Manufacturing (Productivity)

HC Deb 11 June 1993 vol 226 cc537-57

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

9.35 am

The Parliamentary Under-Secretary of State for Trade and Industry (Mr. Patrick McLoughlin)

This is the first debate in which I have taken part since my move to the Department of Trade and Industry two weeks ago. I am delighted to be back in the Department where I first served as PPS to Lord Young of Graffham when he was Secretary of State. Since then, there have been a number of changes at the Department—it now has responsibility for energy matters and the coal industry. I was involved in the coal industry before I came to the House; I worked for British Coal from 1979 to 1986.

When I first entered the House, I was a consultant to C. M. Spectrum and A. S. L. Alliance, engaged mainly on helping with their work for the coal board. I look forward to seeing some of the developments that have occurred in the Department since I was last there.

This debate is about productivity and performance in manufacturing industry. It is worth spending a little while outlining the situation that we inherited in 1979. The technical definition of productivity is how much output is produced from a unit of input. That is a fundamental measure of economic performance. It is one of the main determinants of our competitiveness and, thus, ultimately of our standard of living.

Manufacturing productivity is especially important because of the role played by manufacturing in our balance of payments. About two thirds of our exports are of manufactured goods. High productivity keeps our costs down and enables us to compete in key areas such as quality and reliability.

It is vital that we match, or better, the productivity performance of our major competitors if we are to continue to perform well in overseas markets. Our productivity performance was transformed during the 1980s. During the 1970s, it was very poor. Between 1973 and 1979, manufacturing productivity grew by just over 1 per cent. a year in the United Kingdom. That was less than all our major competitors achieved. We fell further behind their levels of productivity. For instance, with France the gap increased from less than 20 per cent. to almost 40 per cent., and with Germany it increased from less than 45 per cent. to 70 per cent.

It is not hard to see why we performed so badly. Inflation averaged 15.5 per cent. between March 1974 and April 1979, and peaked at over 25 per cent. in 1975. It remained high and variable for much of the 1970s, creating a climate in which it was impossible to invest or plan with confidence. Public spending was an increasing burden on the wealth-creating sector of the economy. Marginal tax rates were so high that many people were discouraged from extra effort. There were—believe it or not—nine higher rates of income tax, ranging from 40 to 83 per cent.; and if the investment income surcharge was included, the highest marginal rate was no less than 98 per cent. Corporate taxes were also a heavy burden on small businesses and industrial relations were extremely poor. We lost 29 million working days through strikes in 1979 and strikes became known as the British disease. Trade unions tried to usurp the role of management rather than working co-operatively to improve the lot of their members. They delayed the introduction of new technology and modern working practices.

The nationalised industries suffered particularly badly and often experienced falls, not increases, in productivity. That was hardly surprising, given the level of subsidy that they received. In 1978–79 alone, subsidies totalled £2.2 billion at today's prices. That sustained overstaffing and featherbedding and contributed to poor productivity. In addition, industrial policy was directed at helping old industries survive rather than encouraging new products and new technologies.

Perhaps I have said enough about what we inherited in 1979. It was not a happy picture, but, if we believe the Labour party, everything was fine, there were no problems and the sole concern of the Labour Government was manufacturing which, apparently, they did so much to help. What I have said shows how little they did and how little they cared.

Mr. Tam Dalyell (Linlithgow)

I was a Member during those years. The Minister has given an incomplete and distorted picture. He spoke about lost working days. At least in those years 3 million people were not unemployed and in some of them there was full employment. Matters should be put into context because the Minister's description is glib and superficial.

Mr. McLoughlin

I can understand why the hon. Gentleman tries to justify the position in 1979 and the strikes. He speaks about high employment, but between 1974 and 1979 unemployment doubled under the Labour Government. While the rest of the world was becoming more competitive, Britain was slipping and that did nothing to sustain employment or present employment opportunities. I am surprised at the hon. Gentleman, because he is occasionally more open and honest about some of the changes that need to be made in manufacturing.

Mr. Charles Hendry (High Peak)

Can my hon. Friend confirm that in 1974 when Labour came to power there was a three-day working week and that five years later, when Britain was back to a five-day working week, it was producing less than it had been producing in a three-day week?

Mr. McLoughlin

I agree with my hon. Friend. I am surprised that somebody as distinguished as the hon. Member for Linlithgow (Mr. Dalyell) should try to persuade us that what happened in the 1970s was good for United Kingdom manufacturing and business; it was not.

Mr. Bernard Jenkin (Colchester, North)

Does my hon. Friend agree that the rise in unemployment during the 1980s and more recently is not due to a fall in employment opportunities? On the contrary, there has been a steady increase in rates of employment. There are structural and demographic reasons for the increase in unemployment and it is staggering that we have contained unemployment to the extent that we have. We have a better record than most of our European competitors.

Mr. McLoughlin

My hon. Friend is right. The United Kingdom has one of the highest levels of female employment in the Community. Our record is bettered only by Denmark.

Perhaps we have spent enough time on that. We have heard from one Opposition apologist about the position prior to 1979 and we should now examine some of the dramatic changes that have taken place since the 1970s. I shall contrast the poor productivity in the 1970s with that in the 1980s.

Between 1979 and 1989, productivity grew by more than 4 per cent. a year. That was a better performance than that of all our major competitors and we moved from the bottom of the league table of productivity growth to the top. That dramatically improved performance reflects the success of the policies that we have pursued over the years. We stopped supporting lame ducks and trying, unsuccessfully, to pick winners. Instead, we created an economic framework within which businesses could plan and invest with confidence. We brought inflation under control and today it is at its lowest for nearly 30 years.

We have undertaken major supply-side reforms in the labour market and in taxation. We have privatised 46 major businesses, and every one of those privatisations was opposed by the Labour party. These reforms have enabled firms to prosper in the low-inflation environment that we have created and have allowed us to attract substantial investment.

It was clear in 1979 that the trade unions were a major cause of Britain's being at the bottom of the growth and productivity leagues. The ability of managers to use resources as they saw fit had to be regained if they were even to begin to catch up. Our trade union legislation has restored the right of managers to manage. It has made trade unions more accountable to their members by requiring the direct election of union leaders and the balloting of members before industrial action. The closed shop was made unlawful and the scope for demarcation disputes was reduced. Those reforms were fundamental in helping us to improve productivity in the 1980s, but every one of them was opposed by the Labour party.

Mr. Mark Robinson (Somerton and Frome)

Does my hon. Friend agree that that is exactly why it was so important to secure the opt-out from the social chapter?

Mr. McLoughlin

My hon. Friend is wholly right. [Laughter.] The hon. Member for Tooting (Mr. Cox) laughs. He is the only Opposition Back-Bench Member present for this important debate. My hon. Friend is right about the opt-out and I shall later examine some of the implications of that and the importance of competitiveness. It is important that my right hon. Friend the Prime Minister was successful in not signing Britain up to the social chapter.

Other reforms have improved the working of the labour market. We have encouraged direct employee involvement in the success of companies through tax relief for profit-related pay and employee share schemes. Our tax reforms have also helped productivity. We have given individuals incentives to greater effort because the nine higher rates of income tax have been replaced by a single higher rate of 40 per cent. We have reduced the basic rate to 25 per cent. and have introduced a 20 per cent. band.

Our marginal tax rates are among the lowest in the advanced world, making Britain an attractive place for the brightest and best to work. We have cut corporation tax from 52 to 33 per cent. and our corporation tax is now the lowest in the EC or the Group of Seven. The taxation of companies is much simpler and it is without many of the distortions that we inherited in 1979. Companies now invest according to their commercial judgment, not in the pursuit of tax breaks. As a result, the quality of investment has improved, boosting productivity.

Mr. Jim Cousins (Newcastle upon Tyne, Central)

How does the Minister respond to the approaches being made to the Government by the CBI and the Engineering Employers Federation? They want the Government to put back some of those tax breaks, especially for certain kinds of investment. They say that although corporation tax is low, the take is extremely high.

Mr. McLoughlin

Those matters are being put to my right hon. and learned Friend the Chancellor of the Exchequer, who will no doubt consider them before making his announcement on the Budget. The hon. Gentleman would not expect me to comment on those matters.

Since 1979, privatisation has been a cornerstone of our policy. In that time, it has radically changed the United Kingdom's economic and industrial structure. I have already described the poor performance of the nationalised industries in the 1970s. Giving these companies commercial objectives and exposing them to market discipline was essential if their performance was to improve. Requiring them to compete for investment funds on the capital markets, rather than obtain them from the taxpayer, was vital.

We gave managers clear incentives to improve performance—and it was not just for managers that incentives changed. More than 90 per cent. of eligible employees became shareholders in the privatised firms in which they worked. That gave them a direct interest in improving productivity and performance as well.

The result has been some dramatic improvements—in British Steel, for example. In 1979–80, it took more than 13 man hours to produce one tonne of liquid steel. Now, it takes less than five man hours. It is that sort. of productivity improvement that has made British Steel the EC's most efficient integrated steel producer and one of the most efficient in the world. British Gas has increased the number of customers per employee by about 19 per cent. and gas sales per employee by about 21 per cent.

Mr. Cousins

Will the Minister give way?

Mr. McLoughlin

I shall give way once more, but, as a number of my hon. Friends wish to take part in the debate, I must make progress.

Mr. Cousins

Can the Minister explain why defence manufacturers are concerned that they cannot buy armour-plated steel in Britain but have to import it from Sweden? Can he explain why some people in the car industry are extremely concerned about their inability to buy stainless steel in Britain? If it is such a wonderful story, why are those people so concerned?

Mr. McLoughlin

Once again, the Opposition spokesman is trying to justify everything that happened in 1979. He will not accept that there have been real structural changes in the steel industry. He would like to take us back to 1979, when there was a nationalised steel industry which was not competing and was unsuccessful. I well remember that time, when certain companies were closing and their car parks were full of foreign cars—yet people were complaining that British Steel was not selling its products to British companies.

Mr. Jenkin

Does my hon. Friend think that the fact that German industry sometimes has to import British steel sends it into despair?

Mr. McLoughlin

Certainly not. I shall say more about international comparisons shortly.

The supply-side reforms of the 1980s made the United Kingdom an attractive, low-cost EC country for investment by successful overseas companies. In 1991, the United Kingdom accounted for 36 per cent. of the stock of United States investment and 40 per cent. of Japanese investment in the EC. Toyota and Nissan have undertaken in the United Kingdom two of the biggest inward investment projects in Europe. Between them, they will eventually create more than 7,000 jobs.

Since 1986, an estimated 146,000 new jobs have been created in the United Kingdom from inward investment. There are many reasons why firms have chosen to invest in the United Kingdom. Toyota, for example, quoted our strong traditions both in the motor industry and in the skilled work force as reasons why it chose to invest here.

Inward investment has helped to reinvigorate key sectors such as vehicles, office equipment and chemicals. It has boosted productivity by bringing the latest technology and the best international management practice to the United Kingdom.

Research by the German chamber of commerce shows that more than two thirds of German-owned manufacturing concerns operating in the United Kingdom achieve productivity levels at least as high as comparable units in Germany. Kodak reports that productivity at the Kirkby. plant, which produces its main synthetic chemical, is the highest among its worldwide operations.

Productivity in the car industry increased by 82 per cent. between 1981 and 1992, well above the average for manufacturing industry. The vehicles industry is producing 300,000 more vehicles a year than it was 10 years ago, with 100,000 fewer people. In 1992, the United Kingdom produced more than 500,000 vehicles for export and by 1995 we expect to be a net exporter of cars—a position which could not have come about without significant productivity improvments and the fact that the United Kingdom attracted that inward investment when it could have gone to any part of the European Community. When businesses look for the best place to invest, they know where it is; it is just a shame that the Opposition do not.

The benefits of inward investment to the car industry can be seen by the fact that Nissan UK is aiming to achieve by 1996 productivity levels at its Sunderland plant equal to those in Japan. Inward investment has also made the United Kingdom a net exporter of colour television sets and a major European producer of personal computers.

The continuing benefits of our supply-side reforms can he seen in the recent behaviour of manufacturing productivity, which, in the first quarter of this year, was almost 8 per cent. higher than a year earlier. That is the highest growth rate for more than six years. In earlier recessions, in the mid and late 1970s, productivity growth was much lower and often negative.

The much-improved growth performance since 1979 has resulted in a substantial narrowing of the gap between the United Kingdom and our main competitors. The true extent of the gap that remains cannot be determined with certainty. In measuring productivity, allowance has to be made for the different quality of goods produced, for the number of part-time workers and for the number of hours worked. Moreover, the availability and quality of data vary from country to country.

Nevertheless, studies have universally recorded a reduction in the productivity gap. Recent estimates suggest that, between 1979 and 1989, the manufacturing productivity gap with Germany fell from 70 to 30 per cent; that with France fell from almost 40 per cent. to about 25 per cent; our gap with the United States fell by 20 percentage points to about 65 per cent. Those figures, although encouraging, show that we still have some catching up to do. At the same time, we must be careful not to read too much into averages—there are sectors in the United Kingdom economy that have productivity levels among the highest in the world. For example, we exceed German productivity levels in metal manufacture, chemicals and electrical engineering, and French productivity levels in electrical engineering, printing and publishing.

Pharmaceuticals is an industry where the United Kingdom ranks among the best in the world. The United Kingdom pharmaceutical industry boasts four world-class companies—Glaxo, SmithKline Beecham, Wellcome and Zeneca. The first two are in the top 10 internationally. Output per employee in the pharmaceutical industry has risen steadily for a generation.

The United Kingdom aerospace industry is equal with France as the second largest in the western world in turnover. It contributed about £2.5 billion to the balance of trade in 1992. Even in those sectors where we are some way behind, there are still some world-class United Kingdom companies. However, there is no room for complacency. That is why our policies will continue to focus on areas vital to sustaining productivity growth.

Mr. Dalyell

For the sake of the Minister's officials, I give notice of a question that I hope to put to the Minister later. What is the position on the moneys that have been frozen for Glaxo exports to Iraq of urgently needed pharmacological products? I understand that the managing director of Glaxo, Dr. Richard Sykes, is considering the problem. What is the Government's position on, first, the export of Glaxo pharmacological products to Iraq and, secondly, the particular problem of those pharmacological products for which the Iraqis say they have already paid? Those are urgently needed medicines and insulin which, apparently, are being held back. I do not expect the Minister to answer now, but I hope that his officials will investigate the matter.

Mr. McLoughlin

I am grateful to the hon. Gentleman for giving notice of his questions. I hope to answer them later.

Perhaps the most important of the vital areas to which I referred is education and training. A recent study by the National Institute of Economic and Social Research estimated that more than half the gap in productivity levels between United Kingdom and German manufacturing was accounted for by differences in labour force skills. It is clear that a skilled and flexible work force is vital if we are to sustain productivity growth and catch up with our main competitors.

I have said quite a lot about what we have done through the supply side, such as creating a flexible labour market through our trade union reforms. The Government have done much to transform education and training and to make those relevant to the needs of industry. Our education reforms will improve the quality of young people entering the labour force. The national curriculum, with its greater emphasis on work-related subjects, will play an important part in that. Design and technology, for example, will, for the first time, be studied by all pupils up to the age of 16.

An integral part of our education reforms is testing in schools. Testing is a fact of life, and our firms are tested every day in the world marketplace. Testing in schools is therefore an essential ingredient in preparing our children for the future. Many of our efforts on training have been channelled through training and enterprise councils, which were established three years ago with the objective, among others, of improving the quality and relevance of training. TECs are responsible for delivering a wide range of training services, including the investors in people programme.

That programme aims at encouraging employers of all sizes to improve their business performance by linking the training and development of employees to business objectives. The standards set by it are national, but are delivered locally by TECs, the boards of which are dominated by local, private-sector executives. Local employers know best what training is required and the ultimate responsibility lies with them.

I am greatly encouraged by statistics published earlier this week by the Policy Studies Institute showing that in the past five years nearly two thirds of workers have increased the level of skill that they use in their jobs. We still have a long way to go, but we are making progress.

Innovation—the successful exploitation of new ideas —is a key factor in productivity growth. The recent science and technology White Paper contains proposals that will improve the focus of public spending in that area.

Many more companies will be able to gain access to science and technology and innovation best practice. In particular, small firms will have better access to science and technology. Small firms are a vital source of innovation and productivity improvements.

The Government support small firms with a variety of measures. Innovation is encouraged through the Smart and Spur programmes, which assist such firms in the development of new products and processes involving significant technical advance.

The shift in emphasis towards giving greater help to small firms in science and technology underlines our commitment to that sector. I am confident that it will bring with it an increase in competitiveness and associated gains in productivity.

In 1985, my Department launched the deregulation initiative. That on-going exercise is designed to eliminate the burden of unnecessary regulation on firms—a burden which imposes costs that reduce productivity and damage competitiveness.

My right hon. Friend the Prime Minister recently gave fresh impetus to that assault on red tape. As a result, we are systematically reviewing all existing regulations and other forms of red tape that the Government impose on business. Wherever possible, we will remove or simplify regulations and procedures so as to minimise the costs to small firms—and no further regulation will be imposed on business without the costs having being spelt out in Parliament first.

There has been a substantial improvement in our manufacturing productivity performance since 1979. In the short term, of course higher productivity often means fewer jobs—but in the long term, increased productivity boosts investment and growth and creates a substantial number of sustainable jobs.

We have a higher proportion of the adult population in work than any other EC country except Denmark and Luxembourg—a point made by my hon. Friend the Member for Colchester, North (Mr. Jenkin)—and the gains that were made will be shown to be real and long lasting as we we emerge from recession.

The policies currently pursued by this Government will build on those improvements. Paramount among them are the constant efforts that we are making to keep inflation low. At 1.3 per cent. in April, retail prices index headline inflation was the lowest for nearly 30 years, and underlying inflation is the lowest for 25 years. We have set clear targets for inflation.

Our success in the fight against inflation has allowed interest rates to come down to their lowest level for 15 years. Low inflation, low interest rates and rising productivity are essential ingredients of industrial success. Productivity is sharply up, and in the first quarter of this year manufacturing unit wage costs were 2.9 per cent. below their level a year earlier—the best performance since records began in 1970. Provided that we stop talking of the decline of manufacturing and appreciate more the excellent manufacturing sectors and firms that we have, we can build on the progress that we have already made. And we can look forward, with confidence, to continued growth in manufacturing productivity during the rest of the 1990s and beyond.

10.3 am

Mr. Jim Cousins (Newcastle upon Tyne, Central)

The Minister read us largely a history lesson. I am not sure how good it was, but it is not history lessons that we need now. After a week for the party of government full of such sturm and drang, I suppose that the Government might turn to history for a little comfort.

The Minister's case amounts to saying that during the 1980s, Conservative Governments applied to British industry some of the most volatile swings in policy change, interest rates and so on, ever imposed by any Government. There are some survivors and the Government seek to take credit for that. The technique is the same as electro-convulsive therapy. Those who do well out of it bring to the therapy a native robustness and good health that is capable of enduring the experience. The Government cannot take much credit for the survivors of that dreadful experience of the 1980s, with all its wild swings of economic intentions and performance.

The most worrying aspect of even the positive elements of the 1980s is the other side to them. It is true that the 1980s saw a considerable increase in manufacturing productivity and I will refer later to the reason why that might have happened. The Minister rightly identified two key sectors—aerospace and the chemical pharmaceutical industries—which, if we can get it right, will be the main motors of British economic success in years to come. Their present record of productivity and production is extraordinarily powerful and important and provides a model for the rest of the economy.

The Government's difficulty is that while there have been productivity gains in manufacturing, it is equally true that productivity across the whole economy has not improved to anything like the same degree. If the service sector—distribution, retailing, banking, insurance and financial services—in which employment grew throughout the 1980s is to be put to the storms through which manufacturing industry went in the early and-1980s, the consequences for employment, particularly in the southern part of the country, are likely to be devastating.

The hon. Member for Colchester, North (Mr. Jenkin) made a significant remark. The Minister was having difficulty at the time explaining manufacturing productivity and its connection with employment. If one increases production 5 per cent. and gets rid of 2.5 million or 2.75 million jobs in the process, no one can take credit for that —but if one increases production and maintains employment, that is a triumph. That is not the Government's record. Their record is of increasing manufacturing production by 5 per cent. and of disposing of 2.5 million to 2.75 million workers.

Conservative Members should think carefully before quoting that as a great success. The consequences of that policy are to be found on every street corner in every town and city in the country. They are to be found in the reduction in the feeling of belonging to society which is suffered by so many. As a Member of Parliament representing a Tyneside constituency, I have seen for myself and in the media men leaving Swan Hunter shipyard, which is currently in great difficulty. Many jobs there have already been lost and now the jobs of the skilled men who walk up the bank from that shipyard—men with meaningful skills such as electricians, fitters and other high-productivity workers—have been laid low by that company's financial position and lack of Government orders. Those men aged 40 with young families and mortgages are saying openly and publicly that they never expect to have a proper job again. Many of them are looking for contract jobs at the other end of the country or abroad. If they get such jobs, they will never see their young families or participate in growing up with them. That is the economic fate that those men see for themselves. I doubt whether anything that is said by Conservative Members this morning will change the harsh realities of their situation.

That is the reality of some of the productivity gains. It is the sort of thing that we mean when we talk about structural and demographic trends. It is the reality of city life and town life when we dismiss so many skills and so much experience and commitment and say that it is a structural and demographic change. It is an unfortunate approach to take.

Mr. McLoughlin

No one underestimates the seriousness of people being made unemployed and the devastation that it can have on individuals and their families. The hon. Gentleman should tell us whether he believes that keeping productivity levels low and, therefore, keeping people in employment would necessarily lead to a growth in exports and selling our goods abroad when they become more expensive than those of other countries. We must compete. It is no good trying to get away from the fact that we will not be able to do that without increased productivity.

Mr. Cousins

Clearly, I have not said that. Unfortunately, the sector industries in which the productivity gains have been the highest are the most exposed to economic difficulty at present. That is precisely the problem.

We should take a brief excursion into history to look at the sort of community that existed in the 1930s. I do not represent such a community—my constituency is described in all the handbooks as middle class residential and I do not argue with that. A better comparison would be to consider the shipbuilding areas on Tyneside down the river. With the level of unemployment that existed in the 1930s, men were at the shipyard gates every morning seeking work. Throughout the depth of the 1930s recession, people never stopped being in their own minds riveters, welders, fitters, boilermakers, platers or platers' helpers. The reality of the economic situation brought about by the Government today is that once a man in those industries loses his job, he throws away his identity and has no credibility that he will ever work at his trade or skill again.

Mr. Julian Brazier (Canterbury)

I have listened carefully to what the hon. Gentleman says and I understand his point. But I shall put two points to him. First, if we are looking at a comparison with the 1930s, the level of unemployment in what was a much smaller work force was 25 per cent., so to compare it to today's level is a false analogy.

Secondly, the hon. Gentleman is absolutely accurate —this is not the Government's fault. It is not the fault of the Governments of Spain, France, America or any other country in the developed world. The hon. Gentleman is talking about a phenomenon that always occurs—a loss of identity of this sort—when there is a great revolution in productivity, whether it is the agricultural revolution, the industrial revolution or the technological revolution. When there are great changes, people lose their working indentities. It is a challenge for every country in the industrialised world.

Mr. Cousins

The hon. Gentleman is right, but what he has not come to terms with is that all Governments in the European Community, whether Christian Democrat or Social Democrat, accept a measure of responsibility for that. Perhaps Christian Democrat parties and Governments provide a good model for Conservative Members. If we had a Christian Democrat Government, rather than a Conservative Government, matters would be different because we would not then have the wiping of the hands of responsibility for those matters that we see in the present Government. A Christian Democrat Government would not wipe away their responsibility for the problems to which I have drawn attention. We see Christian Democrat Governments standing behind people in their time of difficulty, accepting a great measure of social responsibility and devising welfare systems that are precisely targeted at enabling a long and painful but necessary transition from one sort of employment to another. Christian Democrat Governments across the European Community are asking employers to accept obligations to be actively involved. Was not that the purpose of the whole debate about the social charter and the social chapter?

Mr. Brazier

To suggest that somehow or other all over the continent they are doing something that we are not is manifestly nonsense. To give one example, the United Kingdom is the only country in the EC that guarantees all school leavers a training place if they do not have a job. If one looks at the whole EC, our level of youth unemployment among the age group immediately above is lower than that of most of our economic partners for that reason.

Mr. Cousins

If the hon. Gentleman looked at the training policies pursued by Christian Democrat parties and Governments in the Netherlands and Germany, he would be ashamed to say what he just said, because the attitude of those parties and Governments is completely different. They do not regard training as a residual after all the economic forces have been at work—one finally offers, inadequately in many cases, a residual commitment to find a training place in some sort of scheme. That is not the case. Those parties and Governments want their young people to be full members of their economies and participate in significant training that is immediately locked into the patterns of occupations and the pattern of employment. That is an entirely different policy from the one followed by the Conservative party and the Conservative Government.

Mr. Jenkin

I am listening carefully to the hon. Gentleman's comparison between our employment and industrial policies, especially our training policy, and those on the continent. The House would be most interested to hear about the measures, spending and activities in which he thinks the Government should be engaging. What proposals does he envisage which we are not carrying out at present? His general comments have left us in the dark.

Mr. Cousins

It is a pity that the hon. Gentleman did not ask the Minister that question when he was reading his historical lesson. I accept the point of correction. We shall come back to the narrow task and examine it.

I have made the point that we must be worried about the comparison between whole economy productivity and manufacturing productivity. There are some dangerous signs there, because, if productivity improvements are to be made in the service sector by the same mechanisms as have delivered productivity improvements in manufacturing industries, there may be some remarkable reductions of employment in precisely those sectors of the economy in which employment has grown recently.

In response to a point made earlier by the hon. Member for Canterbury (Mr. Brazier), perhaps the most worrying thing about the present recession is that 2 million jobs have been lost, but only 1.3 million people have been added to the unemployment register—700,000 people have apparently, for these purposes, disappeared. What is the explanation? There are some extremely worrying facts. Many people are still part of the economic life of the country but do not register as unemployed because they believe that there is no point in doing so: there are no jobs on offer or, more significantly, the sort of employment that they had did not provide a continuing basis of national insurance contributions to trigger the right to unemployment benefit.

It must be a source of anxiety to us all that so many people are employed on the basis of either low wages or casual or temporary employment which does not allow them to obtain unemployment benefit when they lose their jobs. Their contribution records do not entitle them to claim unemployment benefit. The existence of such a large number of people who are on low wages, mostly in the service sector, but in certain manufacturing sectors as well, should be a source of grave anxiety to us all.

We are all aware of the unemployment problem, but there is now a massive problem of sub-employment—people who work in a twilight sector of the economy that does not enable them to build up sufficient credits, through the national insurance system, to enable them to obtain unemployment benefit when they lose that source of employment. When there are shake-outs in manufacturing industry, people with young families find that regular employment, which they are entitled to expect, is no longer available to them and that they have to seek casual, temporary work—often a long way from their homes—if they are to have any sort of income. When the industries in which they are then employed also fall on hard times, they find that they cannot register for unemployment benefit.

Productivity gains have been achieved by the loss of jobs. They have not been achieved by improving the human or physical capital of industry. I exclude the two sectors to which I have already referred: chemicals and pharmaceuticals and the aerospace industry. There have been significant productivity gains in the chemicals, pharmaceuticals and aerospace industries, on the basis of larger human or physical capital inputs and rising production.

Mr. Jenkin

Does the hon. Gentleman seriously propose that there has been no increase whatsoever in the skills base in the motor manufacturing industry, for example, in steelmaking and in a whole range of other industries? The hon. Gentleman's proposal is absolutely preposterous.

Mr. Cousins

Most of the productivity gains in almost every sector of industry can be accounted for by loss of employment, not by other changes. I did not say that there had been no increase in skills, but loss of employment has made the largest contribution to productivity gains. In a limited number of industrial sectors, more has been contributed by larger capital inputs and rising production than by loss of employment. The chemical and pharmaceutical industries stand alone in that respect.

Mr. McLoughlin

The hon. Gentleman's point is fairly weak. Is he suggesting that we should keep employment up and productivity levels down? He states that there has been no growth in employment. How, therefore, does he account for the fact that Toyota and Nissan have made major investments in this country and have created jobs for people here, with the result that, by 1995, we shall be a net exporter of cars? Is the hon. Gentleman telling us that, somehow, that is a bad thing?

Mr. Cousins

Let me put the point to the Minister in another way. The innovation unit of the Department of Employment issued this week what is called a company reporting scoreboard on research and development expenditure. The foreword to it was written by the President of the Board of Trade. He takes pride in the fact that the reported spend, according to company reports throughout the industrial sector—every large British company is to be found in this report—increased by 6 per cent. However, the President of the Board of Trade then said: We cannot however be complacent. Internationally the figures reported by the top 200 companies have risen by 8 per cent. and the UK's top spender is only 47th in that league. It is also sobering to see that the top international companies spend some 4.6 per cent. of their sales figures on research and development where UK companies spend 1.6 per cent. These figures can only underline my statement about the need to increase the effectiveness of the UK's research effort. He also talked about developing an innovative culture where new ideas are readily exploited". That may be a matter of contention for the hon. Member for Colchester, North, but it is not a matter of contention for the President of the Board of Trade. He recognises the point that I make. He recognises that productivity gains have not been achieved on the basis of success of the kind with which the Minister seeks to deceive us this morning. According to the President of the Board of Trade, on the basis of his Department's own figures, the United Kingdom's top spender is 47th in the international league of the 200 top companies. That is the real record of this Government which they must try to defend.

One of the great problems with British industry is the lack of training and management at middle level. Technicians and supervisors are often called on to perform on the basis of inadequate preparation. That fact is well attested. The Minister is able to point to the example of Toyota and Nissan only because their great contribution to British industry is that they have not made that mistake. Nissan is a company which, as one would expect of a Member of Parliament with a constituency in the north-east of England, I know well. Toyota and Nissan perceive that industry succeeds on the basis of supervision, technicians and middle management. It is as a result of the team work for which those men and women are responsible that productivity is increased.

The remarkable increase in productivity in manufacturing industry in my region has been brought about substantially by those companies and by the spread of the culture and insights that they brought with them to other related companies. That is what we should seek to do right across industry. There is an enormous amount to be achieved by backing up technicians and supervision and by building up workplace practices on the basis of teamwork. That is the secret of the success of Toyota and Nissan and of the success of the aerospace and pharmaceutical and chemical industries, which already had in place precisely those management techniques.

Mr. David Madel (Bedfordshire, South-West)

I am sure that the hon. Gentleman recognises that the change in work practices introduced by Toyota and Nissan into the car industry are applied now by Vauxhall.

Mr. Cousins

Indeed. Those practices are certainly not now confined to a handful of Japanese companies. That illustrates what can be achieved across the whole spectrum of British industry. Those practices also illustrate how much further there is to go and how much more can be achieved in terms of increasing productivity, not simply by sacking people and reducing employment, but by changing workplace practices on the basis of teamwork and commitment, which results in success.

Mr. Hendry

Is the hon. Gentleman aware that those changes were brought about as a result of this Government's policy, in the teeth of opposition from the Labour party and its union paymasters, who have backed every single Spanish practice and every outdated demarcation dispute and who have been the greatest factor in the resistance to change? One of the most important factors in these changes has been the breaking of that stranglehold upon British industry.

Mr. Cousins

It is simply fanciful for Conservative Members to give the Government the sole credit for successful inward investment. That is entirely mistaken.

Mr. McLoughlin

If that is so, can the hon. Gentleman explain why that inward investment was made in Britain?

Mr. Cousins

I played some part myself—

Mr. Jenkin

The hon. Gentleman was responsible!

Mr. Cousins

No. My part in the process enabled me to see why Nissan chose to locate its plant in the north-east of England. A variety of factors is always involved in such decisions, one of the most important of which was that Nissan and Toyota looked at parts of Britain where they knew that well-organised, highly motivated, skilled and productive workers had been made redundant in large numbers.

Mr. Mark Robinson

The hon. Gentleman is beginning to give the impression that only two companies have sought to make inward investment in Britain. The example of south Wales shows that a vast number of companies —not just Japanese—have chosen to locate in Britain. He will recognise that Britain has been more successful than any of its European partners in attracting inward investment.

Mr. Cousins

I am in a measure of agreement with the hon. Gentleman. One of the most successful examples of inward investment in my area is Komatsu. What did it do? It took over the work force and trade unions of a tractor plant that had been closed, but, because it had the right approach to getting the best from people in the community and from the work force and because it respected the skills and experience of the work force, it was able to achieve things of which, I am afraid, British management, with their older tradition, was not capable.

Conservative Members denounce trade union practices and refer to Spanish practices, but they should recognise the role that simple bad management played in bringing down some major British industries.

Mr. Mark Robinson

The hon. Gentleman is speaking in a derogatory manner about British industry. British Steel in Llanwern, which I know extremely well, has gone through a revolution in terms of its industrial practices and that needs to be recognised. The examples of inward investors that the hon. Gentleman gave have been widely copied throughout British industry and I think that British Steel was ahead of the pack.

Mr. Cousins

Indeed. I have already said that there are sectors of British industry, and they are among the most successful, where those practices are already in place. The chemical, pharmaceutical and aerospace industries already operated such methods.

Mr. Gary Streeter (Plymouth, Sutton)

I congratulate the hon. Gentleman on being able to read John Edmonds' handwriting so well. Would those foreign companies have invested in Britain if the Conservative Government had not reformed the trade union practices of the 1970s—yes or no?

Mr. Cousins

Of course they would have come here. My only regret is that the potential that they saw in this country and in its skilled and experienced work force was put on the scrap heap in the first place. Japanese, American and European inward investors saw potential in work forces that had simply been discarded by the Government and by sections of British industry in the terrible, unnecessary storms of the early 1980s.

Mr. Jenkin

rose—

Mr. Mark Robinson

rose—

Mr. Cousins

I am sorry, I must press on.

My central point is that the productivity gains that have been made are a consequence of unemployment. We would have wanted those productivity gains to be achieved as the most successful sectors of British industry have achieved them—as a consequence not of unemployment but of organic growth, innovation and research and development.

Our chemical, pharmaceutical and aerospace industries have achieved precisely that, but one significant fact differentiates those industries from many industries that have performed less successfully. The success of those industries, especially pharmaceuticals and aerospace, rested on the basis of Government procurement. The reliability of Government procurement through the national health service and defence expenditure enabled those industrial successes to be achieved. Those industries, pharmaceuticals and aerospace, have benefited most from direct Government intervention in the form of launch aid under the Industry Act 1975, which this Government continued. The success of the aerospace industry could not have been achieved without that.

Those industries benefited because, in partnership with the education system and especially the higher education system, they were able to develop and exploit enormous quantities of graduate person power. Those industries provide a quite different model and a different set of signals for the role of Government in increasing productivity from the one in which the Government take most pride. They have grown on the basis of organic growth, of production engineering rather than financial engineering and of innovation rather than seeking to exploit asset values and asset stripping. They have grown on the basis of continually bringing new products to the market. They have operated on the basis of high levels of union organisation and of drawing the unionised work forces into the process of industrial consultation and decision making. They have achieved their productivity on the basis of teamwork rather than confrontation.

That is why those industries have succeeded. Those are the models that we should be seeking to adopt when we think about increasing productivity across the rest of our industrial sectors. Those models are precisely the opposite of the way in which the Government's policies and the thrust of their intentions are going at the present time.

10.37 am

Mr. David Madel (Bedfordshire, South-West)

I congratulate my hon. Friend the Under-Secretary on his move back to industry. I am glad that he is wearing his industrial hat again. He has first-hand practical experience of a major industry.

The hon. Member for Newcastle upon Tyne, Central (Mr. Cousins) began by referring to the difficulties that the governing party has experienced in the past week. I take his point. We have, in a sense, been here before, because my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont) compared himself with Mr. Selwyn Lloyd, the other Chancellor of the Exchequer who was dismissed. I wondered, thinking about history, whether Mr. Selwyn Lamont had been replaced by Mr. Reginald Clarke and whether we shall have a rerun of 1962–63. I remember that, on becoming Chancellor, Mr. Maudling accelerated expansion and Conservative fortunes recovered. I am immensely encouraged by what my right hon. and learned Friend the new Chancellor has said about the need for faster economic growth and to preserve the welfare state—two excellent policy openings from my right hon. and learned Friend the Chancellor, whom every Conservative Member wishes well in his new tasks and opportunities.

What the Chancellor of the Exchequer said about economic growth makes today's debate extremely relevant. I am sure that all hon. Members who speak today will underline the great importance of our manufacturing industry to the country. We must remember that we unfortunately have a smaller manufacturing base than France or Germany. We have a considerable amount of catching up to do to restore ourselves to the position of a major manufacturer in the world economy.

My hon. Friend the Under-Secretary of State rightly referred to the new mood of co-operation in industry which, to a great extent, has been brought about by the changed atmosphere in industrial relations that followed our sensible trade union reforms. In my area, we welcome the transformed atmosphere in the car industry, which is due not only to Japanese investment in the car industry —and we greatly welcome Nissan in Bedfordshire—but to Vauxhall, although it must be said that many jobs have been shed over the years as new industrial methods and a greater emphasis on plant and machinery have been introduced.

I cannot let the debate pass without saying that although the improved atmosphere in the industry as a whole and the improvement at Vauxhall motors is mightily good for Bedfordshire, Dunstable suffers the continuing tragedy of the complete loss of truck production with the demise of AWD (Bedford) and the loss of truck manufacturing at Renault. The Minister knows that Bedfordshire will continue to press his Department for all possible help so that we can restructure the manufacturing base in my part of Bedfordshire, which has played a substantial role in exports and industrial success since the war.

Mr. Dalyell

The hon. Gentleman mentioned "all possible help". I know that he will recollect that he secured an extremely pertinent Adjournment debate on exports to Libya from his constituency. Does he think that it is important that the Government should consider—I shall not press him for any commitment beyond that—re-examining sanctions against the valuable Libyan market? Sanctions against Libya have been extremely damaging to British industry. Does he believe that that is a matter for reconsideration?

Mr. Madel

I do, and I am grateful to the hon. Gentleman for reminding me of that debate and of the contributions that we both made in European Standing Committee B on that issue. He is right to draw attention to the fact that, in 1992, there was a possibility of Bedford Trucks getting a substantial order for non-military, civilian trucks for Libya. For various reasons, the order did not go through, and we still do not know the full story behind that. However, there are opportunities for exports other than non-military trucks to Libya, and I do believe that the issue should be reconsidered. Where better to re-examine it than at the Copenhagen summit later this month, where the Heads of State will consider trade as they grapple with Europe's unemployment difficulties?

I greatly welcome my right hon. Friend the President of the Board of Trade's sense of purpose and energy. In an article in the Financial Times on 26 April 1993, under the sub-heading "Where the main thrust of the DTI's new competitive policy will be focused …" and in the section headed "Sectoral divisions", it is stated: There will also be plenty of emphasis on so-called benchmarking—continually comparing company and industry performance against best practice and recommending ways of improvement. That is welcome because it urges greater industrial co-operation, but it also underlines the DTI's philosophy that competition is not about doing down one's neighbour but is something which is thoroughly healthy for the economy and something which should constantly be fostered. I shall spend a few minutes amplifying the idea of improvement contained in the quotation.

Clearly, in any debate on manufacturing productivity, we must say something about the necessity of continuing to improve the education system which is so relevant to our manufacturing performance. I hope that the summer term will mark the end of the wretched discord between the teachers and the Government about testing. The next marker on the education scene will be the GCSE and A-level results in August. When they are published, I hope that there will be no instant comments but a careful analysis of what has happened in comparison with previous years. I hope that Sir Ron Dearing and his new committee will also examine the matter.

Parents obviously want to know whether GCSE standards are continuing to improve, but they will also want to know whether there is uniformity of marking by the various GCSE and A-level boards. They will want assurances that the testing before the GCSE is designed to improve GCSE standards. The Government should take more credit for introducing the new system of public examination, which came about after a great deal of internal debate in the Cabinet and in the then Department of Education and Science. Nothing pleases employers more than to see proof of rising standards in GCSEs. Employers and parents want to know that the tests before the GCSE exams are designed to raise standards. That is what parents will be looking for when the next education marker appears in August.

I outline two additional points on which I should like the Government to act. I want it to be made easier for young people to do the necessary studying on their own. As they move to GCSE and A-level, more work is done by the individual with the necessary supervision from time to time. Greater use should be made of public libraries, parts of which should be set aside for young people to do the necessary study during the day. There should also be greater use of schools outside school hours so that young people can do personal study to improve their GCSE and A-level performances.

We must also constantly examine the student support system and ensure that we are not doing anything to deter young people from entering higher or further education. I am especially worried about the way the discretionary grant system works. Is it as helpful as it could be to young people?

On the question of the education service at the local level, and before Sir John Banham and his team plunge into making big changes to the shire counties and district councils and suggest more unitary authorities, as I think that they might, I ask them to consider whether changing local government will improve the education service in any given area. I was delighted when the President of the Board of Trade, in his former role as Secretary of State for the Environment, said that there would be no uniform change in local government as happened in 1974. In passing, I ask Sir John Banham and his team, who are doing an important job, please to ensure that any local government changes will improve the education system as it is delivered locally.

On more general matters, it is still early days to talk about changes in the financing of roads and motorways. However, we all recognise that industry needs to improve the speed and efficiency with which it gets goods to market. That inevitably means an acceleration of infrastructure improvements. We are still at an early stage with the White Paper on possible road pricing on motorways. We should avoid a flat-rate charge. If industry is to accept the idea, it would far prefer a pay-as-you-go system on certain motorways. Obviously, that means waiting for the new technology necessary to make it practicable. If we have to wait a bit, fine. Let us ensure that the technology is British made.

Whatever happens with road pricing and whatever we do with the railways, we must always remember that the majority of goods transported around the country will continue to go on the roads. That means that we need a better infrastructure system. The way in which we price that and charge for it must be ultra-sensitive to industry's needs and to industry's costs.

We must stay in the world league of manufacturing. We must be right at the top for the sake of employment, for the sake of prosperity and for the sake of social stability. That means that we must have a policy that produces a high level of investment which will provide more plant and machinery. That means taking risks and being patient for the results to show when there has been investment in plant and machinery. That means a sea change in the banking system's attitude to risk-taking in manufacturing industry.

One way in which industry—big, medium and small —can be helped, especially in the regions, is by more non-executive directors on boards of companies coming from the banking system. They would then understand on a day-to-day basis, as a result of their board duties, what the problems are for manufacturing industry and how, inevitably, it is a slow, patient business to get a company going and for profits to come on stream.

Mr. Tony Banks (Newham, North-West)

The hon. Gentleman said that it was necessary for us to catch up in terms of investment compared with France and Germany. He is now saying that we need to have more investment in capital equipment in manufacturing industry. Is he aware that, according to the latest statistics from the Organisation for Economic Co-operation and Development, we have only half the private capital sector levels of Germany and only three quarters those of France? It is no good. If we are to increase productivity and employment—I think that the hon. Gentleman sees this argument—we need greater investment in industry.

Mr. Madel

Yes, I agree; we need greater investment and I am developing that point. To achieve that, one must have a closer relationship between the banking system and the manufacturing system. I made the point about getting more people from banks on the boards of companies so that they would understand what a slow process achieving the results of investment can be.

The hon. Member for Newham, North-West (Mr. Banks) may make this next point if he catches your eye, Madam Deputy Speaker. There is a need for a big commitment to research and development. I welcomed the White Paper on science and technology which my right hon. Friend the Chancellor of the Duchy of Lancaster announced recently. One point in his statement to the House especially caught my attention. He said that he had decided to establish a new council for science and technology, which he would chair on behalf of the Prime Minister, to provide the Government with independent expert advice at the highest level on research spending priorities."—[Official Report, 26 May 1993; Vol. 225, c. 924.] That is a welcome underlining of the Government's role in research spending priorities. I am sure that we shall all draw attention in the debate not only to the Government's role in research, but to the Government's role, as has been mentioned, as a purchaser of manufactured goods and to what the Government can do to help manufacturing industry by buying British and thinking in the long term.

There is also an obvious need for a patient and firm commitment to innovation. That is partly what the Government do in terms of research. However, we must also recognise that to stay in the world league, companies will have to come together to initiate joint research funding. That must not be looked at with suspicion or be seen as leading to a monopoly. Joint funding is happening and must be further encouraged to ensure that Britain remains a major manufacturer.

We need not only investment in plant and machinery, and innovation. There is also a need constantly to improve our training system. We need to keep abreast of new skills. We need to recognise that top-class training is required, and that will be expensive. People need to have more clearly explained to them the role of the training and enterprise councils at local level.

Mr. Streeter

Does my hon. Friend agree that the local training and enterprise councils are a great success story, especially in Devon and Cornwall? The TECs have made dramatic inroads into training delivery. That is one of the many Conservative policies that are successes. It has set us up very nicely for the future.

Mr. Madel

I agree. My hon. Friend has referred to what has been done in his area, which is very welcome. The same point applies to Bedfordshire. We have a good training and enterprise council. However, both parts of the title need to be emphasised—the training and the enterprise. If we do not have the enterprise and if we do not get the jobs, we shall not be able to cure the unemployment problem.

We must manufacture our way out of the dreadful hole to which my right hon. and learned Friend the Chancellor of the Exchequer referred recently. I greatly welcome the positive role that the Department of Trade and Industry is now playing and the fact that the philosophy of my right hon. Friend the President of the Board of Trade is not for clumsy intervention in industry, but for Government support for industry, especially in innovation, in research and in training.

I want this Conservative Government to rediscover their historical role of achieving prosperity with a purpose. The purpose of prosperity is to ensure that we have real equality of opportunity. The British people want politics and policies that are decent, sensible and competent. I am certain that the Government will achieve all three aims.

10.56 am

Mr. Tom Cox (Tooting)

It is a great pleasure to take part in this debate. As other hon. Members have said, it is a very important debate. We know that our country prospers by our ability to produce and sell goods in the markets of the world. We once did. However, no matter what gloss the Minister has attempted to put on the debate, the position today cannot give us much pride or much hope for the future.

The debate shows how areas of our country differ. The Minister paints a glowing picture of life in the United Kingdom. I am prepared to admit that that may be true of industry in some areas. However, that is not true of London. We were once, not so long ago, one of the main industrial areas. There was a great deal of industry throughout London which produced goods that sold in the markets of the world. That industry offered a range of jobs to the people of London, and many of those jobs were extremely well paid. But where is the growth industry now in London and in much of the south?

The Minister should be aware that we in London now have some of the highest unemployment in the United Kingdom. We have young people who have never worked in their lives. We have men and women who are out of work for the first time in their lives and who do not know whether they will ever work again. We have people in their 50s who, sadly, are convinced that they will never work again. That is the picture in London. There are few work opportunities and there is little industrial activity.

We have heard in recent months—I suppose that we shall continue to hear this for some time to come—about the growth of the green shoots. I only wish that they were growing, and I am sure that that is the feeling of many hon. Members. Until those so-called green shoots start to grow and prosper, our problems will continue—sadly, for a very long time to come. Let me quote a comment made in March by Lord Prior, a former Secretary of State for Employment, who is now chairman of GEC: It will require substantial effort over the next 20 years to get our manufacturing base back to the levels we want to see. It would be hard to imagine a stronger criticism and indictment of the Government by a former Conservative Secretary of State.

Let us look at the figures. The Minister referred to the last Labour Government. Let us go back to the start of the present Government's period in office. In 1979—

It being Eleven o'clock, MADAM SPEAKER interrupted the proceedings, pursuant to Standing Order No. 11 ( Friday sittings).