuum. That is why they would welcome an integrated transport policy.

Much could be said about improving the competitiveness of British industry. We need to find a way to look more closely at the employer/employee relationship. There needs to be a rethink and that is why, through the BRC, retailers welcome and participate in the industry forum. That demonstrates that under new Labour partnerships with business can be constructive.

Finally, I should like to refer to a speech made by the Secretary of State for Trade and Industry, Mrs. Margaret Beckett, on 4th June this year, when she laid out a series of propositions upon which the Government's policy in this vital area will be predicated. Mrs. Beckett told the audience that the department often looked as if it was there for big business and not much else. She said that she would change that and that the Department of Trade and Industry would be looking to assist everyone. I am glad to see the noble Lord, Lord Burnham, in his place. When speaking for the Opposition, he made a splendid opening address and was bullish about the state in which the economy had been left. However, Mrs. Beckett told us to remember that we are the poorest of the G7 countries and that GDP per head in the UK is 8 per cent. below the OECD average. Despite many excellent firms, productivity in both the manufacturing and the service sectors lags substantially behind the productivity rates of our major competitors. Our share of world trade has fallen below 5 per cent. Despite welcome falls in claimant unemployment, the fact is that employment is still more than 400,000 below its 1990 level and nearly one in five households currently has no one in work. All that shows that while the noble Lord may select his statistics, I can select mine too. They are not incompatible; they are part of the overall picture.

I warmly endorse what has been said today. What we need is a fresh look arising from a fresh opportunity. Forget the past: there is a great deal of good will towards the Government from all sectors of industry. I very much hope that they have the courage to build upon it, not least because of tonight's debate.

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7.20 p.m.

Lord Vinson: My Lords, I am indebted to the noble Lord, Lord Borrie, for inviting me to make a brief contribution in the gap. I apologise for not being in the House earlier to hear the other excellent speeches. There are many routes to competitiveness. The particular route to which I wish to speak briefly is the exchange rate. I believe that this matter was raised earlier by the noble Lord, Lord Ezra. I recall that during the early part of the previous Conservative Administration the policies being followed created a situation in which the pound went to two dollars. The effect of that dramatic rise in the exchange rate at that time was to obliterate the competitiveness of a great many British companies. Paradoxically, for somewhat comparable reasons, in the past six months the exchange rate has swung by a factor of 20 per cent. against many of our competitors. However good and efficient a company may be, very few have a profit margin that can absorb a swing of 20 per cent. in the exchange rate when it comes to making a deal overseas. Although the noble Lord, Lord Graham of Edmonton, is absolutely right to state the importance of retailing to the GNP today, it does not contribute much to the balance of payments or to our overseas tradables. It is for that reason that the competitiveness of the exchange rate is so vitally important.

The purpose of my brief contribution is merely to express the hope that this will be well considered when this debate is assessed and government Ministers are debriefed in their appropriate departments. Perhaps they remember that this time last year British Steel was, and still is, regarded as one of the most efficient steel-makers in the world. It has had to cut its prices dramatically and its profits will be cut dramatically. That is due entirely to the exchange rate. That will put pressure upon it to become even more competitive, but it cannot do so overnight. It will take some years to absorb a swing in costs of that magnitude. I hope that our policymakers, when looking at all the other factors that have been mentioned this evening to make British industry more competitive, will conclude that there are only three ingredients to national success and prosperity: productivity, productivity and productivity. In seeking to promote it, I hope they will remember that behind it all hangs the backdrop of the importance of the exchange rate and that our fiscal and monetary policies are so tuned to ensure that the price of sterling remains competitive.

7.23 p.m.

Viscount Thurso: My Lords, I also begin by congratulating the noble Lord, Lord Borrie, for bringing this extremely important matter to our attention. While agreeing with the point just made by the noble Lord, Lord Vinson, about the exchange rate, I cannot accept his comment about retailing. Retailing makes a very strong contribution to our balance of payments. As someone who has been greatly involved in tourism all of my life, I have spent much time trying to persuade retailers in London to contribute to the tourism marketing budget. Overseas tourists spend substantial amounts of money in Oxford Street and Bond Street.

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Some people have difficulty realising that overseas visitors to this country are an export and British tourists who go overseas an import. If I may, I should like to correct the noble Lord on that point.

I congratulate the noble Lord, Lord Burnham, on his arrival on the Opposition Front Bench. He painted an extremely rosy picture of the economy over the past 18 years with a majestically straight line of growth. I just happened to have in my hand as he spoke a paper entitled Economic Indicators that I obtained from the Library. It contains all kinds of wonderful graphs; I do not have a clue what they mean. I do not know a great deal about economics. I am sure that the noble Lords, Lord Desai and Lord Currie of Marylebone, would make far greater sense of them. However, I am struck by the fact that every single graph is like a yo-yo; it wings up to the top and then whizzes down to the bottom. The period covered is from 1975 to 1996. Even I can work out that if the graphs are winging up and down it can hardly be claimed that they show stable management of the economy.

The noble Lord, Lord Burnham, reserved his best shots for the minimum wage. There are a number of points that should be considered. First, average earnings in this country currently run at about £20,000 a year. If one takes an hourly rate of £3.50, for example, it produces an annual salary of about £7,000. If one takes a rate of £4 per hour the annual salary works out at about £8,300, if my mathematics are right. I believe that the noble Lord suggests that in order to have a competitive economy it is necessary for a certain number of people to be paid at a rate that is so low as to be virtually institutionalised slave labour. I cannot accept that. I am wholly in favour of the minimum wage.

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