HC Deb 08 June 1988 vol 134 cc962-8

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Alan Howarth.]

11.20 pm
Mr. Giles Radice (Durham, North)

I wish to discuss the question of factory space because it is important to the recovery of the northern economy.

I do not believe that there is much dispute about the nature of the problem. The Minister is well aware that there is an acute shortage of medium to large factories—between 7,000 and 50,000 sq ft—in the north. The good news is that the demand for units of more than 7,000 so ft has doubled in the past year. I understand that, up to 1 March 1988, there had been 511 inquiries about such sites, and the inquiries are continuing. The bad news is that the supply of such factories has fallen by 37 per cent. English Estates estimates that there are about 350 buildings of more than 7,000 sq ft now available in the north, but only 40 of them are sites of quality—that is, built in the past 10 years—which would attract inward investors. Some of those 40 buildings are already reserved. I understand that English Estates (North) told the Minister that there are only five modern premises of more than 10,000 sq ft which are vacant but not reserved.

A few examples will demonstrate the problems faced by different areas. In April 1986, in Durham there was almost 4 million sq ft of floor space available. By April 1988 the amount had been reduced to just over 2 million sq ft. In April 1987 there were 53 units of more than 15,000 sq ft, but by April 1988 that figure had gone down to 21, many of which are unsuitable for inward investors.

In Sunderland the demise of the Washington development corporation, coupled with the English Industrial Estates lack of resources, means that there will be no large-scale building in the borough until 1989–90 at the earliest. There are no modern units of more 10,000 sq ft availble in the borough.

In the Wear valley—I note that my hon. Friend the Member for Bishop Auckland (Mr. Foster) is on the Front Bench—there is no space available of more than 2,000 sq ft. English Estates has no plans to build there until October 1989.

What are the reasons for this considerable problem? First, few medium or large factories were built during the first half of this decade. The recession was the obvious reason for that. The possibility of rectifying the situation and increasing the supply has been curtailed by the reduced numbers of advance factory providers.

The major problem has been created by the winding up of Washington, Aycliffe and Peterlee new towns because in the past the new towns have been major providers of advance factory space. In Durham, for example, Aycliffe and Peterlee have been responsible for 370,000 sq ft compared with the 430,000 sq ft being built by English Estates—in other words, for roughly half. Now almost the whole of the advance factory programme will depend on what English Estates and the Rural Development Commission do. In their turn, English Estates is now tightly stretched and is planning only 10 extra factories above 10,000 sq ft in the coming financial year, which will not meet the demand. Therefore, the inescapable conclusion is that the north is rapidly running out of large-scale factory units for inward investors or for existing businesses that want to expand. The demand for space now exceeds the supply, so there is a real danger that the north could lose potential investors to other regions.

The Government's answer is that, given the low supply of factories and the high level of demand, rents will eventually rise to a point which will attract private sector development. I am sure that that is what the Minister will tell me tonight, as the Secretary of State has already told me and a delegation which I led to see him before the recess. I have no ideological objections whatever to the private sector making a contribution. On the contrary, I am strongly in favour of partnership, as in the development agencies in my constituency and in that of my hon. Friend, between the public and private sectors to encourage development. I am prepared to accept that there should be some rise in rents, although it is a fallacy to think, as some do, that English Estates is not already asking for the market rent which industry will pay.

My difficulty and the difficulty of everybody who knows about the problem in the region is with the timescale. In reality, it will probably take at least two to four years of famine for factory rents to reach a level which is likely to attract private investors. Even then, the market will work unevenly. Some areas are likely to continue to prove unattractive to private investors in terms of rent potential. The likelihood is that if the Government continue to insist that we should wait for the private sector to invest, there will be a sizeable gap. Meantime, inward investors will be discouraged and go elsewhere, either to Scotland and Wales, where the development agencies have ensured that there is much more of the right kind of factory space and they have powers over planning as well as industrial development, or even turn to other countries. That is the problem that we face in the northern region.

The Government should now be taking steps to manage the gap between now and the time when the private sector comes in, if it does, off its own bat and without any incentives. Because I am constructive, which is what we should be in an Adjournment debate, I want to suggest some solutions which will help the north provide factory space which industry so desperately needs. Clearly what is needed is a transitional period during which the public and private sectors will work in partnership to help cushion the risk for the private sector. I accept the Minister's solution because he represents the Government, but I am trying to make sense of his solution. That is why I am trying to help him by suggesting possible partnership mechanisms.

First, the Government could provide tax concessions to the private sector to come in, such as are currently available in enterprise zones. Secondly, there could be a partnership agreement between the public and private sectors where the infrastructure for a factory development is provided by, say, English Estates and/or where English Estates makes grants to private sector companies for building purposes. Thirdly, the Government could allow English Estates to take what is called a head lease as a way of guaranteeing minimal rents to the private sector, thus encouraging it to come in.

These partnership mechanisms could be used by themselves or as elements in a package. I am not asking the Minister for snap answers tonight; it is too late for that. I offer him these ideas to study. Indeed, I go further: I would be prepared to write the Minister a paper on the proposals which I have made because I would like him to examine them in detail.

The Minister must take the problem seriously, as everyone in the northern region does. It would be a tragedy—indeed, it would be unforgivable—if the long-awaited economic upswing in the north were to be choked by a shortage of factory space. If the Government are not prepared to fund public sector investment—I understand their thinking on this, although I do not necessarily accept it—they should at least be prepared to provide the facilities for a partnership between the public and private sectors which could help bridge the investment gap and provide the factory space which the north needs so much.

11.31 pm
The Parliamentary Under-Secretary of State for Industry (Mr. Robert Atkins)

I congratulate the hon. Member for Durham, North (Mr. Radice) on raising this subject by way of an Adjournment debate. I also welcome the spirit in which he addressed the House. I shall certainly consider the detail of what he has said and look forward to the report by a man of his education; doubtless it will be couched in delightful English. We shall consider it carefully.

The hon. Gentleman raised an important subject. Before I deal with the specific issue of factory space, I want to put the problem in the wider context of the improvements in the economy which have created the demand to which he has referred. As I heard one of my hon. Friends say in a sedentary intervention, these ironically are the problems of success. It is not just the Government who are proclaiming the resurgence in the north-east; the local CBI and chambers of commerce confirm a firmly established trend of increased demand, output and sales across a range of industries. Business confidence and optimism for the future are at their highest for some time.

I have paid visits to the north, as some Opposition Members will know, and have much enjoyed them, so much so that I am considering whether to spend a holiday there in August. I hope that hon. Members will recognise the attractions of their own area which my family may appreciate.

The region still faces special problems and has special needs and the Government now have policies that are more effectively focused to deal with them. The message that the north-east is an area of opportunity and growth with everything going for it in terms of availability of good skilled labour, good communications, excellent social, leisure and cultural facilities has reached the foreign investor who does not have a prejudiced and stereotyped image of the north-east. Such an image is sometimes presented in the media and, perhaps regrettably, talked about by those who live there. I have that problem in my part of the north of England and I spend much of my time trying to persuade people not to talk down their own region.

As I have said, the Japanese are particularly attracted to the north. They have seen the region and like it. Nissan, which has 2,700 jobs in prospect by the early 1990s, is acting as a catalyst for encouraging other companies, and not only Japanese companies, to the region. There are 21 Japanese firms in the region, one quarter of the national total, and about 220 foreign-owned firms employing 36,000 people. All this has helped to broaden the region's economic base, and has introduced new skills and work practices to the north.

One of the most encouraging developments is the growth of entrepreneurship in the north-east, a region without any recent tradition of self-employment. The region has made great strides in this direction in recent years.

I should now like to come to the specific question raised in the debate. I am well aware of the demand for factory space, not only because the hon. Member for Durham, North brought a delegation to see me and has talked to me, but also because my hon. Friends have brought it to my attention. I am delighted to see my hon. Friends the Members for Darlington (Mr. Fallon), for Hexham (Mr. Amos), for Stockton, South (Mr. Devlin) and for Tynemouth (Mr. Trotter) expressing their commitment and interest. They are here in slightly greater numbers than the Opposition but I recognise that the hour is late and I do not make much point of that.

The hon. Member for Durham, North was fortunate enough to get this debate and there is interest in it in all parts of the House. The demand for factory space has substantially increased in the past year in many parts of the assisted areas, and I recognise that the amount of vacant space has declined. As I have said, this increased demand arises from the sustained economic upturn brought about by Government policies.

I hope that the hon. Gentleman will acknowledge what the Government have already done in this area. The level of resources going towards factory building by English Estates in the assisted areas as a whole has been substantially increased in recent years. In 1986–87 its capital development programme was £33.5 million. In 1987–88, it was increased to £47 million. For 1988–89 we have authorised English Estates to spend up to £49 million if it can produce the necessary resources from asset sales. These are record capital investment levels for English Estates and represent very significant action already taken by the Government. We have also established a new programme for English Estates to provide managed work space in the inner-city areas in partnership with the private sector. The resources for that programme are additional to the figures that I have just given.

Perhaps I could mention just two examples of how English Estates money has been spent in the north-east and to what effect. In 1980, the British Steel plant in Consett closed down. Over 28 per cent. of the working population were jobless. English Estates was called upon to help and, as part of the Derwentside task force, set about attracting new employers to the area. As a sign of its commitment, it opened an office and invested £12 million, building about 800,000 sq ft of property in five years. That was a mixture of large factories, small workshops, and premises designed for high technology businesses. As new companies moved in, over 2,500 jobs were created in the local community putting Consett well on the road to recovery.

More recently English Estates have built the computer aided design and computer aided manufacturing centre on the banks of the River Tees, the first of its kind in Europe, Funded by the public sector, the £1.5 million centre provides advice and powerful computing and information resources for high-tech businesses that are crucial to the future success of the north and the rest of the country.

Ms. Hilary Armstrong (Durham, North-West)

I thought that the Minister was about to say a little more about Consett. I hope that he recognises that the very agencies that he congratulated are presently saying very loudly that they desperately need the next stage so that the firms that may be ready to expand are able to do so. Despite much effort, those agencies have not been able to attract private sector funding to aid such developments. Indeed, we are looking for some commitment to support the work that the development agency and the task force have already done.

Mr. Atkins

The hon. Lady draws attention to a point that we have accepted. I have said that it is a problem of success, but I recognise that none the less it is a problem.

I am advised that there is an increasing number of inquiries from the private sector to both Teesside and Tyne and Wear development corporations, which suggests that the climate for private sector investment is steadily improving in the north-east, largely as a result of the well-publicised shortage of advance factory space to which the hon. Member for Durham, North has already referred and to which I know my hon. Friends have referred previously.

I have given some examples of the organisation and development programme for English Estates. The question now is what the Government should be authorising English Estates to do in future in the light of booming demand for factory space. The call from some quarters has been for more public sector resource to satisfy current demand.

That approach is unattractive for a number of reasons, not least because the additional resources required would be very substantial. But there is a more fundamental reason, which has to do with the role of English Estates and our ultimate policy objective in that area. English Estates' role is to fill a gap in the market so that industrial and commercial premises can be provided in the assisted areas where the private sector is unwilling to risk the necessary investment.

The aim is that the activities of English Estates should encourage the private sector. Our objective, which I hope is shared by Opposition Members, is a properly functioning property market serviced by the private sector and flexible enough to be able to respond to the demands of the market in the north-east just as in the south. Our judgment is that pumping in more public sector resources would be very likely to delay the achievement of that long-term objective rather than to encourage it.

The current situation in the north-east offers an opportunity that we do not wish to miss to secure that objective. It is quite true that, for a lengthy period, yield levels have not been sufficient to stimulate private sector provision of industrial premises outside the south-east. With the changing economic climate, increasing demand and rising rents, returns are beginning to look more acceptable. The job for the region, as the chief executive of the Northern Development Company has recently recognised, is to do all it can to draw in private sector investment.

I do not pretend that that will happen overnight. There is bound to be a transitional period during which excess demand helps the necessary process of increasing rents to levels which will provide an adequate return to the private sector, but the consequence of avoiding the discomfort of such a transition by increasing Government-funded provision would be to miss the major opportunity to re-create a private sector property market which I have mentioned.

That approach does not mean that the Government are ignoring the issue. There are a number of Government initiatives which are relevant to the provision of industrial and commercial property. The hon. Member mentioned the role of the two urban development corporations in the north-east, in Tyne and Wear and Teesside. Each is likely to spend well over £100 million during the next five years. The work of the UDCs is of major importance in creating the conditions to bring back private sector investment.

As far as English Estates is concerned, we are currently in active discussion with the board about how best its resources can be used in the areas where there is least prospect of an early return by the private sector and how, more generally, it can adapt its programmes and policies to give further encouragement to the private sector to respond to the current demand.

I am particularly pleased that the hon. Gentleman felt able to make his remarks in a spirit of understanding the Government's position, while not necessarily accepting it. I know that some of what the hon. Gentleman has said has been considered before, but it needs further consideration. As he has been kind enough to say that he will produce a report, although he did not give a time scale—

Mr. Radice

It will be two or three weeks.

Mr. Atkins

I think that we can manage that. We look forward to receiving the report. We shall not make any policy decisions, so I can assure the hon. Gentleman that his views will be taken fully into account. He will understand, however, that I cannot give any guarantees about the results.

It is not simply a matter of public sector agencies encouraging the private sector. There is an opportunity, which I hope will be seized, for the private sector to reassess the risks involved and for investors and developers to expand the geographical spread of their activities. I believe that the present rising trend in the level of rents is a healthy sign for the north, confirming what I know my hon. Friends believe to be the case—they frequently tell the House that life in the north is not as bad as it is sometimes depicted. I am sure that the future of the north, and the substantial demand for factory space, which we all agree is a sign of economic success, means that private sector provision is not far off in many areas.

Question put and agreed to.

Adjourned accordingly at fifteen minutes to Twelve o'clock.