HC Deb 21 December 1984 vol 70 cc721-9

12.9 pm

Mr Stuart Randall (Kingston upon Hull, West)

I applied for this debate because I believed that there were important problems in our information technology industry which should be brought to the attention of the House before we went away for the Christmas recess.

The information technology industry is vitally important for Britain. It is one of the few areas in which we can see economic growth and job creation, with the opportunity to improve people's living standards.

The Government are presiding over an industry that is in serious trouble and that the recent NEDO report described as being in crisis. In 1983, the industry had a deficit in our balance of trade approaching £1 billion, and that deficit is growing rapidly. Although the industry is growing and appears on the face of it to be reasonably healthy, it is only when we make international comparisons that we see that there is a very wide technological gap between Britain and Japan, the United States of America, France and Germany. This is very important for Britain.

The Government are displaying indifference to science and technology, and the recently announced moratorium on the Government's support for innovation scheme means that they are incredibly complacent about the future. This support is vital because many areas of advanced technology such as the microelectronics support programme are being deprived of the funds that they need.

Even more recently, during one of the most embarrassing climb-downs by the Secretary of State for Education and Science, the Government hacked away at expenditure on science and technology because of the pressure from the House not to increase parental contributions to student fees. The upshot is that the Government are cutting their planned expenditure on equipment grants by £6 million, the Science Council will lose £3 million, and a range of other schemes, including the microelectronics programme, will lose about £2 million.

There is no doubt that the Government are fumbling. Their inconsistent and fragmented policies are accentuating the technological gap between Britain and its main competitors. The Government are showing themselves to be hypocritical towards the information technology industry. They use fine words, but they are very light on action to save the industry.

The consequence of this is that our indigenous information technology industry is dying before it has had a chance to blossom. I am convinced that many people are not aware of the seriousness of this. We are last in the technological race with our major competitors, and that means that the opportunity to create jobs, to stimulate the economy and to improve our standard of living is likely to be lost for ever if we continue the way that we are going.

The Alvey project is one of the major sources of Government support to the industry, and this has to be welcomed. However, I understand that the companies receiving grants under the project must be British or have a strong British base. What policy has the Minister to ensure that this Government's money being spent on these advanced projects will be exploited by industries in Britain? If I may put it another way, how will the Minister ensure that the multinationals, which are so strong in the microelectronics and information technology industry, do not exploit this research facility for the benefit of other countries' jobs and economic growth?

It has been suggested to me by a number of people in the industry that we would need to spend about 10 times the sum going to the Alvey programme to convert projects into commercial products that could be sold worldwide. If that is true, is the Minister confident that the estimated £3.5 billion needed to back up the Alvey programme will be forthcoming? Finally, is the £350 million currently being spent on it sufficient? When we compare it with what our international competitors are doing, I have serious doubts.

It is important that any Government initiative in information technology should be followed up. I refer especially to the Department of Industry's pilot project for "Office of the Future", which it initiated three or four years ago. How many of these innovative projects that his Department has supported have been replicated in other places in addition to the sites in which the trials were conducted?

The Minister will probably say that if there is some follow-up to be done, it should be done by industry, and that is a fair argument. However, I believe that the Government can create the market for these pilot schemes and advance research projects by having the right kind of procurement policy to support our home industries and British companies. The Government have control over the public sector, and that is a huge IT market. What plans has the Minister for introducing a procurement policy to support especially the new small and medium-sized businesses that are attempting to survive and grow in this fast growing but very competitive industry?

The NEDO report, "Crisis in the IT Industry", also highlighted the manpower shortages in the industry. This is a major factor inhibiting growth. I feel that the Government have made ghastly mistakes in their policy on training and education, and I have to refer to the ludicrous cuts made in the budgets of our universities. Clearly these will have an affect on education and training, and this at a time when there is a shortfall in skilled people in the industry. The Government's attack on the universities will result in our not having the people whom we want. Imposing cuts on technological universities such as Salford and Aston does not make any sense.

As a result of the Government's investigation into skill shortages, they are recommending a new initiative between industry and the colleges of higher education to set up new institutes. Bearing in mind the urgent need for skilled staff, why do not the Government use our existing universities? Will the Minister also say whether there are yet any firm commitments from industry to support these new institutions? Will he also say when fully trained students can be expected to emerge from these new institutions? What other initiatives will the Government be taking in the meantime to solve the crisis?

There is no doubt that our information technology industry faces serious international problems. The recent NEDO report said that the deficit of trade last year was over £800 million, and it has been suggested that that figure is on the low side. Will the Minister give us the exact trade deficit for 1983?

Our failure to keep up with our competitors means that our share of the aggregate market served by Japan, United States, France, West Germany and Britain has fallen from 9 per cent. in 1970 to 5 per cent. To put it another way, our share of the output of the five major countries in the IT business has tumbled by 50 per cent. since 1970.

Is the Under-Secretary of State for Trade and Industry, who is to reply to the debate, worried about our rapidly accelerating trade deficit? About 50 per cent. of our home market is satisfied by imports. In contrast, imports account for only about 10 per cent. of Japan's home market and the comparable figure for the United States is 6 per cent.

The NEDO report suggested that unless urgent steps were taken to rectify the problems, our indigenous industry would die. Will the Government take urgent action to save that industry or will they allow existing trends to continue? What will they do, and when?

In October, my hon. Friend the Member for Liverpool, West Derby (Mr. Wareing) tabled a parliamentary question asking what action the Government proposed to take in response to the NEDO report. The Minister for Information Technology said that over the past five years there had been a significant shift in the Government resources devoted to IT. He said that the Government were not complacent about the problems created by international competition and that they shared NEDO's objective of creating a climate in which the United Kingdom industry will be able to increase its international competitiveness. The Minister said that the Government would continue to pursue that objective vigorously. How does the Under-Secretary square that statement with the moratorium on spending on the support for innovation scheme?

Mr. Eric Hammond, the general secretary of the EETPU and chairman of the electronic components economic development committee, wrote in a report to the National Economic Development Council on 5 December: My EDC has charged me to tell you that the moratorium has chilled the heart of the industry. The long term plans of companies will be held up while Government contemplates. This is especially damaging to the smaller and more innovative companies, but even the larger ones will be hurt because of disruption to their programmes. Mr. Hammond said that at a time when the Government should be encouraging companies to expand they were giving them the "sweet and sour treatment". This year, the Government had increased spending on microelectronics, but had effectively neutralised that increase by withdrawing the 100 per cent. first-year capital allowances and by announcing the moratorium on applications under their principal microelectronics programme.

Mr. Hammond added: In the financial years 1981–84, Government support (excluding Regional Development Grants) totalled more than £2 billion to the steel industry and almost £650 million to shipbuilding, but only £126 million for the whole of microelectronics. It is time for the Government to finance the future as least as much as it subsidises the past. I am inclined to agree with Mr. Hammond's statements. It is certainly questionable whether the support for innovation funding, which was £61.3 million in 1979–80 and is now only £155 million, at 1979–80 prices, is enough. It can reasonably be argued that because of the immense growth in the industry we should be matching that with our expenditure on support programmes.

The Government were wrong to impose the moratorium on the industry at this time. There is no doubt that the Government will reap the consequences of their inept decision.

The rapidly widening gap between, particularly, the information technology industries in Japan and Britain can be partly accounted for by the amount that we spend on research and development on defence. The proportion of our research and development budget allocated to defence is considerably higher than the proportion spent on defence in France, the United States, Japan and West Germany.

For example, the United Kingdom spends about 53 per cent. of its research and development budget on, defence, compared with the 2 or 3 per cent. spent by Japan. That must be the reason why Japan is so strong in the civil IT sector. Surely the time has come for the Government to take early action to divert to civil information technology some of the massive resources spent on military research and development. What specific plans do the Government have for reallocating part of the massive research and development expenditure on defence?

I am very worried about the decline in the number of jobs in our IT industry. The steady decline over the past 10 years has been due partly to our industry's poor performance and particularly to the level of imports, which represented 54 per cent. of our market last year and are still growing.

Does the Under-Secretary realise that if we continue in this way, our IT industry will comprise merely a set of branch sales offices of the large multinational corporations? When will the Government start to provide the environment in which this vital industry can thrive and move out of the crisis that the Government have helped to create? The time has come for action, and I hope that the Government realise that if they continue with their current policies of slashing science and technology our indigenous information technology industry will be lost for ever.

12.28 pm
The Parliamentary Under-Secretary of State for Trade and Industry (Mr. John Butcher)

I thank the hon. Member for Kingston upon Hull, West (Mr. Randall) for giving us an opportunity to debate the very topical issues that he has raised concerning the future of the British information technology industry. I am sure that he will agree that it is impossible to define the industry exactly. It is not just an electronics, software or computer industry. It now takes in a whole range of disciplines and activities whose effect on the economy is all-pervasive; hence our mutual concern to see that British skills and capabilities are enhanced, and indeed dramatically improved.

As the hon. Gentleman rightly said, the industry must be seen in the context of its general effect on economic growth and job creation. We must also consider whether there is a crisis and, if so, to what extent it should be a preoccupation of Government and others. There is no question of sweet and sour treatment for the information technology industry in the United Kingdom. We are most definitely not indifferent to the industry's prospects. We not only have fine words—as the hon. Gentleman put it —but our actions, too, have been very concrete. It was this Administration in the preceding Parliament who introduced the concept of a Minister for Information Technology. Indeed, I take this opportunity to pay tribute to the contribution made by my right hon. Friend the Member for Mole Valley (Mr. Baker) in driving forward information technology policy. We were unique in having such a Minister, and virtually still are. The former Minister for Information Technology introduced new budgets and objectives and took forward a significant number of new policies. Those policies still ride forward.

In that context, I shall deal with the moratorium. Expenditure under the heading of "Support for Innovation" for the financial year 1983–84 was approximately £190 million, which meant an increase from a fairly low base in 1979. That is a spectacular growth in spending under the SFI head of account. In the current financial year, projected expenditure across the generic heading, "Support for Innovation" is £230 million. Applications for funding have been subject to a moratorium purely because awareness of the various schemes available arrived like an express train both last year and this. For the first time we found ourselves spending up to the limits of our budgeted amounts in very short order.

Thus, whereas there had been a slight underspend on that head of account prior to 1983–84, we find that the work we have done on awareness has paid such dividends that—to put it a little more positively—the Department of Trade and Industry is now a victim of its own success.

Mr. Randall

If there is a demand for those funds—which I am delighted to hear about—why have not the Government responded by increasing the amount available to that crucial industry?

Mr. Butcher

That is precisely the sort of question with which the Department is now grappling. The hon. Gentleman will know that there are broader considerations involving, not least, how we rejig our spending within our budgets next year. They are generally considerations that affect my colleagues in other Departments, which may be reporting to the House in due course. But, like my right hon. Friend the Chancellor of the Exchequer, I shall not be tempted this week into trying to give some idea of the profile of spending within my Department in the coming financial year. Thus, I am sorry, but I cannot give the hon. Gentleman the detailed response that he may require. It is not that we are hung up on monetarism, but that we are anxious to continue to build on the achievements of the past three or four years. However, we wish to do so in a cost effective way that is relevant to the requirements of this important industry. I shall deal later with the Alvey programme, and also with the very important question of skill shortages, which concerns not only my Department but the Department of Education and Science, the Manpower Services Commission and all those who consistently look after the interests of the supply side of the economy.

With regard to skill shortages, we are anxious to ensure that our universities participate fully in what we now call the "new partnership" between industry and the higher education sector, including both polytechnics and universities. We are also anxious to ensure that no one is written out of participation in what we hope will be a very dramatic exercise during the coming years. I shall be delighted to report progress on the IT skills agency that the CBI is setting up under the auspices of its education foundation.

The Government are concerned about the deficit in IT trade. The information technology industry underpins so many other commercial and industrial issues. The Government attach great importance to the success of the industry and have placed a high priority on seeing it prosper. As a nation we are not alone in doing this, of course, for it is the fastest growing sector of economies throughout the world. And it is not just because the IT industry itself benefits the nation through its growth, but so, too, do the rest of our manufacturing and service industries as they take up IT products and so improve their own performance, viability and profitability. No modern, industrialised nation can afford to ignore the health of its IT industry. It is central to achieving a more general internationally competitive position for the United Kingdom.

That is why five years ago we embarked upon such an energetic programme of change aimed at raising the profile of the industry and getting over to all sections of our community the message that IT matters. Nobody surely can deny the spectacular success of that campaign. At all levels—school, office, home, shop and factory floor—there is now a readiness, even an eagerness, to find new ways of doing things using the products and services of the IT industry. That change will transform this country in time, especially as our youngsters subsequently turn their easy familiarity with IT to advantage in the working environment. Not only has our micros-in-schools programme provided us with this springboard for the future, it has given us an international lead in educational hardware and software on which to capitalise in overseas markets.

As I said earlier, the success of our awareness programme has made this country one of the most receptive in the world to the application of IT. For an example, we need only to look at the take-up of home computers. In an area of burgeoning demand, it is significant that we now have three or four British-based companies manufacturing products to satisfy that demand. Most of these companies are looking hard at exploiting the export opportunities that come from the dynamic home base.

However, our balance in IT has worsened, and now that we have achieved many of our major objectives in awareness we are correctly turning our attention to supply, and the contribution to be made by British-manufactured hardware and British-developed software.

The hon. Gentleman suggested that, in contrast to the picture presented in the NEDO information technology economic development committee report, the deficit could be as high as £2.3 billion. The obvious difficulty in arriving at reliable estimates of the balance of payments position for IT is in deciding what elements of the industry to include in the definition of IT. The picture varies depending on what categories are included, using a definition that embraces the hardware elements of IT, but not the software. I regret that figures are still difficult to come by. We estimate the deficit to be £2.1 billion for 1983. It is clear that on that basis the position has deteriorated during the past five years.

That suggests that the British IT industry has a major task ahead of it to retain international competitiveness, and the Government are not complacent about the level of overseas competition that our industry faces. But it is a mistake to adopt too pessimistic a view. There is a real and beneficial effect on the efficiency and competitiveness of our manufacturing and service sectors arising from this increased application. Concentration on balance of payments alone may be too narrow and, although we are concerned about it, we should also recognise the increase in efficiency within our economy generally through raised awareness and application of the products.

We have a policy of seeking inward investment, which is bringing significant benefits to the British economy in terms of technology transfer and international competitiveness. Inward investment projects such as Hewlett Packard at Bristol and IBM in Scotland will help to reduce the deficit as they meet United Kingdom orders and begin to export.

We must see the industry in an international perspective. Research and development expenditure by American industry or electronics and IT for 1983 was $8 billion. In the same year NEC and Fujitsu alone spent over $1 billion. The rate of growth in R and D expenditure projected for American and Japanese industries suggest that the Japanese figures will double in less than five years and the American figures in about eight years.

With a smaller home market and a lower turnover, a country of the size of the United Kingdom cannot match this effort alone, which is why we have attached a high priority to Europe, both as a market for our products and as a partner with whom to share the burden of research and development expenditures.

The Government's support for innovation in IT has been substantial. About £570 million has been spent since 1979. That compares favourably with support from other Governments. The recent IT economic development committee report on the industry rightly acknowledged the Government's contribution, especially that of my Department. I am sorry that the hon. Gentleman skipped so lightly over this massive contribution. I recognise that it is the duty of the Opposition to oppose, to probe and to check for weaknesses, but I feel that the hon. Gentleman was less than generous in his acknowledgement of the Government's contribution, which has been £570 million of extremely cost-effective expenditure.

Perhaps one of the most significant events is the bringing forward of the Alvey programme. The hon. Gentleman referred to that, and the difficulties that British industry may experience in finding the finance to convert the output of the programme into commercially exploitable products. We are delighted that the Alvey directorate has established itself so quickly and effectively. Indeed, the speed with which progress has been made has surpassed our expectations. The first annual report of the Alvey programme, of which a copy will be placed shortly in the Library, shows that 300 research proposals have been made, of which about 100 have received technical approval. Over 50 companies, 43 academic institutions and five research establishments are involved in these projects. For example, under the computer-aided design for the VLSI programme, the Alvey directorate announced on 14 December approval of the first eight projects. These collaborative projects involve 15 companies, six universities and two Government laboratories and will cost £13 million in total.

One obvious difficulty that is faced by the industry is having to compete from a relatively low turnover and to build large and long-term R and D programmes. The Government can help by putting in some R and D funding, but ultimately United Kingdom companies must seek their own solutions through collaboration in R and D with overseas partners — for example, ICL and Fujitsu —through mergers or by attacking world markets vigorously and thereby generating the higher growth in turnover that is needed.

Japan grew fast by attacking the large American market as well as other markets and so must our industry if it is similarly to succeed. I accept entirely that further investment will be required to turn the results of research into products. That was understood by the Alvey committee and the proposed programme takes that into account. I would like to think that the objective of bringing products to the market will be reinforced as the programme develops. I am bound to say that our industries still have a long way to go, and much hard pounding, to attempt to gain the same presence in the American market and to achieve the same presence as Japanese companies. Apparently Japanese companies are finding it a little easier to achieve and maintain a presence than British companies: we too, must bring in new marketing skills to parallel the undoubted excellence of the United Kingdom industry especially in software and, I hope, more and more in the hardware sector.

The hon. Gentleman referred to our office automation pilot programme when talking about the office of the future. Industry has recognised that this market is potentially one of the most crucial for the future and sees other countries positioning themselves to exploit it. Industry has welcomed our pilot project initiative with enthusiasm. It is seen as yet another good example of the Government's imaginative policy towards the IT industry. Whether the fruits of the initiative are turned into internationally competitive and marketable products is largely a matter for the industry. We can provide the seed corn, but the industry must make it flower. Governments cannot do that. I certainly hope that companies will act because we have a real chance to be involved.

Mr. Randall

Does the Under-Secretary of State agree that the Government can provide the market? I asked whether we could formulate a procurement policy that would help to alleviate this problem.

Mr. Butcher

We have already formulated a procurement policy which is known as the public purchasing initiative. It clearly defines what we mean by enlightened public purchasing. It applies to IT products right across the board. We say, for example, that procurement departments should be buying British products, not just because they are British but because the policy, through its working, encourage the production of British products which are best — one buys British because it becomes best through enlightened purchasing. That means closer relationships between suppliers and buyers. It means post mortems if there is a failure on the part of one supplier. It means specifying the products profiles clearly and well in advance to the potential suppliers.

We are anxious to ensure within the generality of £7 billion of Government spending on capital goods and services that the private sector is used to good effect. As for IT products, we are anxious for Government Departments and those bodies which are Government funded to buy British products whenever possible. But we cannot specify that they must be bought simply because they are British.

Although I have laboured the point about producing an enlightened purchasing policy, I believe that our line of approach is the only effective line that can be taken—otherwise we shall suffer from the phenomenon, described by the hon. Gentleman, of products which are specified as compulsory and which are not relevant in the international market. An example is our telecommunications industry where a cosy buyer and seller relationship emerged and where our international market share plummeted during that relationship. We must ensure that our companies break out of the domestic market.

The hon. Member for Kingston upon Hull, West did not deal with one aspect, that of standards. If we in the United Kingdom can take the lead in establishing European and international standards, we shall be well-placed to exploit truly open international markets. No doubt, the hon. Gentleman will have noted the debate about the proposed IBM-BT joint venture. In such an issue we can legitimately ensure that there are open markets and, therefore, gain benefits for British suppliers.

As I have made clear, there is a whole tranche of policies for the IT industry. Those policies must be highly complex. It is not just a question of swinging as much purchasing power as we can into British companies. We must first reassure ourselves that those British companies are capable of reacting to a public purchasing initiative rather than being undermined by it.

Defence research and development must be at the forefront of a modern type of high technology policy. It is not only that the electronics and information technology industries are among our strongest and fastest growing. They produce computers, telecommunications equipment, electronic devices and the software that is essential for civil industry. Some of the most valuable research results of the industries is come from the defence research laboratories. The royal signals and radar establishment at Malvern, for example, did much of the materials research for the now familiar liquid crystal display. Its work on electronics, materials and high frequency devices has a world-wide reputation. My Department has helped by spending more than £5 million on research to enhance the spin-off from Malvern's defence work. My right hon. Friend the Secretary of State for Defence has already announced his intention further to open up the work at some of his laboratories to enable the venture capital industry to assess opportunities for civil industry. Through his policy of placing the maximum amount of work with private industry, his Ministry ensures that the work is done by those in the best position to exploit the results.

I detect that one or two of my colleagues might wish to contribute to the new subject which is about to be launched, and so I do not intend this side of Christmas at this time on a Friday to prolong the debate unduly.

I say to the hon. Gentleman, who has done the House a service by opening up the debate that, first, the Government are not complacent; secondly, we are working hard on the issues that he has legitimately raised; and, thirdly, although we are worried about the trade deficit, we see signs to make us optimistic which may not have been evident two or three years ago. We can now tackle the skill shortages and help, where help is required, with hardware and software. I hope that the hon. Gentleman will bear with me to the extent that we cannot today give him the clear answer that he requires on how our future spending will be designed and allocated under the support for innovation head.